When finances are tight, it’s tempting to turn to a personal loan. Borrowers use personal loans for a variety of reasons, including debt consolidation, moving expenses, vacation, and covering lost income. While personal loans offer flexibility and can provide much-needed relief when things get tight, it’s essential that you thoroughly research your options to avoid finding yourself in a loan with unreasonable terms.

If possible, avoid lenders who market to people with bad credit or offer loans without a credit check. Many of these companies charge excessive interest rates. The average personal loan rate ranges from 6 percent to 36 percent, but each state has different usury laws that dictate the maximum a lender can charge. Some “bad credit” and payday lenders charge up to 300 percent interest. These rates can make it difficult for borrowers to manage.



2. How much money do I need to borrow?
Before applying for a personal loan, sit down and figure out exactly how much money you need. Aim to borrow only as much as you can afford to pay back. If you plan to take out a personal loan to reconsolidate other debt, your lender may ask for specific numbers, and they may even require that you allow them to send payments directly to your other debt accounts. Some lenders charge loan origination fees, which could increase your total loan amount or reduce the amount of money you receive from the loan.



3. How long do I have to pay back my personal loan?
Your lender will discuss your repayment terms with you. Typically, personal loans have repayment terms between one and five years. Some lenders will allow you to choose your repayment terms. If you want to save the most money, choose a shorter repayment term. However, a longer repayment term will give you smaller monthly payments. 



4. How do I get the best interest rate on my personal loan?
If you want to qualify for the best interest rates, there are a few things you can do to help persuade a lender to offer the best terms, including:
  • Have a good credit score (aim for at least 650 or above)
  • Make on-time payments to your other debts
  • Reduce your debt-to-income ratio
  • Increase your income
  • Offer collateral
  • Choose shorter repayment terms
  • Research multiple lenders through available  online tool



5. Will a personal loan affect my credit score?

Personal loans do affect your credit score. When you apply for any loans, the information is included in your credit report and can affect your score. Loan applications add a hard credit inquiry on your credit report. If you have too many queries, your score could go down. When you receive a loan, the new debt also affects your credit score. A personal loan can positively affect your credit score, however, if you make payments on time or if you use the loan to pay off other debts.



6. Where do I get a personal loan?
Many different types of lenders offer personal loans. Many people prefer working with their local credit union. If you are a member of a credit union, you could benefit from working directly with them for a personal loan. Many credit unions offer lower rates or are more willing to work with customers who are struggling to qualify. You can also work with banks, online lenders, or crowd-funded options.



7. What’s the difference between a secured loan and an unsecured personal loan?
When you take out a personal loan, you could qualify for a secured or unsecured loan. Most personal loans are unsecured, which means the lender gives you money with just your signature. Some loans may require collateral, like a car or a home. These loans are secured because the lender secures your commitment to repay with something you own. If you fail to make payments, the lender can take your collateral