A personal loan can be a smart way to consolidate debt, finance home improvements, pay for a wedding or cover a medical emergency. It’s among the most flexible of financial products, giving you more options than a credit card, which is usually best for purchases that can be paid off within a month, and a student loan or mortgage, which typically involve hundreds of thousands of dollars and take decades to repay.
Personal loan terms, in contrast, can range from one to 12 years, and lenders will allow you to use the money for just about anything (except paying for college or making investments). You pay a fixed interest rate, and, in most cases, the quicker you pay it off, the less you’ll spend on interest.
And though personal loan interest rates are fixed, they can vary widely — which gives you, as the consumer, choices. At the moment, annual percentage rates range from about 2% to nearly 30%, depending on the lender and your specific financial profile, which includes your credit score, credit history and debt-to-income ratio. Ultimately, you want to find the least expensive loan available, factoring in both fees and interest.
For example, borrowing $10,000 at a 9.99% APR paid back over five years would require 60 monthly payments of $201.81 (and would cost you $2,108.60 in total interest). Wells Fargo’s Rate and Payment calculator or SoFi’s Loan Calculator can help you get a sense for how interest rates and loan terms will impact your monthly payment and the total cost of a loan.
Best Personal Loans, Compared
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