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Best personal loan rates for June 2022
CompanyRate rangeNext steps
Lightstream
LightStream Personal LoanLightStream Personal Loan
SoFi
SoFi Personal LoanSoFi Personal Loan
Marcus
Marcus Personal LoanMarcus Personal Loan
Wells Fargo
Wells Fargo Personal LoanWells Fargo Personal Loan
PenFed Credit Union
PenFed Credit Union Personal LoanPenFed Credit Union Personal Loan
Payoff by Happy Money
Payoff Personal LoanPayoff Personal Loan
Upstart
Upstart Personal LoanUpstart Personal Loan
Connexus Credit Union
Connexus Credit Union Personal LoanConnexus Credit Union Personal Loan
What is a personal loan?
Personal loans provide a lump sum of cash to pay for things like home renovations, debt consolidation, or medical bills. Banks, credit unions, and various online lenders offer personal loans. You’ll take out a defined amount of money at a set term length and interest rate, then pay back that money in monthly installments.
The interest rate on your loan will depend on your credit score and other financial factors. In some cases, you might get your money the same day you agree to the loan terms. You may face fees with some personal loans, like late payment penalties and origination fees, but the best personal loans come without fees.
Compare Personal Loan Rates
What is an interest rate?
An interest rate is essentially the fee you pay for borrowing money, listed as a percentage of your loan amount. Personal loans almost always have fixed interest rates, though it’s possible to find personal loans with variable interest rates. Fixed interest rates stay the same over the life of the loan, while variable interest rates change at regular intervals. In addition to the payments you make on your loan balance each month, you’ll also pay interest on that principle.
For example, if you have a $5,000 loan with a 10% interest rate and a three-year term, you’ll cough up $5,808 over the life of your loan — $808 of which is solely interest. The higher your interest rate, the more you’ll pay overall.
Can you spend a personal loan on anything?
You can use a personal loan for many purposes, though some expenses, like educational costs, aren’t usually covered. Here are some examples:
Debt consolidationCredit card refinancingMedical billsHome improvementsMoving expensesMajor purchasesVacations (though read our explainer on why you shouldn’t take out a personal loan for vacation first)Special occasionsBaby and adoption
This isn’t a complete list by any means. Ask your lender if your reason for taking out a personal loan is acceptable, and shop around with different ones if you can’t get a loan for your desired purpose somewhere.
Are personal loans bad for your credit?
Much like a credit card or a student loan, payments (or non-payments) may be reported to credit bureaus and will probably impact your credit score. However, they won’t hurt your credit as long as you make your monthly loan payments in full and on time. If you do, you may actually boost your credit score as a result because you’ll have a longer history of consistent payments.
A personal loan can also help diversify your credit mix, which may improve your score. A personal loan is an installment loan, meaning you pay it off in regular intervals, which is different than revolving credit, like credit cards. A healthy balance of these types of credit is beneficial for your credit score.
Checking your rates with most companies will not affect your credit score because many lenders only generate a soft credit inquiry when showing you personalized rates. However, if you choose to accept a loan, lenders will likely conduct a hard credit inquiry that might negatively impact your credit score. A hard inquiry offers a lender a comprehensive look at your credit history. Too many inquiries on your credit report — particularly within a short amount of time — might also have a negative effect.
How to get a good personal loan interest rate
The interest rate on your personal loan depends on many financial factors, including your income and what other debt you have. The most important component is probably your credit score. Here are a few tips to improve your credit score:
Request and review a copy of your credit report. See if there are any mistakes on your report that could be damaging your score. If so, contact the credit bureau to talk about fixing the error.Keep credit card balances low. Maintaining a credit utilization rate — the percentage of your total credit you’re using — of 30% or less will show lenders that you can manage your credit well.Create a system for paying bills on time. Your payment history makes up a large percentage of your credit score, and lenders like to see steady and reliable payments in the past. Set up calendar reminders or automatic payments so you don’t fall behind.
You should shop around with different lenders to see which one offers you the best terms. The first lender to offer you a personalized rate isn’t always the best.
Is a personal loan a smart choice for you?
If you need a lump sum of money fast, a personal loan may be an excellent option for you. A personal loan can help you immediately cover an expense and spread the cost over a longer stretch of time. You may also be able to get a lower interest rate on a personal loan than you would with a credit card.
However, if you’re already carrying a significant amount of debt, a personal loan may just add to your stress. The overall cost of whatever you’re spending the money on, be it a home improvement or medical bills, will end up being more expensive in the long run because you’ll have to pay interest on the money you take out. If you have the flexibility, saving up money for your expense is likely a better choice.
Keep in mind that if you fall behind on payments, the loan can damage your credit score, making a lender less likely to give you money in the future.
The pros and cons of a personal loan
Pros
You’ll get a lump sum of money to immediately cover your expense.You can use a personal loan for a variety purposes, including debt consolidation and home improvements.You can boost your credit score with payments that are made on time and in full. You often get your money the same day or the next day with many companies. Generally, there aren’t any penalties for paying off your loan early.
Cons
If your credit score isn’t in the best shape, you might pay a high interest rate. The overall cost of your purchase will be higher because you’ll fork over interest in addition to your loan balance.You may be charged origination fees or late payment penalties. You can hurt your credit score if you don’t keep up with your payments.