How to find a personal loan that actually works for you

‘A good loan will save you money and work within your budget,’ one expert said

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A quick search for “best personal loans” will bring up an overwhelming number of results. However, personal loans can be a critical source of funding for everything from car repairs and debt consolidation to home improvement projects.

“A good loan will save you money and work within your budget,” Clay Cary, senior trends analyst at real-time coupon codes resource CouponFollow, told The Independent in an email. “But you should always look for...no surprise charges, and a clear payoff plan.”

To simplify the search for a good personal loan option, come up with a plan to identify the best lenders and loans for your situation. A methodical and thoughtful approach will yield better results in the long run.

Know how much you want to borrow (and if it’s in budget)

The first step to finding the best personal loan is to pinpoint how much money you need to borrow. If you need a fixed amount of money, then applying for a loan that’s equal to that amount is typically the right choice; borrowing more than you need might lead to impulse buys and non-necessary purchases.

A good personal loan can be an affordable way to fund a variety of needs including home improvement projects (Getty Images)

However, if the loan is for something that could have shifting costs, such as a home improvement project, you may want to have a 5-10 percent cushion to cover any surprise expenses.

From there, go online and use a loan calculator to determine what the monthly payment would be on the total amount. The calculator will usually let you pick your loan amount, how many months you want for repayment and what your interest rate will be.

Experiment with the repayment term and interest rate to get a sense of what kind of loan would fund your financial need and if the monthly payment fits your budget.

Remember that a personal loan interest rate partly depends on credit score, according to the Consumer Financial Protection Bureau. So check your credit before applying for loans.

Generally speaking, the higher your credit score, the lower the loan interest rate, according to the Federal Trade Commission’s Consumer Advice resource. If you’re not sure what interest rate you should use, plug in the average interest rate on a two-year personal loan, which is around 11.65 percent, according to the latest data from the Federal Reserve.

Finally, it’s important to have a clear intention for your loan as most lenders have restrictions on what it can be used for. Some lenders won't allow loans to be used for college or business expenses, for example, and of course illegal activity is off the table.

Let the lenders compete

Once you’ve figured out a loan amount and a manageable monthly payment, gather multiple loan quotes through pre-qualification, the Consumer Financial Protection Bureau recommends.

Researching personal loan lenders can help find one with the right mix of rate, repayment term and monthly payment (Copyright 2025 The Associated Press. All rights reserved.)

Generally speaking, personal loan pre-qualification won’t hurt your credit score and will provide a rough estimate of the loan amount, length, interest rate and monthly payment amount.

Another option is to get quotes from one lender at a time, or use a lending marketplace that provides multiple quotes based on one pre-qualification submission.

Once you have the loan quotes, compare key features:

• Interest rate: The higher the rate, the more interest you’ll pay over time. Ideally, you should pick the loan with the lowest rate. Keep in mind, though, that shorter loans tend to have better interest rates as it reduces the lender’s risk if you repay in 24 months instead of, say, 72 months.
• Repayment time period: This typically has the biggest impact on monthly payments. In general, the longer your repayment period, the lower your monthly payment, and vice versa.
• Loan amount: Double-check that the loan amount meets your requirements.
• Origination fee: Some lenders charge an origination fee to process a loan. The fee will usually be a percentage of the amount and is taken out of your loan balance before you receive the funds. So, if you borrow $10,000 and the origination fee is 5 percent, the lender will take $500 from your loan amount and send $9,500. If possible, choose a loan without an origination fee - several well-known personal loan lenders offer them.
• Other fees: Some lenders may charge a fee for a late payment, according to MyCreditUnion.gov. If you tend to make late payments, consider setting up autopay to ensure payments are on time. If you’re still concerned, be sure to identify lenders that don’t charge late fees.

Additionally, try asking each lender a question through their online chat support or over the phone. Notice how long it takes them to respond and how helpful they are. Good customer service can make a difference if you have issues down the line with your loan.

Additionally, if the loan is being used to pay off credit card debt, make sure the interest rate is lower than the card’s interest rate, Cary said.

Pick the winner and apply

Look over the offers and when you find the loan that provides the right balance of interest rate, repayment term and monthly payment, move to the next step: applying.

Personal loan applications will ask for your personal information and income as part of their approval process. Be prepared to provide recent pay stubs to confirm your income.

Some lenders offer application decisions in seconds and can fund your loan within a couple of days. If you need a personal loan quickly, be sure to include funding time as part of your decision process.