What Is a Personal Loan?
A personal loan is a way to borrow money for a range of needs — from consolidating debt to covering a large expense. With fixed monthly payments and flexible repayment terms, it's worth understanding how it works before you apply.
What Is a Personal Loan?
A personal loan is a is a type of loan that you borrow and repay in fixed monthy payments for a set period of time. These loans are commonly used for:
- Debt consolidation
- Home repairs
- Vehicle purchases
- Medical bills
- Other personal needs
It’s a type of installment loan, which is a loan that you repay over a set period. Repayment terms typically range from one to seven years.
What are the types of personal loans?
Common types of personal loans include:
- Secured personal loans: These are backed by collateral, like a vehicle. Collateral is an asset the lender can take if you fail to repay the loan.
- Unsecured personal loans: These don’t require collateral, but your ability to qualify and the rate are based on creditworthiness.
How Do Personal Loans Work?
When you take out a personal loan, you get the full loan amount up front, and then you’ll repay it — plus interest — on a regular monthly schedule until the loan is paid off.
You agree to a repayment schedule and interest rate with the lender for the loan. Each payment goes toward both the amount you borrowed (the principal) and the interest charged by the lender. Personal loans have fixed interest rates and monthly payments, which makes budgeting easier.
What Are the Benefits of Getting a Personal Loan?
Personal loans may offer several benefits, including:
- Predictable payments each month
- Potentially lower interest rates than credit cards
- Flexible use options
- Quick access to funds (with some lenders)
- Usually offer a choice of options for how long to repay the loan
How Do I Apply for a Personal Loan?
The steps to apply for a personal loan may vary slightly based on your lender. Here’s what you might expect:
- Gather your information: Be prepared to provide personal details like your name, address, date of birth, Social Security number, employment information and income details. Some lenders may also request documents like recent pay stubs or tax returns.
- Authorize a credit check: Most lenders will review your credit history as part of the application process. This helps them determine whether to approve your loan and what terms to offer.
- Review your offer: If approved, you'll get details that will include the loan amount, interest rate, APR, repayment terms and any fees.
- Accept the loan and receive funds: Once you agree to the terms, you'll sign the loan documents and receive the funds.
You can often complete the entire loan process online, by phone, or in person at a bank branch.
How Do I Get Approved for a Personal Loan?
Each lender has its own approval requirements, but most look at a few common factors:
- Credit history: Lenders review your credit report and credit score to see how you've managed debt in the past. A history of on-time payments may strengthen your application.
- Income and employment: A steady income shows that you can make the required loan payments.
- Debt-to-income ratio: This compares your monthly debt payments to your income. A lower ratio may show that you have room in your budget for another payment.
- Loan amount requested: Applying for an amount that's reasonable based on your income and credit profile may improve your chances of approval.
Can you get a personal loan with bad credit?
Yes, it's possible to get a personal loan with bad credit, but you may have limited options. Lenders might offer a smaller loan amount, charge a higher interest rate, or require more qualifications before approving your application.
If this is your situation, it may help to compare offers from multiple lenders. Some lenders specialize in working with borrowers who have less-than-perfect credit histories.
You may also be able to apply with a cosigner. This is a person who agrees to share responsibility for repaying the loan. Having a cosigner might strengthen your application if you don't meet a lender's requirements on your own.
Can I Pay Off a Personal Loan Early?
In many cases, you can pay off a personal loan early. Doing so may help you save money on interest and reduce your debt sooner.
Before making extra payments or paying off the loan in full, review your loan agreement. Some lenders charge a prepayment penalty, which is a fee for paying off the loan ahead of schedule. Understanding any fees or restrictions could help you decide whether paying early makes sense for your situation.
Does KeyBank Offer Personal Loans?
Yes, KeyBank offers personal loans that may help you consolidate debt, cover unexpected expenses or manage larger purchases.
If you're exploring your borrowing options, you can review KeyBank's personal loan information online or talk with a banker to learn more about rates, terms and eligibility requirements. Taking time to compare options may lead you to a more informed decision.