Having to get a root canal is already painful enough — but then comes the prospect of paying for it.
While the specific cost of a root canal will vary depending on your geographical location, the location of the tooth, your dentist, and other factors, it can easily cost as much as $1,600 or even more out of pocket if you don’t have insurance — and several hundred even if you do.
Fortunately, there are a variety of ways to finance dental work that make it possible to afford the care your teeth require. Here’s what you need to know.
What Is a Root Canal Treatment?
A root canal is a dental treatment that can remove infection and bacteria from the pulp beneath the hard exterior of the tooth. It’s a pretty common procedure — millions of them are performed each year.
While root canals are often characterized as unpleasant, modern dentistry means this medical intervention can take place relatively painlessly while preserving the natural tooth for both chewing and complementing a smile. All of which is to say, if you’re in need of a root canal, you’re not alone.
Reasons for a Root Canal
There are many different reasons your dentist might prescribe a root canal, including:
• Tooth decay
• Large cavities
• Chips in tooth enamel
• Periodontal disease
• Dental trauma
In any of these situations, bacteria might infect the pulp of the tooth and, if left untreated, the infection can spread to the surrounding structures such as gums, other teeth, or even the jawbone. In extreme cases, dental infections can contribute to heart attack or stroke, along with causing a lot of pain.
Taking good care of your teeth can help prevent these causes, but sometimes, accidents or predisposition to decay can play into the equation. In any case, if your dentist prescribes a root canal, it’s probably worth heeding their advice.
How Much Does a Root Canal Cost on Average?
While, again, the cost of a root canal procedure varies greatly depending on factors we’ll dive into in more depth below, the average cost hovers around $1,600 without insurance. With insurance, your bill might be considerably lower: between $200-$1,000 out of pocket, depending on your coverage and the extent of the procedure.
In many cases, you may also require a crown along with a root canal, which can help protect the tooth for future chewing and use. A crown can add a substantial amount to the overall bill: as much as $1,000 if you’re paying out of pocket.
Factors That Impact the Cost of a Root Canal
Here are some of the specific factors at play that can pull the cost of your root canal up or down.
Insurance Coverage
Obviously, the cost of a root canal — or any dental or medical procedure — is likely to be higher if you don’t have insurance coverage or if your provider is out of your insurance company’s network. Because root canals are usually medically necessary, as opposed to just cosmetic, it’s likely your insurer will cover the procedure itself.
Tooth Location
The location of the infected tooth in your mouth can also have an impact on the total cost of the root canal. That’s because certain teeth are more difficult for dentists to work on than others.
For instance, molars, which are set more deeply in the mouth, are harder to reach and thus command higher costs for dental procedures. Bicuspids, or premolars, cost slightly less, while front teeth needing root canals are likely to cost the least.
Geographical Location
Like most other goods and services, the cost of a root canal can vary largely depending on the local economy — or the prices set by the dental professional you choose.
Type of Dentist
While most general dentists can perform a simple root canal, some teeth with more complicated infections might require an endodontist, who specializes in dental pulp specifically (the part that is treated during the procedure).
Root canal treatment cost by a specialist may be more expensive than treatment by your general dental professional, as can the use of high-tech equipment such as an ultrasonic needle or water laser.
Root Canal Complications
Although they’re very common and generally safe, like most other medical procedures, root canals do come with some risk.
For example, the root canal can fail due to a breakdown of materials or the provider’s failure to remove all of the bacteria during the procedure. In addition, sometimes the tooth becomes slightly discolored after the procedure due to bleeding on the inside of the tooth.
Ways to Pay For a Root Canal
Although root canals can be expensive, there are many ways to pay for this vitally important procedure without chewing through your savings.
Dental Insurance
Carrying dental insurance is a great way to lower the cost of procedures such as root canal — though keep in mind you’ll be responsible for monthly premiums as well as a potential copay or coinsurance costs.
Health Savings Account
A health savings account is a tax-incentivized account that can help you save and pay for out-of-pocket medical expenses more affordable. However, you must have a high deductible health plan to contribute to one.
