Personal loan tips: how to shop smart and save money

Personal loan tips

What is a personal loan?

A personal loan is an unsecured loan borrowed from a bank, credit union, or online lender that you repay in fixed monthly installments over a set term. Common uses include debt consolidation, home improvements, major purchases, or covering emergencies. Loan amounts and terms vary, and approval depends on your credit, income, and debt load.

How APR and interest work on personal loans

APR (annual percentage rate) reflects the interest rate plus any fees, giving you a single number to compare. Interest accrues on the outstanding principal. A lower APR often means lower total cost, but be sure to look at the loan term and any fees.

Fixed vs variable rates

Most personal loans have fixed rates, meaning the payment stays the same each month. Variable-rate loans can move up or down with market rates and may start lower but cost more if rates rise. Fixed-rate loans are simpler for budgeting.

How to compare offers

Shop around from lenders like banks, credit unions, and online lenders. Compare APR, loan term, monthly payment, total cost, origination fees, and prepayment penalties. If possible, get prequalified to see an estimated offer without a hard credit pull.

How to apply and what to expect

Gather documents: government-issued ID, proof of income (pay stubs or tax returns), employment info, and bank statements. Expect a credit check. Funding can take from a day to a week after approval, depending on the lender and funding method.

Common fees and hidden costs

Watch for origination or processing fees, prepayment penalties, late fees, and any mandatory add-ons. Some lenders advertise low rates but offset them with fees.

Repayment and budgeting

Choose a term you can afford. Shorter terms mean higher monthly payments but less interest over the life of the loan; longer terms lower monthly payments but cost more in total interest. Set up autopay if you can to avoid missed payments.

Alternatives to a personal loan

Credit cards with 0% intro APR, a home equity line of credit (HELOC), borrowing from a credit union, or using savings can be cheaper options depending on your situation.

Tips to improve your loan cost

Boost your credit score with on-time payments and low credit utilization. Get prequalified to compare offers with soft pulls. Consider a shorter term if you can afford the higher payment, and avoid unnecessary fees or add-ons. If you have a co-signer with strong credit, it may help you secure a better rate.

Common mistakes to avoid

Don’t apply with many lenders in a short period (multiple hard inquiries can hurt score). Don’t borrow more than you need. Read the fine print about fees and penalties. Missing payments can dramatically increase costs and hurt your credit.