What Are Personal Loans Commonly Used For?
Personal loans are incredibly flexible and can be used for almost any lawful financial need. According to the most recent personal loan survey, two of the most common reasons people take out these loans are debt consolidation and home improvement projects.In fact, 30.8% of borrowers said they used a personal loan to consolidate debt, while 15.4% used it to renovate or upgrade their homes.
That said, these loans can come with relatively high monthly payments. For example, borrowers with good credit—typically a FICO score between 670 and 739—reported an average loan amount of $26,334. With a 14% APR and a three-year repayment term, this would amount to an estimated monthly payment of $900.03.
What Do People Usually Use Personal Loans For?
Many individuals turn to personal loans when they want to simplify and reduce the cost of their debt. A popular strategy is to use a personal loan to combine several high-interest debts—like credit card balances—into one lower-interest loan. This not only makes monthly payments easier to manage but can also lead to substantial savings on interest over time.
Apart from that, personal loans are also commonly used to pay for major one-time expenses. These might include:
- Medical bills
- Home repairs and renovations
- Emergency situations
- Large life events like weddings or milestone celebrations
- Vacations
- Education-related costs (such as tuition or certifications)
- Starting or funding a small business
Because most personal loans are unsecured, borrowers don’t need to offer collateral like a car or home. This makes them a more accessible option for individuals who need quick funding for short- or medium-term financial needs.
“Personal loans are a go-to solution for many who need fast access to cash without pledging assets,”
— Tanaka Chimbane, Ph.D., Accredited Financial Counselor and Assistant Professor, Texas Tech University
Understanding Personal Loan Interest Rates
Interest rates play a major role in how much a personal loan will cost you over time. The interest rate is the percentage the lender charges in addition to the amount you borrow.
“The interest rate definitely matters when choosing a personal loan,”
— Tom Arnold, Finance Professor, University of Richmond.
“But it’s just one piece of the puzzle—service quality and lender fees also matter. Some lenders advertise low rates, but their high fees make them more expensive overall.”
Average Personal Loan Interest Rates by Credit Score
Here’s a breakdown of average interest rates for personal loans based on credit score data from Credible:
| Credit Score Range | Avg. 3-Year APR | Avg. 5-Year APR |
|---|---|---|
| 780 and above | 12.92% | 18.16% |
| 720–779 | 17.07% | 22.55% |
| 680–719 | 22.39% | 25.96% |
| 640–679 | 29.04% | 30.65% |
| 600–639 | 31.17% | 32.73% |
| Below 600 | 32.12% | 33.99% |
How Have Personal Loan Rates Changed Over Time?
Even though the Federal Reserve implemented interest rate cuts, the average interest rate for personal loans was still 12.32% as of November 2024. This is largely due to the Fed’s aggressive rate hikes that began in 2022, designed to slow inflation by discouraging excessive borrowing and spending.
Here’s a look at how average personal loan rates have changed over the years:
| Year | Average Rate |
|---|---|
| 2019 | 10.32% |
| 2020 | 9.51% |
| 2021 | 9.38% |
| 2022 | 9.87% |
| 2023 | 11.48% |
| 2024 | 12.27% |
Source: Federal Reserve | Compiled by MarketWatch
Personal Loans in the News: Fed Holds Steady
The Federal Reserve has chosen to keep the federal funds rate unchanged, maintaining it between 4.25% and 4.5%. This decision came after rate cuts at the end of 2024, as the Fed monitors the economy for signs of persistent inflation and uncertain growth.
“Although the Fed has paused its rate hikes, inflation still sits slightly above its 2% goal,”
— Dr. Ohan Kayikchyan, CFP and Founder, Ohan The Money Doctor.
“Chair Jerome Powell emphasized that the Fed makes decisions based on data, not political influence. The aim is to ensure economic stability by keeping inflation and interest rates in balance.”
How We Chose the Best Personal Loan Lenders
Our editorial team evaluated 37 of the top lenders in the U.S., carefully analyzing information from their websites, loan agreements, and public disclosures. We rated them across five key factors:
- 30% – Affordability: Competitive APRs, inclusive of both interest rates and upfront fees
- 25% – Loan Features: Flexibility, loan terms, and benefits
- 20% – Company Reputation: Lender trustworthiness and longevity
- 15% – Customer Experience: Support quality and borrower satisfaction
- 10% – Accessibility: Ease of application and approval for different credit profiles
To back up our research, we also conducted a survey of 1,000 American personal loan consumers through Pollfish. The data was adjusted to represent a wide range of demographics, including age, income, gender, and marital status.
What Do Borrowers Say? — Customer Review Analysis
To understand how consumers truly feel about different lenders, the MarketWatch Guides team reviewed 8,049 real user reviews across multiple platforms:
- Trustpilot
- Better Business Bureau (BBB)
- Consumer Affairs
- WalletHub
- Best Company
We sorted each review by sentiment—positive or negative—and pulled out common themes. This helped us identify which lenders excel in customer service, application process, and repayment flexibility, as well as highlight the most frequent complaints.
This comprehensive approach ensures our list of the best personal loan companies of July 2025 is based on not just numbers—but also real-life borrower experiences and satisfaction.
Join Gen Z New WhatsApp Channel To Stay Updated On time https://whatsapp.com/channel/0029VaWT5gSGufImU8R0DO30