Personal Loan
Personal loans are a type of financial product that allows you to borrow money for almost any purpose, including dental or medical care. Because they’re unsecured, meaning no collateral is required, they tend to have higher interest rates than auto loans or mortgages — but the rates can be lower than those offered by credit cards.
As with most financial products, your specific rates and terms will vary depending on your credit score and other financial aspects. While rates may be higher, there are still personal loans for low-credit borrowers — and taking one out may still make more financial sense than decimating your emergency fund or putting the procedure on credit.
Credit Card
Although they usually have fairly high interest rates, credit cards are another option for paying for necessary medical interventions in a pinch. If you can qualify for a credit card with a 0% promotional interest rate, you’ll have some time to pay the balance without interest if you can pay it off before the promotional period ends.
Along with root canals, personal loans can be used to cover other common dental procedures, as well, including:
• Periodontal surgery
• Dentures
• Tooth bonding
• Wisdom tooth removal
• Dental fillings
The Takeaway
Having a root canal can be an important medical intervention for your health and the survival of your affected tooth. And although the procedure is expensive, there are ways to pay for it that won’t add financial pain to your dental pain.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.
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FAQ
How much is a root canal and a crown?
A root canal procedure averages $1,600, and the restorative crown can add another $1,000 the total cost. Costs can vary depending on what part of the country the procedure is performed in and which tooth is being treated.
Why is a root canal so expensive?
Root canals are performed by licensed medical professionals who use specialized equipment. More complex situations may need to be treated by an endodontist, a dental specialist who has completed additional years of training beyond dental school.
What does a root canal cost without insurance?
The full, out-of-pocket cost of a root canal may range from $800 to $1,800, depending on a variety of factors.
Photo credit: iStock/AndreyPopov
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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
A personal loan can be a helpful financial tool when someone needs to borrow money to pay for things like home repairs, a wedding, or medical expenses, for example. The principal amount of a loan refers to how much money is borrowed and has to be paid back, aside from interest.
Keep reading for more insight into what the principal of a loan is and how it affects repayment.
Loan Principal Meaning
What is the principal of a loan? When someone takes out a loan, they are borrowing an amount of money, which is called “principal.” The principal on a loan represents the amount of money they borrowed and agreed to pay back. The interest on the loan is what they’ll pay in exchange for borrowing that money.
Does a Personal Loan Have a Principal Amount?
Yes, a personal loan does come with a principal amount. Whenever a borrower makes a personal loan payment, the loan’s principal decreases incrementally until it is fully paid off.
The loan principal is different from interest. The principal represents the amount of money that was borrowed and must be paid back. The lender will charge interest in exchange for lending the borrower money. Payments made by the borrower are applied to both the principal and interest.
Along with the interest rate, a lender may also disclose the annual percentage rate (APR) charged on the loan, which includes any fees the lender might charge, such as an origination fee, and the interest. As the borrower makes more payments and makes progress paying off their loan principal amount, less of their payments will go towards interest and more will apply to the principal balance. This principal is referred to as amortization.
Loan Principal and Taxes
Personal loans aren’t considered to be a form of income so the amount borrowed is not subject to taxes like investment earnings or wages are. The borrower won’t be required to report a personal loan on their income tax return, no matter who lent the money to them (bank, credit card, peer-to-peer lender, etc.).
As tempting as it can be to pay off a loan as quickly as possible to save money on interest payments, some lenders charge borrowers a prepayment penalty if they pay their personal loan off early. Not all charge a prepayment penalty. When shopping for a personal loan, it’s important to inquire about extra fees like this to have a true idea of what borrowing that money may cost.
The borrower’s personal loan agreement will state if they will need to pay a prepayment penalty for paying off their loan early. If a borrower finds that they are subject to a prepayment penalty, it can help to calculate if paying that fee would cost less than continuing to pay interest for the personal loan’s originally planned term.
How Can You Pay Down the Loan Principal Faster?
It’s understandable why some borrowers may want to pay down their loan principal faster than originally planned as it can save the borrower money on interest and lighten their monthly budget. Here are a few ways borrowers can pay down their loan principal faster.
