A personal loan is a financial tool that borrowers use to pay for emergency expenses, purchase expensive items, or to consolidate high-interest debts. They come in many forms with varying terms, conditions, and interest rates. 

These loans are becoming a very popular solution for many American borrowers. As of 2023, there are 22.7 million Americans with a personal loan Despite their popularity, it’s important to be familiar with personal loans, how they work, and how to use them wisely so you can avoid loan scams, predatory lenders, and high costs.

This personal loan guide is designed to give you all the basic information you need to expand your understanding of this specific loan product. 

What Is A Personal Loan?

Many lenders may describe their loans as “personal loans.” However, a true personal loan is typically an installment loan, or “personal installment loan.” This is any loan that you repay through regular monthly payments, or installments. At CreditNinja, we wouldn’t consider a payday loan, title loan, or a pawnshop loan to be personal loans. These options would fall under the “bad credit loan,” “quick cash loan,” or even “cash advance loan” categories. 

When compared to cash advance options like the ones listed above, a personal loan tends to be more manageable, and oftentimes, more affordable. Repaying your loan over the course of several months is usually a lot easier than repaying one giant lump sum all at once. 

How Do Personal Loans Work?

Personal installment loans work the same way as many other traditional loans and credit products. The most common steps involved in taking out one of these loans are as follows:

  • You apply for the loan either in person or online
  • The lender reviews your information and decides whether to approve your application
  • If approved, the lender disperses the money—usually via direct deposit
  • You can then use the money however you see fit
  • You then make payments based on the payment plan established in the loan agreement
  • Once you repay the full amount, plus interest and fees, the transaction is complete

It’s important to note that on-time payments can have a positive impact on your credit scores if the lender reports loan activity to any credit bureaus. The opposite can also be true. If you fail to make payments on time, you could see a drop in your overall credit score.  

Here are some of the finer details and common concepts associated with personal installment loans: 



Loan Type

Your loan will either be secured (requiring collateral) or unsecured.

Loan Amount

Varies based on the lender and the borrower’s creditworthiness.

Interest Rate

Fixed or Variable, expressed as an Annual Percentage Rate (APR).

Loan Term

Duration for which the loan is taken, usually in months or years.

Monthly Payments

Fixed payments made monthly to repay both principal and interest.

Origination Fee

One-time fee charged for processing the loan, usually a percentage of the loan amount.

Prepayment Penalty

Fee for paying off the loan early. CreditNinja does not charge this fee.

Late Payment Fees

Additional charges for missing or late payments.

Credit Score Impact

Positive if payments are made on time; negative if payments are late or missed.

Application Process

Typically involves credit check, income verification, and other documentation.

Funding Time

Time it takes to receive the funds after approval. With CreditNinja, it can be as soon as the same day.*

Repayment Flexibility

Some lenders offer flexibility in payment schedules, like skipping a payment or changing due dates.

Loan Purpose

Can be used for various purposes like debt consolidation, home repairs, or emergency expenses.

What to Look For When Shopping for A Personal Loan

Navigating the world of personal loans can be a bit overwhelming at times. Adding a loan to your financial obligations is a big decision, and we want to help make it a little bit easier for you. Below, you’ll find the four most common factors to consider before signing for a new loan: 

1. A Credible and Established Lender

First things first: you’ll want to borrow from someone you can trust. Look for a lender that has been around for a while and has a solid reputation. Check out customer reviews, and don’t skip the fine print. This step may take some time, but it will be worth it in the long run. 

Key Takeaways:

  • Check the lender’s history and customer reviews
  • Make sure they are licensed and follow state laws
  • Look for transparency in their operations

2. Rates, Fees, Terms & Conditions

The devil is in the details, or in this case, the loan agreement. Interest rates and fees can make or break your loan experience. A low interest rate is ideal, but also consider any additional fees like an origination fee or late payment fee. 

Key Takeaways:

  • Compare interest rates from different lenders
  • Be aware of additional fees
  • Read the terms and conditions carefully

3. The Loan Term and Amount You Need

How much do you need, and how long will it take you to pay it back? These are crucial questions. Shorter loan terms usually mean higher monthly payments but less interest over the life of the loan. On the flip side, a longer term will lower your monthly payments but could cost you more in the long run. 

Key Takeaways:

  • Decide on the loan amount based on your needs and ability to repay
  • Consider the pros and cons of different loan terms
  • Make sure the loan term aligns with your financial goals

4. Overall Ability to Manage The Loan

Last but definitely not least, think about your ability to manage the loan. Can you handle the monthly payments? Do you have a stable income? Some lenders may be willing to lend to you regardless of whether you can afford the loan. So it’s up to you to determine whether you can manage the loan. 

Key Takeaways:

  • Assess your financial stability and monthly budget
  • Make sure you can handle the repayment schedule
  • Utilize financial resources to improve your money management skills

How Can CreditNinja Help?

The CreditNinja Dojo is a great place to learn more about personal loans, credit scores, and personal finance basics. Our blogs, articles, and resources are designed to assist you in your financial journey. Understanding the process and details of personal finance and loan options can help you to avoid risky loans, untrustworthy lenders, and costly credit products. 

The Bottom Line on Personal Loans From CreditNinja

Choosing the right personal loan is more than just a financial decision; it’s a step towards achieving your life goals, whether that’s consolidating debt, covering unexpected expenses, or making a significant purchase. It’s a commitment that should be entered into with care and attention, whether you’re considering bad credit loans, cash advance loans, personal loans, or any loan product. 

So take your time, weigh your options, and don’t rush into a decision. Financial well-being is a long-term commitment, and the choices you make today will impact your life for years to come. Make sure those choices are ones you can live with and benefit from. Happy borrowing, and here’s to a financially healthier you!


  1. Personal Loan Statistics 2023 | LendingTree