What is a personal loan and how does it work?

A personal loan is a type of loan that allows you to borrow money from a financial institution, such as a bank or credit union, to be used for any personal expenses you may have. Unlike other types of loans, such as a car loan or mortgage, a personal loan is not secured by collateral. Instead, the lender considers factors such as your credit score, income, and employment history to determine whether you are eligible for a loan and what interest rate you will be charged.

Once you are approved for a personal loan, the lender will provide you with the money in a lump sum, which you can use to pay for a variety of expenses, such as home repairs, medical bills, or debt consolidation. You will then be required to make regular payments, usually monthly, to repay the loan over a fixed period of time, typically two to five years.

The interest rate on a personal loan is determined by several factors, including your credit score, income, and the amount of the loan. The interest rate can be either fixed or variable, meaning that it may change over time based on market conditions. It is important to shop around and compare interest rates from different lenders to find the best option for your financial situation.