Personal Loans 101

personal loans 101 couple getting financial advice

Welcome to Personal Loans 101 where we break down everything you need to know about how personal loans work. A personal loan is a fixed amount of money you borrow and pay back in monthly installments over a set period of time. Whether you’re covering an unexpected expense, consolidating debt, or funding a major purchase, a personal loan gives you the flexibility to handle life’s financial moments on your own terms.

Benefits of a personal loan may include:

  • Fixed monthly payments making it easier to budget and plan.
  • Predictable payoff timeline so you’ll know when you’ll be debt-free.
  • Fast access to funds, some as soon as the next business day if approved.
  • Fixed rates with simple interest to help you pay down your balance faster unlike many credit cards with variable rates and compounding interest.
  • Flexible loan amounts to fit your needs.

Personal Loan Key Terms

APR (Annual Percentage Rate)

The annual cost of a loan, expressed as a percentage. APR includes the interest and any fees, making it the easiest way to compare loan offers.

Origination Fee

A one-time fee some lenders charge to make a loan, typically a percentage of the loan amount. At LendingPoint, origination fees up to 10% may apply depending on your state.

Simple Interest

Interest is calculated only on the original principal loan amount. It does not include compounding interest which helps you pay the balance faster.

Fixed Rate

An interest rate that does not change during the life of your loan. Your monthly payment will always be the same, making it easier to plan your budget.

Unsecured Loan

A loan that doesn’t require you to put up collateral such as a home or vehicle. Personal loans from LendingPoint are unsecured.

Soft vs. Hard Credit Inquiry

A soft inquiry (like checking your rate) does not affect your credit score. A hard inquiry occurs when you formally apply for credit and may have a small, temporary impact on your score.

Who Is a Personal Loan Right For?

A personal loan may be a good fit if you:

  • Have high-interest credit card debt you want to consolidate into one fixed payment
  • Need funds quickly for an unexpected medical bill, car repair, or emergency expense
  • Are planning a home improvement project and want a predictable repayment schedule
  • Want to avoid using a credit card with a variable rate for a large purchase
  • Prefer knowing exactly when you’ll be debt-free

Explore our loan options by purpose: Debt Consolidation · Home Improvement · Emergency Loans · Medical Loans

Personal Loan vs. Other Borrowing Options

Feature Personal Loan Credit Card HELOC
Interest Type Fixed, simple interest Variable, compounding Variable
Collateral Required No No Yes (home equity)
Fixed Monthly Payment ✓ Yes ✗ No ✗ No
Set Payoff Date ✓ Yes ✗ No ✗ No
Funding Speed As soon as next business day Immediate (if existing card) Weeks
Best For Planned expenses, debt consolidation Small, everyday purchases Large home projects

Personal Loans 101: FAQs

What is a personal loan?

A personal loan is a fixed amount of money you borrow from a lender and repay in equal monthly installments over a set term, typically 24 to 72 months. Personal loans are unsecured, meaning they don’t require collateral like a home or car. This personal loans 101 guide covers everything you need to know before you apply.

How does a personal loan work?

You apply for a loan amount, and if approved, the lender deposits funds directly into your bank account — sometimes as soon as the next business day. You then repay the loan in fixed monthly payments that include principal and interest until the balance is paid off.

What credit score do you need for a personal loan?

Credit score requirements vary by lender. Higher credit scores generally improve your chances of approval and may help you qualify for lower rates and better terms.

What can you use a personal loan for?

Personal loans can be used for almost any legitimate purpose, including debt consolidation, home improvement, medical expenses, emergency costs, major purchases, and more. They offer flexibility that many other loan types don’t.

What’s the difference between a personal loan and a credit card?

A personal loan gives you a lump sum at a fixed interest rate with a set repayment timeline. A credit card is a revolving line of credit with a variable rate and no fixed payoff date. Personal loans with simple interest can be less expensive than credit cards with compounding interest for large, planned expenses.

How fast can you get a personal loan?

Personal loans can be funded as fast as the same day to the next business day, though typical funding takes one to three business days. Online lenders, like LendingPoint, are generally the fastest, while traditional banks and credit unions may take up to a week.

What is simple interest on a personal loan?

