You can borrow money through personal loans from banks or online lenders, credit union loans, credit cards, personal lines of credit, or smaller options like payday alternative loans and employer advances. The right choice depends on how much you need, how quickly you need it, and your credit profile. Here’s how each option works and what it costs.
Unsecured Personal Loans
An unsecured personal loan is the most common way to borrow a lump sum. You receive a fixed amount, repay it in monthly installments over a set term (usually two to seven years), and no collateral is required. Approval is based on your credit score, income, and existing debt.
The average personal loan interest rate is around 12.27% for a borrower with a 700 credit score on a $5,000, three-year loan. Rates across major lenders range from roughly 6% to 36%, with the best rates reserved for borrowers with strong credit. If your score is in the mid-600s or above, you’ll have plenty of options. Scores in the low 600s or upper 500s still qualify at some lenders, but expect higher rates.
Most online lenders let you prequalify with a soft credit check, which shows estimated rates without affecting your score. That makes it easy to compare offers from several lenders before you commit. Once you accept and complete the full application, funds typically arrive in your bank account within one to five business days.
Secured Personal Loans
A secured personal loan works the same way as an unsecured loan, but you pledge an asset as collateral, often a savings account or certificate of deposit. Because the lender’s risk is lower, you’ll generally get a lower interest rate than you would on an unsecured loan with the same credit profile. The tradeoff: if you stop making payments, the lender can seize the asset you pledged.
Secured loans can be a useful path if your credit isn’t strong enough to qualify for a competitive unsecured rate. They’re also a way to build or rebuild credit, since on-time payments get reported to the credit bureaus just like any other installment loan.
Personal Lines of Credit
A personal line of credit works more like a credit card than a traditional loan. Instead of receiving a lump sum, you get access to a pool of funds you can draw from as needed. You only pay interest on the amount you actually borrow, and as you repay, the credit becomes available again.
This is a good fit when you aren’t sure exactly how much you’ll need, or when expenses will come in waves (like a home renovation with multiple phases). One thing to know: unlike credit cards, personal lines of credit typically don’t offer an interest-free grace period. Interest starts accruing as soon as you draw funds.
Credit Cards
For smaller amounts, a credit card can be one of the cheapest ways to borrow, especially if you qualify for a card with a 0% introductory APR on purchases. Those promotional periods commonly last 12 to 21 months, giving you time to pay off a purchase interest-free as long as you clear the balance before the intro period ends.
Outside of promotional offers, credit card interest rates tend to run higher than personal loan rates, often 20% or more. If you’re carrying a balance month to month without an intro rate, a personal loan at a lower APR will almost always cost less over time.
Credit Union Loans
Credit unions are nonprofit financial institutions, and that structure often translates into lower interest rates, fewer fees, and more flexible lending standards than you’ll find at banks or online lenders. They may approve borrowers with lower credit scores who would get turned down elsewhere.
The catch is that you need to be a member to borrow. Membership is usually tied to your employer, geographic area, or an affiliated organization. Many credit unions extend eligibility to anyone who joins a partner group, which might cost just a small annual fee. The membership application itself often takes only a few minutes.
Payday Alternative Loans (PALs)
If you need a small amount quickly and your credit is limited, federal credit unions offer payday alternative loans, or PALs. These are specifically designed as a safer substitute for payday loans, which can carry triple-digit interest rates.
PALs range from $200 to $1,000 with repayment terms of one to six months. The application fee is capped at $20, and the interest rate is capped by federal regulation. You need to have been a credit union member for at least one month to qualify. You can take out up to three PALs in a six-month period, but they can’t overlap or be rolled over into new loans.
Borrowing From Your Employer
Some employers offer paycheck advances or short-term loans as an employee benefit. This can be one of the fastest, lowest-cost ways to cover a gap, since many employer programs charge little or no interest. The repayment is usually deducted automatically from future paychecks. Not every employer offers this, but it’s worth asking your HR department before turning to outside lenders.
A growing number of companies also partner with earned-wage-access apps that let you access a portion of wages you’ve already worked for before your next payday. These typically charge a small fee or optional tip rather than interest.
How Your Credit Score Affects Your Options
Your credit score is the single biggest factor in determining what rates and loan amounts you qualify for. Here’s a rough breakdown of what to expect:
- 720 and above (excellent): You’ll qualify for the lowest rates, often in the 6% to 10% range, and the highest loan amounts. Nearly every lender will compete for your business.
- 690 to 719 (good): You’ll still have plenty of options with competitive rates, though not the absolute lowest available.
- 630 to 689 (fair): You can still get approved at many lenders, but rates will be higher. Several major online lenders accept scores as low as 600.
- Below 630 (poor): Your options narrow significantly. Secured loans, credit union loans, and PALs become your best bets. Some online lenders serve this range, but rates can approach 36%.
If you don’t know your score, you can check it for free through most banks, credit card issuers, or free monitoring services. Knowing your number before you apply saves time and helps you target lenders that are a realistic fit.
How to Get the Lowest Rate
A few steps can meaningfully reduce what you pay to borrow:
- Prequalify with multiple lenders. Rates vary widely, even among lenders serving the same credit tier. Checking three to five lenders takes about 15 minutes and can save you hundreds over the life of the loan.
- Choose the shortest term you can afford. A shorter repayment period means less total interest paid. A three-year loan costs less overall than a five-year loan at the same rate, though monthly payments will be higher.
- Set up autopay. Several major lenders offer a 0.25% to 0.50% rate discount when you enroll in automatic payments.
- Borrow only what you need. It’s tempting to round up, but every extra dollar borrowed is a dollar you’ll pay interest on.
What You’ll Need to Apply
Regardless of the lender, expect to provide proof of identity (a government-issued ID), proof of income (recent pay stubs, tax returns, or bank statements), your Social Security number, and your employment details. Some lenders also ask for proof of address, like a utility bill or lease agreement.
The application itself is usually completed online in under 10 minutes. If you prequalified first, much of your information will already be filled in. After submitting, approval decisions from online lenders often come within minutes to a few hours, with funds deposited in one to five business days. Credit unions and banks may take slightly longer, especially if you’re establishing membership for the first time.