Interest Payments
When a borrower pays down the principal on a loan, they reduce how much interest they need to pay. That means that each month as they make a new payment, they reduce their principal and the interest they’ll owe in the future. As previously noted, paying down the principal faster can help the borrower pay less interest.
Personal loan lenders allow borrowers to make extra payments or to make a larger monthly payment than planned. When doing this, it’s important that borrowers confirm that their extra payments are going towards the principal balance and not the interest. That way, their extra payments work towards paying down the principal and lowering the amount of interest they owe.
Shorten Loan Term
Refinancing a loan and choosing a shorter loan time can also make it easier to pay down a personal loan faster. Not to mention, if the borrower has a better credit score than when they applied for the original personal loan, they may be able to qualify for a lower interest rate, which can make it easier to pay down their debt faster. Having a shorter loan term typically increases the monthly payment amount but can result in paying less interest over the life of the loan and paying off the debt faster.
Cheaper Payments
Refinancing to a new loan with a lower interest rate may reduce monthly loan payments, depending on the term of the new loan. With lower monthly scheduled payments, they may opt to pay extra toward the principal and possibly pay the loan in full before the end of the term.
Other Important Information on the Personal Loan Agreement
A personal loan agreement includes a lot of helpful information about the loan, such as the principal amount and how long the borrower has to pay their debt. The more information the borrower has about the loan, the more strategically they can plan to pay it off. Here’s a closer look at the information typically included in a personal loan agreement.
Loan Amount
An important thing to note on a personal loan agreement is the total amount the borrower is responsible for repaying.
Loan Maturity Date
A personal loan’s maturity date is the day the final loan payment is due.
The monthly loan payment amount will be listed on the personal loan agreement. Knowing how much they need to pay each month can make it easier for the borrower to budget accordingly.
The Takeaway
Understanding how a personal loan works can make it easier to pay one-off. To recap: What is the principal amount of a loan? The principal on a loan is the amount the consumer borrowed and needs to pay back.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.
SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.
FAQ
What is the principal balance of a loan?
The principal balance of a loan is the amount originally borrowed that the borrower agrees to pay back.
Does the principal of the loan change?
The original loan principal does not change. The principal amount included in each monthly payment will change as the amortization period progresses. On an amortized loan, less principal than interest is paid in each monthly payment at the beginning of the loan and incrementally increases over the life of the loan.
How does loan principal work?
The loan principal represents the amount borrowed. Usually, this is done in monthly payments until the loan principal is fully repaid.
Photo credit: iStock/cagkansayin
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Many people aspire to live a “debt-free” life. And for good reason: Getting out of debt means that your take-home pay is completely your own (since you won’t be sharing any of it with creditors). Having more money to work with can help you achieve your goals, whether it’s building an emergency fund, sending your kids to college, or being able to retire some day. Knocking down debt can also improve your day-to-day life by relieving stress and boosting your mental health.
The question is, how do you get there? If you’re currently living under a mountain of student loans, credit card debt, medical debt, and/or other types of debt, it can be hard to see a way out or, frankly, even a ray of sunlight. But don’t give up. We’ve got six ideas that can help you whittle down your debt and get on the road to financial independence and freedom.
Key Points
• Living debt-free enhances financial stability and mental health by freeing up income and reducing stress.
• A realistic budget is crucial for managing expenses and allocating funds towards debt repayment.
• Extra income should be directed towards paying off debts, accelerating financial freedom.
• Debt repayment strategies like the snowball or avalanche methods help focus efforts and clear debts efficiently.
• Consolidating debts can simplify payments and potentially reduce interest rates, aiding quicker debt resolution.
What Does It Mean to Live a Debt-Free Life?
Living “debt-free” can mean different things to different people. In the purest sense, being debt-free means having absolutely zero debt — including no credit card debt, no car or student loans, and no mortgage.
However, some people subscribe to a looser definition of “debt-free,” where you’re free of so-called “bad debt,” such as high-interest credit cards and payday loans, but recognize that some debt is “good.”
A low-interest mortgage or student loan, for example, can be considered good debt, since it can help you increase your net worth or generate future income. This looser definition may work to your advantage because it allows you to achieve milestone goals like owning a home without high-interest debt burdening your monthly finances.
