How To Shop for a Personal Loan

The Where, What, Why, and How of Borrowing Money

A young couple reviews their personal loan options.

fizkes / Getty Images 

In a perfect world, you have the cash you need to cover your expenses at all times. Since this may not be realistic, it’s a good idea to familiarize yourself with personal loans. A personal loan is a type of loan you can use for just about anything. Once you receive the funds, you’ll pay it back via monthly payments over an agreed-upon term.

If you decide to take out a personal loan, don’t settle for the first one you find. By shopping around, you can compare the various options at your disposal and make an informed decision for your needs and budget.

When You Might Need a Personal Loan

A personal loan may be a smart choice in a variety of situations. If you have multiple high-interest loans, you can take out a personal loan and combine all of them into a single monthly payment. This strategy is known as debt consolidation and may make your debt more manageable while saving you some money on interest.

You can also fund a home improvement project like a kitchen remodel or patio addition with a personal loan. Other situations that bring up the need for a personal loan include:

  • Medical bills
  • An engagement ring
  • Relocation
  • Wedding
  • Adoption


Lenders may adjust how much you can borrow and how long you have to pay the loan back based on how you’ll use the loan.

No matter why you need a personal loan, shop for it as far in advance as possible. If you’re planning to borrow next month, for example, give yourself at least a few weeks to do your research and compare options.

Review Your Credit

Before you shop for a personal loan, pull your free credit reports from or any number of free credit-score websites that offer around-the-clock access to your score.

“You need to know that your ‘financial house’ is in order before you start to compare rates,” said Brent Bell, CFP at Bell Financial Planning, in an email to The Balance.

After you obtain your reports, focus on areas that need improvement and can make the most impact on your credit score.

For example, if you see incorrect information that negatively affects your credit, work with the bureaus to remove the information. And if your credit scores are below 600, focus on paying your bills on time and lowering your balances to raise your score. Higher scores tend to result in better loan terms, like lower interest rates.

Types of Personal Loans

When you shop around for a personal loan from a bank, credit union, or online lender, you’ll likely encounter the following options:


A secured loan is backed by collateral or assets you own, like a house or a car. If you default on a secured loan, your lender may take your collateral. Since secured loans come with less risk, it’s easier to qualify for them.


If you opt for an unsecured loan, you’ll be able to borrow money without collateral. While you won’t have to put your house or car on the line, it may be more difficult for you to get approved for an unsecured loan. This is because the lender will take on more risk by lending to you.

Fixed Rate

With a fixed-rate loan, your interest rate stays the same for the entire term of the loan. Your monthly payments will be predictable so you’ll be able to budget for them with ease. They’ll never change, no matter how the market is doing.

Variable Rate

A variable-rate loan will come with a variable or fluctuating interest rate. The rate goes up and down as the market goes up and down. Therefore, it’s more of a challenge to budget for a variable-rate loan. If you get an offer for a variable-rate loan, verify with the lender how often the rate changes and if there is a cap on how high the rate can go.

Line of Credit

A line of credit is similar to a credit card because the money is available to you whenever you need it and you only make payments on what you’ve borrowed. It’s flexible because you’ll be able to draw as much or as little money as you’d like, up to a set credit limit, which the lender usually sets based on your credit history, income, and other factors.

Payday Loans

A payday loan is a small, short-term financing option that can provide you with the cash you need to make it to your next paycheck. Once you take out a payday loan, you’ll need to repay it on your next payday (usually within two weeks). Most payday loans come with sky-high interest rates and should be used as a last resort.

Credit Card Cash Advance

With a credit card cash advance, you can withdraw money from a credit card up to your set credit limit. It’s a short-term loan that usually has an APR that’s similar to or higher than the credit card’s high-end APR, and you’ll pay a fee on top of the interest rate (usually 3%-5%).


Regardless of which type of personal loan you choose, it’s essential to understand your rights as a borrower. Your lender must disclose information such as the amount of money you’re borrowing and APR.

Select a Few Loans To Compare

Do some research and find a few loans to compare. Many popular lenders make this process easy because you can get a loan quote without affecting your credit.

“Look into pre-qualified quotes from a couple of different lenders so you can compare the interest rates and monthly payments before you select the best option for your needs,” Lauren Anastasio, a CFP at SoFi, told The Balance in an email.


Compare apples to apples. If you’re looking at the rates of two different lenders, for example, make sure they’re for the same repayment term. Also, check to see if either lender charges any origination fees, as these can cost you as much as 8% of your loan amount.

Compare Key Personal Loan Features

When you compare loans, you should look first at the interest rate or annual percentage rate—that’s how much the loan will cost you and should be the most important part of the decision. After that, keep an eye out for fees and other features. Some common fees include:

  • Origination fees
  • Late fees
  • Returned payment fees
  • Prepayment penalties

You’ll find it easier to decide which option is the best fit for you when you know the true cost of the loan beyond the interest rate. Better yet, there are multiple popular lenders that offer loans without fees.

Aside from fees, spend a minute to see if the lender offers any other benefits that would help you in your decision-making.

For example, SoFi offers borrowers unemployment protection, multi-product discounts, as well as complimentary access to financial coaching and credentialed financial planners.

Marcus, a Goldman Sachs lender, will let you skip one payment, interest-free, for every 12 consecutive on-time payments you make.

Zara Mohidin, a strategy and business development associate at Fig Loans, told The Balance in an email that it’s important to make sure your lender reports your payments to credit bureaus, too. “Some lenders don't report at all, others report to one or two of the three major credit bureaus, and others report to all three,” Mohidin said.

However, sending your payment information to credit bureaus only helps your credit score if you make your payments on time. Any payments that are more than 30 days past due will likely damage your credit score.

Applying for a Personal Loan

Once you’ve decided on the personal loans you’d like to apply for, submit applications through the lender’s app or website.

It’s usually at this stage that the lender will do a “hard inquiry,” which is an inquiry that shows up on your credit score and may drop your score slightly. While you’re submitting applications, try to do all of them within 30 days. When clustered together within the past 30 days, FICO, a popular scoring model that lenders use, won’t factor your recent inquiries into the score that potential lenders access.

After you get approved and choose the loan you’d like to move forward with, read the fine print. If you don’t understand something, reach out to the lender for clarity. Don’t sign on the dotted line unless you agree with the terms and conditions.

Key Takeaways

  • A personal loan can help you consolidate debt or cover a variety of expenses such as a home improvement project or medical bills.
  • Choose a few loans to compare and be sure to consider their key features, such as interest rates, fees, and terms.
  • Don’t take out a personal loan until you understand and agree to its terms and conditions.
Was this page helpful?
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Marcus by Goldman Sachs. "On-Time Payment Reward: Get Rewarded for Paying on Time."

  2. Equifax. "When Does a Late Credit Card Payment Show Up on Credit Reports?"

  3. myFICO. "Credit Checks: What Are Credit Inquiries and How Do They Affect Your FICO Score?"

Related Articles