A personal loan is an unsecured loan provided by financial institutions like banks, credit unions, or online lenders to individuals for a variety of personal needs. Since it is unsecured, it does not require collateral, meaning the borrower doesn’t need to pledge any assets to secure the loan. This makes personal loans a popular option for debt consolidation, home improvements, medical expenses, weddings, or other significant purchases.

Personal loans typically offer a lump sum of money that is repaid over a set term, usually ranging from one to five years, through fixed monthly payments. The interest rates on personal loans can be either fixed or variable and are generally based on the borrower’s credit score, income, and creditworthiness. Higher credit scores often lead to more favorable interest rates and loan terms.

These loans provide flexibility and can be a practical financial tool for managing large expenses or consolidating higher-interest debt into a single, lower-interest payment. However, borrowers should be mindful of the interest rates and fees associated with personal loans, as these can vary widely between lenders.