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Benefits of Living Debt-Free
However you define debt-free living, knocking down your debt comes with a wide range of benefits — some expected and some, perhaps, surprising.
• More money to spend: Interest charges eat away at your income, giving you less money for other things. Once you pay off your debts (particularly those with high interest rates), you’ll have a lot more money in your pocket.
• Financial stability: By freeing up cash, you’ll have money available to build your emergency fund (your best defense against running up costly debt in the future). You’ll also be able to put money towards other goals and investments.
• Less stress and anxiety: Dealing with debt isn’t just a financial challenge — it also impacts mental health. In a recent Forbes Advisor survey, 54% of adults said they often or always feel stressed by their debt circumstances; another 32% said they sometimes feel stressed because of their debt.
• A happier marriage: In the Forbes survey, 60% of respondents said financial stress has led to disagreements in their relationships. Money fights are a common cause of divorce.
• Increased self-esteem: Eliminating debt isn’t easy — it takes hard work, discipline, and determination. Reaching your debt payoff goals can give you a huge sense of accomplishment that leads to greater self-confidence.
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6 Ways to Climb Out of Debt
Having a lot of debt can feel overwhelming. The key to gaining control over the situation is to approach it one step at a time. Here are six strategies that can help.
1. Creating a Workable Budget
A smart debt-payoff plan begins with a realistic budget. Having a basic budget will help you live within your means (so you don’t get into more debt) and free up extra cash to put towards your debts each month.
The first step in creating a budget is understanding your monthly expenses. This includes everything from rent or mortgage payments, utility bills, groceries, and transportation costs to smaller expenses like subscriptions, leisure activities, and dining out. By assessing your expenses over the last several months, you may be surprised by how much you are spending in certain categories. You may also immediately find some places to cut back, such as canceling membership to a gym you rarely use and/or giving up streaming services you rarely watch.
If the idea of tracking every penny has been a barrier to budgeting, or if you’ve tried and failed in the past, try keeping things simple. The 50/30/20 rule is a simplified budgeting strategy that’s gained traction because it limits the number of spending categories you need to establish and track.
With this approach, you divide your take-home pay (what’s left after paying taxes) into three buckets:
• 50% goes to needs, including minimum debt payments
• 30% goes to wants
• 20% goes to savings and debt payments beyond the minimum
Keep in mind that these percentages are just a guideline, and can be tweaked to fit your situation. The key to becoming debt-free is to make a budget that’s strict but still doable.
2. Making More Money
Yes, this is easier said than done. But before rolling your eyes and moving on, consider the possibilities. Is it time for a pay raise? If a bump is overdue, it might be time to have a talk with the boss.
Consider any potential ways to make extra income from home. Do you always have nights or weekends off? Maybe a friend does catering, landscaping, house painting, or some other work and could use an extra hand from time to time.
If you have a marketable skill, like website design or creating social media content, you may be able to pick up freelance work. If you’re crafty, you might look into selling your wares online or at craft fairs and flea markets. If you love animals, you might want to offer dog walking or cat sitting services.
If you could earn an extra $500 per month, in 12 months, you’d be able to pay off an additional $6,000 of debt.
Even selling things you no longer need can bring in a nice lump sum of cash that you can use to knock down debt.
3. Applying Extra Money Towards Debt
If you get an unexpected windfall (such as a bonus at work, cash gift, tax refund, or inheritance), instead of living it up while the money lasts, consider using it to pay down some debt.
You might not think a few hundred dollars will make much of a dent, but every dollar you pay over the minimum can help reduce the interest you owe on a credit card or loan.
To get some idea of how paying even a little extra toward a bill can help, consider playing around with the numbers using a credit card interest calculator. It can be scary to see how much money you’ll pay in interest if you continue to pay only the monthly minimum, but it can also motivate you to divert as much extra money as you can toward getting that debt paid off once and for all.
4. Focusing on One Debt at a Time
Seeing progress can be inspiring. Think about how good you feel when you lose a little weight from changing your diet or gain some muscle from working out. Even small wins can be motivating.
How does that apply to downsizing your debt?
