Many or all companies we feature compensate us. Compensation and editorial research influence how products appear on a page. Personal Loans Is a Personal Loan a Good or Bad Idea? 12 Pros and Cons to Consider Updated Jun 30, 2025 4-min read Expert Approved Expert Approved This article has been reviewed by a Certified Financial Planner™ for accuracy. Written by Megan Hanna Written by Megan Hanna Expertise: Personal loans, home loans, credit cards, banking, business loans Dr. Megan Hanna is a finance writer with more than 20 years of experience in finance, accounting, and banking. She spent 13 years in commercial banking in roles of increasing responsibility related to lending. She also teaches college classes about finance and accounting. Learn more about Megan Hanna Reviewed by Erin Kinkade, CFP® Reviewed by Erin Kinkade, CFP® Expertise: Insurance planning, education planning, retirement planning, investment planning, military benefits, behavioral finance Erin Kinkade, CFP®, ChFC®, works as a financial planner at AAFMAA Wealth Management & Trust. Erin prepares comprehensive financial plans for military veterans and their families. Learn more about Erin Kinkade, CFP® Personal loans offer quick cash, flexible use, and no collateral requirements, but they can carry high fees, affect your debt-to-income ratio, and encourage impulse spending. They’re a good idea if you need fast, unsecured funding at a lower rate than credit cards, but a bad idea if the repayment strains your budget or better alternatives exist. Table of Contents Pro: Quick access to cash Pro: Flexible use of funds Pro: Fixed interest rates Pro: No collateral required Pro: Lower rates with good credit Pro: Simple application process Con: Potential for high fees Con: Limited options for poor credit Con: Impact on DTI and credit score Con: Risk of impulse spending Con: Repayment period may be short Con: Possibility of prepayment penalties Pro: Quick access to cash Personal loans are known for fast approval and funding, making them useful in emergencies. But if your need isn’t urgent, alternatives like a home equity line of credit (HELOC) or savings may be cheaper. Pro: Flexible use of funds Unlike mortgages or auto loans, personal loans can be used for anything from consolidating debt to covering medical bills. This flexibility is valuable but can also lead to misuse. Pro: Fixed interest rates Most personal loans have fixed rates, which keeps payments predictable. This stability is ideal if you’re on a tight budget and want to avoid fluctuating payments. Pro: No collateral required As unsecured loans, personal loans don’t require you to pledge your house or car. However, this means rates are higher than those of secured loans like HELOCs. Pro: Lower rates with good credit Borrowers with strong credit often get better rates than with credit cards, making personal loans a cost-effective way to consolidate high-interest debt. Make sure the payments fit your budget and still allow room for discretionary spending and saving. If the loan tightens your budget too much, consider applying for a lower amount or waiting until interest rates drop. Federal Reserve rate cuts are possible (even likely according to some) in 2025 but aren’t guaranteed. If you can wait, monitor rates closely, and apply when you can lock in a more favorable one that supports your broader financial goals. Erin Kinkade , CFP®, ChFC® Pro: Simple application process Applying for a personal loan is often quick and 100% online, with approval in minutes to days. However, compare fees and terms before rushing into an application. Con: Potential for high fees Many personal loans charge origination or late fees, increasing the overall cost. Always check the fee structure, and consider no-fee loans if available. Con: Limited options for poor credit If your credit score is low, you may only qualify for high-interest personal loans—or none at all. Alternatives like secured loans or credit builder products may be better options in these cases. Con: Impact on DTI and credit score Taking a personal loan raises your debt load, affecting your DTI and potentially your credit score. High DTI can hurt your chances for other loans, so assess carefully before borrowing. Con: Risk of impulse spending Because personal loans are easy to get and flexible, they can encourage unnecessary spending. Use them strategically for needs, not wants, to avoid future debt stress. Con: Repayment period may be short Short loan terms reduce total interest but increase monthly payments, which can strain your budget. If you’re worried about cash flow, compare longer-term options or secured loans instead. Con: Possibility of prepayment penalties Some lenders charge fees if you pay off your loan early, wiping out potential interest savings. Always read the fine print and choose loans without prepayment penalties when possible. If you’ve weighed these pros and cons and think a personal loan might be right for you, take the time to compare lenders before applying. We’ve reviewed top-rated options to help you find the best rates, terms, and features for your financial needs: Best Marketplace 5.0 View Rates Fixed APR 6.49% – 35.99% Funding $1K – $200K Term (Yrs.) 1 – 10 Min. Credit Score Varies 5.0 View Rates Best for Good Credit 5.0 View Rates Fixed APR 8.99% – 35.49%* Funding $5K – $100K Term (Yrs.) 2 – 7 Min. Credit Score 650 5.0 View Rates Includes all discounts. Best for Fair Credit 4.9 View Rates Fixed APR 7.99% – 35.99 Funding $1K – $50K Term (Yrs.) 2 – 7 Min. Credit Score 580 4.9 View Rates Best Credit Union 4.9 View Rates Fixed APR 8.99% – 17.99% Funding $600 – $50K Term (Yrs.) 3 – 5 Min. Credit Score 700 4.9 View Rates Best for Excellent Credit 4.8 View Rates Fixed APR 6.94% – 25.29% Funding $5K – $100K Term (Yrs.) 2 – 12 Min. Credit Score 660 4.8 View Rates Best for Thin Credit 4.8 View Rates Fixed APR 7.80% – 35.99% Funding $1K – $50K Term (Yrs.) 3 – 5 Min. Credit Score None 4.8 View Rates Best Secured Loan 4.8 View Rates Fixed APR 6.99% – 35.99% Funding $1K – $50K Term (Yrs.) 3 – 5 Min. Credit Score 600 4.8 View Rates Check out our full guide to the best personal loans to read more about these lenders and several others.