And if you're stuck with a bunch of high-interest credit card debt, you can take out a personal loan to consolidate the balances and lower the overall APRs, thus removing the hassle of juggling too many monthly payments at once.
But like any kind of financial product, personal loans have trade-offs, including fees and interest rates. Consumers should think carefully before applying for loans, since they can impact your credit score and overall financial health.
Here's what you need to know about personal loans and how they work.
Personal loans are a form of installment credit. Unlike a credit card, a personal loan delivers a one-time payment of cash to borrowers. Then, borrowers pay back that amount plus interest in regular, monthly installments over the lifetime of the loan, known as its term.
Due to the rise in peer-to-peer and online lenders, there are hundreds of fast, easy loan options out there, and most take less than 10 minutes to apply for on the web. The full approval process, however, can take up to one business week, depending on how fast the lender receives and processes your documents (more on that below).
At the very least, personal loans charge interest. You might also run into other fees, such as an origination or administrative fee that gets taken out of your loan amount once you're approved, or an early payoff penalty for paying the loan off before the end of your term (making the lender miss out on future interest payments). The average two-year personal loan APR is currently 9.34%, according to the Fed's most recent data. For comparison, the latest average APR for credit cards is 16.43%.
Once you're approved for a personal loan, the cash is usually delivered directly to your checking account. If you're getting a loan to refinance existing debt, you can sometimes request that your lender pay your bills directly.
For instance, when you're approved for a Marcus by Goldman Sachs Personal Loan, you can have your funds sent via direct payment to as many as 10 creditors, which helps ensure that you don't spend the cash on other things. (Just make sure to select debt consolidation in your application.)
However you get your funds, prepare to start repayment within 30 days. If you have a fixed-rate loan, your monthly installments will stay the same amount until the loan is paid off. If you have a variable-rate loan, your interest rate will fluctuate and could change the amount you owe month to month.
When your personal loan is paid off, the credit line is closed. You will no longer have access to it.
Do some research before you apply for a personal loan. Read reviews and learn what to consider before taking out a loan. Familiarize yourself with CNBC Select's list of best personal loans (also listed below), and when you're ready to apply, follow these steps.
When compiling our list of the best personal loans, CNBC Select evaluated dozens of lenders. We looked at key factors like interest rates, fees, loan amounts and term lengths offered, plus other features including how your funds are distributed, autopay discounts, customer service and how fast you can get your funds.
None of the lenders on this list charge early payoff penalties or upfront fees for processing your loan. (Read more about our methodology below.)
To determine which personal loans are the best, CNBC Select analyzed dozens of U.S. personal loans offered by both online and brick-and-mortar banks, including large credit unions, that come with no origination or signup fees, fixed-rate APRs and flexible loan amounts and terms to suit an array of financing needs.
When narrowing down and ranking the best personal loans, we focused on the following features:
After reviewing the above features, we sorted our recommendations by best for overall financing needs, debt consolidation and refinancing, small loans and next-day funding.
Note that the rates and fee structures advertised for personal loans are subject to fluctuate in accordance with the Fed rate. However, once you accept your loan agreement, a fixed-rate APR will guarantee interest rate and monthly payment will remain consistent throughout the entire term of the loan. Your APR, monthly payment and loan amount depend on your credit history and creditworthiness. To take out a loan, lenders will conduct a hard credit inquiry and request a full application, which could require proof of income, identity verification, proof of address and more.