Two of the commonly recommended approaches to debt repayment are the snowball and avalanche methods. These strategies focus on making extra payments towards one balance at a time instead of trying to put a little extra money toward all your balances at once.
The Snowball Debt Payoff Method
The snowball method directs any excess free cash you might have to the debt with the smallest outstanding balance. Here’s how it works:
• List all of your outstanding debts based on how much you owe, from the smallest balance to the largest. (Disregard interest rates.)
• Pay as much as possible toward the debt with the smallest balance, while making the minimum payment on all other debts.
• After you pay off the smallest debt, turn your attention to the next-lowest balance. Keep going until you are debt-free.
The Avalanche Debt Payoff Method
The avalanche method focuses on paying off debts based on interest rate. It can take longer to get a win with this approach but, ultimately, it will save you more money than the snowball method. How it works:
• List your debts in order of interest rate, from highest to lowest. (Disregard balance amounts.)
• Pay as much as you can each month towards the debt with the highest interest rate, making the minimum payments on all other debts.
• Once you’ve paid off the highest-interest debt, focus on the debt with the next-highest rate, and so on, until you’re debt free.
Though the methods are different, both plans provide focus, and as each balance disappears, momentum grows.
A newer approach, the fireball method, may be a better fit for modern-day debt, which could include a large amount of low-interest student loan debt.
The Fireball Debt Payoff Method
The fireball method takes a hybrid approach to the traditional snowball and avalanche strategies. It’s called “fireball” because it can help blaze through bad debt faster by making it a priority. How it works:
• Categorize all debts as either “good” or “bad.” “Good” debt generally refers to things that can increase your net worth, such as student loans or mortgages. (Interest rates under 6% could be considered good debt.)
• List “bad” debts from smallest to largest based on each bill’s outstanding balance.
• Funnel any extra cash each month toward the smallest balance on the “bad” debt list, while making the minimum monthly payment on all other debts. Once that balance is paid in full, move on to the next-smallest balance on that list. Keep blazing until all “bad” debt is repaid.
• Pay off “good” debt on the normal schedule while investing for the future. Apply everything you were paying toward “bad” debt to investing in a financial goal.
The fireball approach can help you save money because it gets rid of your more expensive debt first, but it also provides motivation by giving you wins early in the process. These combined elements could provide an extra boost to your efforts.
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5. Consolidating Debts
If your credit is strong, a debt consolidation loan could potentially help you repay your debts at a lower interest rate, saving you money over time. It also simplifies repayment by merging multiple payments into one. With this approach, you take out a personal loan and use it to pay off multiple high-interest debts. The key is to find a lender that is willing to give you a lower annual percentage rate (APR) than what you’re currently paying. Keep in mind that the shorter your loan term, the lower your APR may be.
Another way to consolidate credit card debt is to move it to a balance transfer credit card. This can be a smart move if you can qualify for a 0% intro credit card. This way, you can avoid paying interest for the first several months and all the money you pay towards the card goes to knocking down debt. Keep in mind, though, that you may have to pay a fee when utilizing a balance transfer credit card. And, once the 0% intro period is over, you’ll have to start paying interest on the remaining balance.
6. Negotiating With Your Creditors
If your debt has become too much to handle and you’re delinquent on payments, you may want to reach out to your creditors, explain your financial situation, and see if they may be able to work with you. They might be willing to set you up on a payment plan, reduce your monthly payments, or settle your debt for less than what’s owed.
If you go this route, be sure to take notes on your conversation with the customer service rep (including the name of the person you spoke with, when you called, and what they said) and get the proposed repayment or debt settlement plan in writing before you make any payments.
Also keep in mind that debt settlement can negatively impact your credit, so this option is generally considered a last resort.
When it comes to debt, the deeper the hole you’re in, the longer it may take to climb out. But having the right plan in place before can help stick to a budget and methodically reduce your debt in a way that keeps you motivated and saves you money.
Becoming entirely (or nearly) debt-free comes with a substantial payoff: The money you were once spending on debt repayment each month can now go towards savings — and an opportunity to earn, rather than pay, interest.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
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You can get a personal loan from many banks, online lenders, and credit unions. A type of unsecured loan, personal loans can be used to pay for just about any large expense.