Simple interest is calculated only on your outstanding principal balance, not on accumulated interest. This means every payment you make reduces your balance faster compared to loans or credit cards that use compounding interest.

Does applying for a personal loan hurt your credit?

Checking your rate with LendingPoint uses a soft credit inquiry, which does not affect your credit score. A hard inquiry only occurs if you proceed with a formal application, which may have a small, temporary impact on your score.

For more consumer guidance on personal loans, visit the Consumer Financial Protection Bureau .

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USA PATRIOT Act Notice: Important Information About Procedures for Opening a New Account

To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account. What this means for you: When you open an account, we will ask for your name, address, date of birth, and other information that will allow us to identify you. We may also ask to see your driver's license or other identifying documents.

* Applications submitted on this website may be funded by one of several lenders, including: FinWise Bank, a Utah-chartered bank, Member FDIC; Coastal Community Bank, Member FDIC; and LendingPoint, a licensed lender in certain states. Loan approval is not guaranteed. Actual loan offers and loan amounts, terms, and annual percentage rates ("APR") may vary based upon LendingPoint’s proprietary scoring and underwriting system’s review of your credit, financial condition, other factors, and supporting documents or information you provide. Origination or other fees up to 10% may apply depending upon your state of residence. Upon final underwriting approval to fund a loan, said funds are often sent via ACH the next non-holiday business day. Loans are offered from $1,000 to $50,000, at rates ranging from 7.99% to 35.99% APR, with terms from 24 to 72 months. Minimum loan amounts apply in Georgia, $3,500; Colorado, $3,001; and Hawaii, $2,000. For a well-qualified customer, a requested loan of $10,000 serviced by LendingPoint over a period of 48 months that has an APR of 26.59% with an origination fee of 10% may have a payment of $340.52 per month (actual terms and interest rates depend on credit history, income, and other factors). The total amount due under the loan terms is $16,345.12, and the loan disbursement amount is $10,000. The total amount due represents the full amount you will pay over the life of the loan if all payments are made as scheduled. In this example, the amount financed is $10,000, and the finance charge is $6,345.12, which includes a 10% origination fee. Customers may have the option to deduct the origination fee from the loan proceeds. If this option is selected, the amount disbursed will be less than the amount requested. For example, for a $10,000 loan with a 10% origination fee ($1,000), the amount disbursed would be $9,000.

* Applications submitted may be funded by one of several lenders including First Electronics Bank, a Utah-chartered bank, Member FDIC; Coastal Community Bank, Member FDIC; and LendingPoint, a licensed lender in certain states. Loan approval is not guaranteed. Minimum loan amounts apply in Georgia, $3,500; Colorado, $3,001; and Hawaii, $1,500. Upon final underwriting approval to fund a loan, said funds are often available the next non-holiday business day. Actual loan offers and loan amounts, terms and annual percentage rates (“APR”) may vary. Loans are offered from $500 to $10,000 (loan amount maximum based on MCC codes), at rates ranging from 7.99% to 35.99% APR, with terms from 24 to 48 months. For example, for a well-qualified customer, a $5,000 purchase will have a 90-day promotional period with no interest, a 3% fee, and $100 monthly payments. After the promotional period, a remaining balance will be a 24-month term loan, and $263.72 monthly payments with an overall APR of 26.54%.

**Minimum initial transaction of $1,000 in Alabama, Idaho and Iowa.

1. Alimony, child support, or separate maintenance income need not to be revealed if you do not wish to have it considered as a basis for repaying this obligation.

2. The Federal Equal Credit Opportunity Act prohibits creditors from discriminating against credit applicants on the basis of race, color, religion, national origin, sex, marital status, age (provided the applicant has the capacity to enter into a binding contract); because all or part of the applicant’s income derives from any public assistance program; or because the applicant has in good faith exercised any right under the Consumer Credit Protection Act. The federal agency that administers compliance with this law concerning FinWise Bank is the FDIC Consumer Response Center, 1100 Walnut Street, Box #11, Kansas City, MO 64106. The federal agency that administers compliance with this law concerning Coastal Community Bank is the Federal Reserve Consumer Help Center, P.O. Box 1200, Minneapolis, MN 55480. The federal agency that administers compliance with this law for LendingPoint is the Federal Trade Commission, Equal Credit Opportunity, Washington, DC 20580.

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