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 as low as 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.

 

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

Read more about the basics of a personal loan

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