You might use it to pay off credit card debt, an unexpected medical bill, or the cost of home renovations. Some people use these loans to fund a wedding or big vacation. Given the many ways these versatile loans can be spent, it’s no surprise that personal loans are a popular choice. Currently, 23.5 million Americans have unsecured personal loans, totaling about $245 billion.
If you’re thinking of getting a personal loan, read on to learn more about where you can get one and the pros and cons of each option.
Where Can You Get a Personal Loan?
In terms of where to get a personal loan, these loans are generally available through three main markets: banks, credit unions, and online lenders. (There are other types of personal loans available through physical storefronts and online, such as payday loans and pawnshop loans, but it’s wise to avoid these options. You’ll learn why in a minute.)
Banks
National and regional banks often offer personal loans, which you can typically apply for online or in person. A bank may be the first choice for consumers who are already account holders at that institution, especially since the loan amount can usually be deposited quickly and directly into their checking account.
Credit Unions
Credit unions are another popular option for where to source a personal loan — though generally, these loans are only available to those who are already credit union members.
Each credit union has its own eligibility requirements to open an account or otherwise do business with it, which may be based on where you live or what industry you work in. However, if you do have access to a credit union, you may find lower interest rates and more favorable terms there than at other financial institutions.
Online lenders have proliferated over the years. These days, a personal loan can be easy to find from one of these sources with just a few clicks.
Online lenders may offer instant or near-instant loan decisions. They also don’t require you to be a member of or an account-holder at any specific financial institution. That said, it may take longer to receive your check or transfer than it would if you were borrowing from a bank or credit union where you already hold an account.
💡 Quick Tip: Some personal loan lenders can release your funds as quickly as the same day your loan is approved.
Where Can You Get a Personal Loan With Bad Credit?
You can get a personal loan with bad credit from a few lenders, such as online ones and payday lenders, but it’s important to proceed with caution.
First, a little important background intel:
• A personal loan with no collateral, also known as an unsecured personal loan, can be tough to qualify for if your credit history is less than perfect.
• Since there’s no collateral, like a house or a car, for the lender to take if you fail to repay the loan, unsecured personal loans often come with steeper qualification requirements than other types of loans.
• They may also have higher interest rates, especially for those whose credit could use some improvement. There are some lenders out there who specifically market their products to folks with lower credit scores — but beware. Sometimes these loans come with predatorily high interest rates and other drawbacks.
Online Private Lenders
The convenience and ubiquity of the online personal loan market is a mixed blessing. Sure, it’s easy to find a loan when you need one, but it’s also easy to fall into a bad deal.
Some online lenders specialize in offering loans for poor or no credit, but be sure to read all the fine print before you hit “submit” on your application. The loans may come with soaring interest rates, high origination fees, or hidden costs. Do your homework and vet the business you are borrowing from to make sure it’s legitimate. You may want to check with the Better Business Bureau to search for any complaints on file and for reliable, verified reviews.
Payday Lenders
Payday loans have been around for a long time, but that doesn’t mean they’re a good option.
Designed to be repaid quickly (i.e., at the borrower’s next payday), these short-term cash loans may be for small amounts, but often come with astronomical interest rates. According to the Consumer Financial Protection Bureau, it’s not uncommon for these quick-turnaround loans to have APRs as high as 400%!
In almost every instance, when comparing payday loans vs. personal loans, payday loans are worth avoiding. Other forms of unsecured loans will likely come with lower interest rates and more favorable repayment terms. Fortunately, it is possible to find loans from reliable lenders — even with imperfect credit.
Banks and Credit Unions
You can get a personal loan with bad credit from a few lenders, such as online ones and payday lenders, but it’s important to proceed with caution.
First, a little important background intel:
• A personal loan with no collateral, also known as an unsecured personal loan, can be tough to qualify for if your credit history is less than perfect.
• Since there’s no collateral like a house or a car, for the lender to take if you fail to repay the loan, unsecured personal loans often come with steeper qualification requirements than other types of loans.
