Should you get a personal loan? Here are the pros and cons

Should you get a personal loan? Here are the pros and cons Andrew Pentis Tue, May 12, 2026 at 12:36 AM GMT+7 12 min read Key takeaways A personal loan can get you cash within days at a fixed rate and steady payment. Personal loans tend to carry lower, more affordable interest rates than credit cards, if you have good or better credit. Before deciding to get a personal loan, consider potential downsides, such as steep fees and rigid repayment terms. Personal loans can be a useful tool to help streamline your budget or get money fast in an emergency. From debt consolidation to paying a big car repair bill, you can usually qualify with a good credit score and stable income. Many lenders even offer same-day funding, giving you access to funds quickly. The average personal loan rates are also typically lower than credit cards, which could save you hundreds, if not thousands, in interest charges. However, like all financial products, personal loans have drawbacks. Some lenders charge high fees, and the monthly payment may be steep if you only qualify for a short repayment term. Knowing some of the reasons to get a personal loan will help you determine if this type of financing is the best choice for your borrowing needs. “Personal loans can be useful in the right circumstances, but they are not a one-size-fits-all solution,” says David Kimball, chairman and CEO of Prosper. “Remember to ask the right questions and choose a loan that supports — not hinders — your journey to financial success.” Since you pay off a personal loan in installments at a fixed rate, you have a predictable monthly payment that won’t change for the life of the loan. Kimball notes that the predictability can make it easier to manage your budget and plan your other financial obligations. That gives you much more stability than credit cards without the risk of overborrowing or carrying a balance month-to-month. You can also repay the loan over terms as long as seven years, giving you breathing room in your budget. Personal loans often come with lower interest rates than credit cards. As of May 2026 the average personal loan rate is 12.27%, while the average credit card rate is 19.57%. Borrowers with excellent credit may qualify for the lowest rates lenders offer, which are under 10%. Getting the lowest possible interest rate is critical because it directly affects the cost of your loan. That also explains why it’s economical to choose the shortest repayment term (and highest monthly payment) that you can realistically afford. Interest will have less time to accumulate, which means paying less overall. Many personal loan lenders, especially online companies, offer quick approval and funding timelines, giving you access to funds usually within one business day. That makes them good loans for emergencies or other situations where you need money quickly. In fact, some lenders are able to deposit the loan proceeds into your bank account the same day you apply. That may not be as fast as using the plastic in your wallet for an urgent expense, but consider that credit cards may have higher interest rates and aren’t installment loans with a set payoff date. Most personal loans are unsecured loans, so you don’t need collateral like a car or home to be approved. If you’re unable to repay the loan, your credit score could be damaged, but because it’s not secured, you won’t risk losing your transportation or shelter from a bank repossession or foreclosure. Lenders typically approve you based on proof of stable employment, regular earnings and your credit scores. Since the lender doesn’t have to evaluate the value of any collateral to lend you money, the process is often faster than a secured loan. Some lenders offer secured personal loans at lower rates than you can get with an unsecured loan. Just remember you could lose the asset if you can’t pay the loan back. Personal loans can be used for many purposes, such as paying for home improvements, buying an expensive vehicle like a boat or recreational vehicle or consolidating multiple debts into one easy-to-track payment. You’re not limited to specific uses like you are with a car loan, which can only be used to buy a vehicle. Some lenders offer loan amounts as high as $100,000, giving you much more borrowing power than most credit card companies allow. Plus, getting your entire loan at once makes it easier to fund everything from major home renovation projects to major life events like weddings. That said, there are some limits. Personal loan money generally cannot be used for college tuition and other post-high school education expenses, investing or anything illegal. Many people use personal loans to consolidate debt, especially revolving debt like credit cards. The reason is simple: Paying off credit cards is a great way to improve your credit utilization ratio which plays a major role in your credit scores. It could also reduce the risk that you end up with a late payment trying t

Should you get a personal loan? Here are the pros and cons

Key takeaways

More in business