Do personal loans impact your credit?
When you apply for a personal loan, the lender checks your credit score, which adds a hard credit inquiry to your credit report. Hard credit inquiries can have a small, temporary impact on your credit score. That’s why it’s generally best to only apply for new credit, such as a personal loan, when you’re ready to borrow.
Personal loan pre-qualification can help you better understand your options without adding hard credit inquiries to your credit report. Pre-qualification can provide insight into whether you’re likely to qualify for a given loan, and if so, what your terms may look like2.
The way you manage your personal loan can also impact your credit score. For example, on-time payments may help boost your credit score over time, while missed payments may lower it. And adding a personal loan to your credit history can help your credit mix, which may also improve your credit.
Types of personal loans
There are a few variations when it comes to personal loans. The terms and amount you choose to borrow for a personal loan will affect how much your debt will cost, long-term.
Fixed interest rate vs. variable interest rate
While some personal loans may have a variable interest rate, which can change over time, most have a fixed interest rate, meaning it won’t change over the life of the loan. With fixed interest rate personal loans, the monthly payment is also fixed, helping to make it easier to fit into your financial plans.
Unsecured personal loan vs. secured personal loan
Most personal loans are unsecured, which means they are not backed by collateral, such as a house or car. Instead, lenders use your credit score to determine if you qualify or not. Secured personal loans, on the other hand, require collateral.
An unsecured personal loan is riskier for the lender, so you may have to pay a higher interest rate compared to a secured personal loan.
What are the benefits of a personal loan?
There are a few key benefits of personal loans:
- Flexibility: Personal loans can be used for almost anything. (Typical exceptions include educational and business expenses.) For example, you can use the funds from a personal loan to cover wedding and home repair costs, among other uses.
- Easy to budget for: The interest rate is usually fixed, which means your interest rate and payments remain the same over the life of the loan.
- Convenience: The personal loan application process is generally fast and straightforward. Funds are typically disbursed quickly, too, though the exact timing will depend on the lender.
What can personal loans be used for?
Personal loans can be used for a variety of expenses, making them flexible and convenient options for different financial situations, including:
Deciding on a personal loan
A personal loan may be a good option if you need to finance a large purchase, consolidate debt or get financial flexibility in an emergency. Shopping around is key to finding a personal loan that works for you. Some of the factors you may consider include:
- APRs
- Fees
- Terms
- Loan amounts
- Lender reputation
- Funding times
It’s also important to be sure that you can afford the payments over the life of the loan. Budgeting for monthly payments may help you preserve your credit score and avoid taking on additional debt.
If you’re interested in obtaining a personal loan, Citi offers flexible, fee-free personal loans to qualified applicants. If you think you could benefit from a Citi Personal Loan, apply online today.
1. Once approved, Citibank can deposit funds directly into an existing Citibank account the same business day, or within 2 business days when deposited to an external bank account, provided the bank account has not been recently opened. In such instances, Citi reserves the right to reject the bank account as the disbursing account for personal loan funds, and you can select another bank account or select to receive a check by mail, which is delivered generally within 5 business days.
2. To check for offers you may qualify for, Citi conducts a soft credit inquiry. If you are presented with an offer and choose to proceed with the application process, Citi will conduct a hard credit inquiry which may have an impact on your credit score.
This article is for educational purposes. It is not intended to provide legal, investment, or financial advice and is not a substitute for professional advice. It does not indicate the availability of any Citi product or service. For advice about your specific circumstances, you should consult a qualified professional.