• They may also have higher interest rates, especially for those whose credit could use some improvement. There are some lenders out there who specifically market their products to folks with lower credit scores—but beware. Sometimes these loans come with predatorily high interest rates and other drawbacks.
Another place where you can go to get a personal loan of this sort is a bank or credit union. Each financial institution sets their own qualification requirements for their unsecured personal loans, so it’s worth shopping around to find the best fit for your financial needs. Additionally, they may have other products that could work for you, like secured credit cards or share-secured loans.
💡 Quick Tip: Just as there are no free lunches, there are no guaranteed loans. So beware lenders who advertise them. If they are legitimate, they need to know your creditworthiness before offering you a loan.
What Are Some Pros and Cons of Different Types of Lenders?
Now that you’ve learned about the main options for personal loan shopping, you can figure out which kind of lender is right for you. Each alternative comes with its own pros and cons. Here are some things to consider while you’re browsing.
Personal Loans From Banks
Pros of Personal Loans From Banks
Cons of Personal Loans From Banks
You may get a discounted rate if you’re already a member.
You may need to be an existing customer or have good credit to qualify.
Funds may show up more quickly if you have an existing account there.
You may have to go to the physical bank to apply.
Personal Loans From Credit Unions
Pros of Personal Loans From Credit Unions
Cons of Personal Loans From Credit Unions
Loans may come with lower interest rates and fees than other financial institutions.
You’ll need to meet whatever eligibility requirements are necessary to be a credit union member in the first place.
Qualification requirements may be minimal.
You may have to go to the physical credit union to apply.
Personal Loans From Online Lenders
Pros of Personal Loans From Online Lenders
Cons of Personal Loans From Online Lenders
Online lenders make it convenient and easy to apply for a personal loan from the comfort of your home.
It can be difficult to know for sure if you’re borrowing from a reliable, legitimate source.
A wide variety of lenders can be shopped for and compared easily through an online search.
Some online lenders may charge high interest rates and other fees.
Choosing a Personal Loan Lender
No matter where you choose to apply for a personal loan, the best way to determine whether it’s the right loan for you is to look at the fine print. The lender matters less than the loan, and knowing what you’re agreeing to ahead of time is key to avoiding an unpleasant financial surprise.
Here are the most important factors to look for when shopping around for a personal loan:
• Fees, such as origination fees, early repayment penalties, and late fees, can increase the total amount you’ll spend on your loan in no time. Ideally, you’ll want to look for a lender that charges few fees — or none at all.
• Interest rates can vary widely with unsecured personal loans, from as low as 4% to as high as 30% or more. While your specific options will vary based on your credit history and other financial information, it’s good to shop around for the lowest possible interest rate.
• Loan amount caps may be relatively small (e.g., $1,000) or very large ($100,000 or more). Whatever your financial need, you want to ensure your lender will offer enough for you to cover whatever expense you’re paying for.
There are many personal loan lenders to choose from, including banks, credit unions, and online lenders. Whether you need money to pay for an unexpected expense, such as a car repair, or you’re planning the ultimate 40th birthday party, it’s wise to shop around and compare interest rates, fees, and speed of funding.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.
SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.
FAQ
Where is the best place to get a personal loan?
In terms of where to get a personal loan, there isn’t one “best” place. When comparing banks, credit unions, and online lenders, look at interest rates, fees, customer reviews, and how quickly the loan would fund to determine the option that suits you best.
Where is the best place to get a small personal loan?
Where to go to get a personal loan depends on a variety of factors. Would you be more comfortable working with a large lender or a small, community-based lender for your small loan? Do you already have an account at a financial institution that also makes personal loans? It might also depend on how much you want to borrow because different lenders have different borrowing ranges.
Where is the easiest place to get a personal loan?
If you’re looking for where you can go for a personal loan, it might be best to start at a financial institution where you already have an account. In that case, your financial information will be on record, making the process faster and easier. Although online lenders may promise super-fast funding, be sure to research options carefully and make sure the business is legitimate and interest rates are affordable.
Photo credit: iStock/solidcolours
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
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Getting a personal loan? It’s not as simple as walking into a bank and asking for a check — there’s some paperwork involved.
