What is a personal loan?

We've outlined the important details you need to know before you apply.

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The benefits of a personal loan
A personal loan can be a great option for getting funds to support your financial needs, whether it's consolidating debt or covering life's big expenses. Paying on time - or even paying the loan off early - can help you improve your credit score.

The two basic types of personal loans

Unsecured loans

  • Allows you to borrow money for various reasons including debt consolidation
  • Not protected by collateral, like a house or car
  • Your credit profile can help determine a loan decision

Examples: Student loans, credit cards, personal loans


Secured loans

  • Requires you to offer an asset as collateral, often equal to, or greater than, the amount you're requesting
  • You could lose your collateral if you default on your loan
  • Commonly used assets are borrowers' homes, cars, and cash

Examples: Mortgages, auto loans, home equity loans, credit lines

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Make sure you understand loan terms

  • Interest rates

    There is a cost to borrow money — it's called interest, and it's paid to the lender with your monthly payments. A personal loan with a low, fixed rate can help you accomplish your financial goals. Discover Personal Loans offers rates from x to x APR, based on your creditworthiness at the time of the application.

  • Length of loan

    Personal loans allow you to find a term length that works for you. They're designed to help borrowers consolidate and pay off debts in a clear timeframe that works for their budget. You could pay off your loan between x and x months, and it could depend on your interest rate and monthly payment amount.

  • Lenders and fees

    Be sure to look at a lender's reputation. And pay close attention to whether a lender charges origination fees, closing costs or prepayment penalties. A Discover personal loan has no additional fees as long as you pay on time.

  • Underwriting

    Underwriting is the process a lender uses to determine if the risk of offering a loan to a borrower is acceptable. It can involve examinig the credit history of the borrower, and assessing the risk of defaulting on the loan.

For more personal loans terminology, visit our Personal Loans Glossary


What to consider before you apply

  • Your credit score

    A good score could get you a better rate because it can be an indication of your ability to pay back the loan. Bad credit, however, can make the ability to get a loan a little tougher. Be aware, a personal loan is a responsibility and one that needs attention and management. There is a risk of defaulting and hurting your financial profile.
  • You can have multiple loans

    If you've already taken out a loan, this does not exclude you from applying for another loan. In fact, there are personal loans designed to help you pay off other loans.

    Using a personal loan for debt consolidation is a strategic way of combining debts into a more convenient and affordable solution.

Frequently asked questions

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