Personal Loans 101

This is a paid post written by me on behalf of Discover Personal Loans. All opinions are my own.

According to NerdWallet, as of January 2017, the average total credit card debt owed by US customers was $764 billion, with the average US household carrying $16,424.

If you’re one of these Americans with card debt, you might want to look at personal loans. Look at personal loans as a another financial tool in your toolkit—one that can offer you funds fairly quickly when you need them—if you consider a few days quick, which I definitely do.

People use personal loans for a variety of unexpected expenses that they’re unable to cover with their savings or current income. Uses include consolidating and paying down higher-interest debt, adopting a child, home repairs, and high medical bills.

You know what else I like about personal loans? Some lenders make applying for small personal loans fairly easy online, all from the comfort of your couch.

Before you even apply, get to know the in’s and out’s of personal loans and what differentiates them from other borrowing tools.

Keep in mind, there are more benefits to a personal loan than how fast you may get funds. And not every lender offers the same benefits or features, so here’s the lowdown.

How Does a Personal Loan Work?

  1. There is a fixed term. A fixed term is an amount of time you select to pay off the loan. Loan lengths can range  from 36-84 months. You will pay the same, fixed amount every month, until the loan is paid off. If you don’t miss any payments, it should be paid off within your selected term.According to MagnifyMoney, you could be paying off revolving debt up to 20-30 years, while accumulating interest over that time. The shorter, set time-frame for re-paying a personal loan, along with competitive fixed rates, could save you money. For example, consider that if someone is paying $324 a month on a $16,000 debt with 16.15% interest rate, they would spend $10,454 on interest payments before paying off the debt. If they were to get a personal loan with the same monthly payment of $324 at a 7.99% interest rate for a 2-year term, they would save $6,994 and pay off their debt faster. 
  2. There is a fixed interest rate. Your monthly payment and interest rate stay the same for the life of your loan. According to MagnifyMoney, higher-interest financial tools, like, for example, a store credit card,  increases the interest rate if you are 60 days past due or more on your payments. Also interest rates increase as you incur more debt and don’t pay off your balance in full each month. With most personal loans, you pay a same monthly payment agreed to at the beginning of the loan till the loan is paid off.

Debt Consolidation

Personal loans are also helpful if you find yourself with multiple balances on higher–interest debts. Personal loans can consolidate your higher interest debts, such as credit cards, department store cards, and other bills all into one convenient monthly payment. Plus, the fixed interest rate on a personal loan generally could be lower than the higher, variable rates associated with many revolving debts.

Before you race to apply, it’s a good idea to think through some things. Have an idea of how much you want to borrow, the interest rates you’re currently paying on other debts, and what amount you would be comfortable paying toward a personal loan on a monthly basis. Actually, Discover Personal Loans lets you choose from flexible loan amounts and repayment terms that you’re comfortable with.

According to Credit Sesame, in general, keep an eye on your financial situation and even check your credit score before applying. If you maintain good financial standing by doing things that affect your credit score, like paying bills on time, you could improve your chances for personal loan approval.  If it seems your credit score is inaccurately calculated or not reflective of financial actions you’ve recently taken you can refute your score. Then, apply for a loan once your score has been corrected.

How are the interest rates?

Personal loan interest rates are determined by many factors such as your credit history, personal application information, and the term length you select. While your personal loan interest rate is important, you should consider the overall cost of the loan. Some lenders charge  origination and closing fees, as well as fees if you repay the loan back sooner than the loan term length. Many lenders offer digital tools that allow you to check your interest rate prior to committing to the loan. Discover Personal Loans is one lender that lets you check your rate first, without hurting your credit score

What to consider when choosing a lender:

According to Smartasset, like every product, some personal lenders offer features that could provide greater cost savings compared to other  lenders. Besides loan lengths and terms, here’s some things to ask the lenders you are considering borrowing from to ensure you understand the total cost of the loan and are choosing the best lender.

  1. Is there pre-computed interest?
    Smartasset says that, if your loan interest is pre-computed, it’s already built into your monthly payment amount. If you’re planning to pre-pay on the loan or knock it out early, you don’t stand to save as much on interest if it’s computed beforehand. Make sure you ask if the interest is pre-computed.
  2. Are there origination fees?
    According to Smartasset, origination fees are calculated based on a percentage of the amount you’re borrowing and some lenders charge fees as much as 6% of the total loan amount, for example. The origination fee doesn’t always have to be paid upfront. It can be rolled into the final loan total. The best option is to find lenders that offer no origination fees, like Discover Personal Loans.
  3. Are there pre-payment penalties?
    A prepayment penalty, also sometimes called an Exit Fee, is designed to make up for the interest the bank is losing out on when you prepay. Before you choose a lender, ask about pre-payment fees and review loan contracts to ensure you aren’t adding to the cost of your loan.

Personal loans can be a source of funds for debt consolidation, weddings, vacations, major purchases, auto repairs, medical expenses, taxes, and more. So, whether you’re looking to consolidate debt or you need extra funds for a major event or an unexpected expense, I’d personally check out Discover Personal Loans.


  1. Savings is an estimate for illustration purposes only and assumes you make only your personal loan monthly payment on time each month. Your actual savings may vary depending on the APR and term of your loan and the actual terms of your credit card account or installment loan. All examples are based on a $16,000 balance. To calculate estimated savings from consolidating debt with a Discover personal loan, visit:
  2.; national average credit card APR as of 09/07/17, and also make sure to check the Pick-A-Loan options for financial support.