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People get personal loans for many reasons. Some may want to get personal loans so that they can consolidate their debts into one monthly payment. Others want loans so that they can finance a large purchase, complete home renovations or cover unexpected expenses. No matter what reason that you might be thinking about getting a personal loan, it is important that you understand when it makes sense and when it doesn’t. You should also take the time to find out your credit score so that you can understand how lenders may decide whether or not to extend a loan offer to you and what the terms might be. Finally, you’ll need to understand where you can find personal loans and how to go about choosing your lender.

When You Should And Should Not Take Out A Personal Loan

There are both good and bad reasons for taking out personal loans. People who are considering getting personal loans because they are trying to delay having to file for bankruptcy should avoid them. Those who are unable to qualify for any type of personal loan other than a payday loan should also avoid them. Payday loans charge rates as high as 300 percent, making them unaffordable for everyone.

If you are considering getting a personal loan to pay for home renovations and you have good credit, you likely will have cheaper alternatives to personal loans. You may be able to instead get a secured loan against your house at a lower interest rate.

When you are considering getting a personal loan in order to consolidate debts so that you can repay them more quickly, it may make financial sense for you to do so. A personal loan may be smart if you have several high-interest credit cards and want to get a personal loan at a lower interest rate to pay off those cards. Before you do, investigate your credit score and whether or not you might have other, cheaper options.

Understanding Credit Scores And The Assignation Of Risk

Your credit score is a number that is used to rate the risk of lending money to you at a given point in time. Credit scores range from 300 to 850, with 300 being the worst possible score and 850 the best. People are placed in different risk levels depending on their scores as follows:

  • ‌Bad credit risk – 300 to 629
  • ‌Average credit risk – 630 to 689
  • ‌Good credit risk – 690 to 719
  • ‌Excellent credit risk – 720 to 850

You can get copies of your credit reports for free once each year from the three major credit reporting agencies, which are Experian, Equifax and TransUnion. By law, these agencies must provide you with a copy once each year either via mail or online at Each agency assigns its own credit score, so you should check the score that is assigned to you by all three agencies and correct any errors that you find in your reports.

Finding Personal Loans

Personal loans are offered through credit unions, banks and online lenders. Generally, credit unions tend to offer the lowest rates for their personal loans. Community banks also are a good choice to look at for personal loans. Online lender options may include peer-to-peer lenders and others that rely on more traditional funding sources. Compare rates that are offered by each source. You should also compare any perks that may be offered to borrowers, such as the ability to reschedule a payment if you need to without hurting your credit score.

If you have excellent credit, you may find that choosing a no-interest credit card instead of a personal loan might be a better option if you will be able to pay it off quickly before the interest-free introductory period ends. You still should be able to get excellent rates if you choose to get a personal loan instead. If you do not qualify for a zero-interest credit card, but you have good credit, a personal loan will likely have lower interest rates than a regular credit card will. If your credit score falls in the average range, you should still be able to find a personal loan if you have a good income. You may expect higher rates and larger origination fees. Finally, if your credit is poor, you will probably not be able to find a personal loan without a cosigner or your agreement to secure the loan with your property. If you fall in this range, you might want to instead concentrate on the debt that you currently have rather than adding to it with a personal loan.

Personal loans may be a good choice for people who want to consolidate high-interest debt as a smart way to pay their debts off much faster. They might also be a good choice if you have an unexpected expense or want to make a large purchase. Make certain that you know what your credit score is and where and how to find personal loans with the best rates, and you should find the loans that you need.