Your personal loan agreement is the document that contains everything you need to know about the deal you’re making with your lender, including your rights and responsibilities as well as theirs. It’s a fairly long and complex form, but breaking it down can make it easier to understand.
Here, take a closer look at personal loan agreements.
What Is a Private Personal Loan Agreement?
A personal loan agreement, as mentioned above, is a document that details exactly what is being agreed to on both sides of a personal loan — lender and borrower. At the very least, it will state how much money is being loaned and the terms and conditions of the borrower’s repayment responsibilities.
But what about a personal loan that is not with a traditional lender? Private lenders can be individuals or organizations that make loans to individuals, sometimes without the qualification requirements of traditional lending institutions. A private personal loan agreement, specifically, is drafted as part of a private personal loan — one made between a private lender and a borrower.
Any personal loan agreement is a legally binding document, so it’s important to understand it in full before you apply your signature.
💡 Quick Tip: Before choosing a personal loan, ask about the lender’s fees: origination, prepayment, late fees, etc. One question can save you many dollars.
Why Is a Loan Agreement Needed?
A personal loan agreement is essentially a protective document. It protects both the lender and the borrower by laying out, in clear terms, exactly what is being agreed to. If either party fails to uphold the agreement, action can be taken — such as the lender seizing any assets offered as collateral or sending the account to collections — both of which, obviously, would be bad for the borrower.
But the document works both ways. Lenders, too, are subject to lender liability and can be taken to court if they fail to uphold their end of the loan agreement. Although these cases are far less common than borrower default, the loan agreement is a document that can be used for the borrower’s protection as well.
How to Write a Personal Loan Agreement
Here are the usual steps to writing a personal loan agreement.
Decide Whether to DIY It or Hire a Lawyer
Depending on the specifics of your loan and situation, you could write up a simple agreement by hand or draft it on your computer and then print it out for signing. Or you might download a template from a reputable site, which can be a popular option. These are often free or are sometimes available for a small fee.
However, if the loan is complicated or you don’t want to handle the agreement yourself, you could look into hiring a lawyer to draw up the paperwork. Either way, a personal loan agreement will be a legally binding arrangement. Hiring a lawyer will likely be a costlier proposition.
Gather the Necessary Personal Details
You will need the legal names and addresses of both parties. This ensures the lender can’t ask you for anything beyond the borrowed principal (plus interest, which will also be listed).
Agree to and Spell Out the Loan Terms
The loan agreement should list the payments that will be expected each month and the expected date of the conclusion of the loan term.
The interest rate for the personal loan should also be on the personal loan agreement, likely expressed as an APR, which shows what percentage of the loan principal you’ll end up paying back in the course of one year including interest and any additional fees that may be packaged into the loan.
The interest rate will vary based on your credit score and other financial factors. If you have decent credit, you’ll likely be able to qualify for a personal loan. But generally speaking, the higher your score, the lower your rate.
A personal loan agreement should also include the following:
• The loan agreement may list which types of payment are acceptable, such as check, bank transfer, or credit card.
• The personal loan contract should also list specific repayment conditions, including when payment is due and whether or not additional principal can be applied without penalty.
• A complete personal loan agreement should include details on how any disputes will be handled between the parties involved.
• Some personal loan documents may include the option to change your loan’s term (the period over which the loan is repaid).
• Personal loan contracts in the United States should stipulate which state’s laws will be used to govern and interpret the agreement if the borrower lives in a different state than the lender is headquartered.
• Severability is a clause that states that even if one part of a contract is found to be unenforceable or otherwise rendered null and void, the remainder of the agreement will still hold.
• Penalties associated with the personal loan, such as any late fees that may be assessed, at what point the loan will go into arrears or default, or other scenarios, should be listed in the contract as well.
Sign the Document
Finally, the contract for loaning money must be signed by the borrower and the lender in order to be made legally binding.
💡 Quick Tip: Swap high-interest debt for a lower-interest loan, and save money on your monthly payments. Find out why credit card consolidation loans are so popular.
Does a Personal Loan Agreement Need to Be Notarized?
Personal loans are a type of contract, and contracts do not need to be notarized to be legally binding. All it needs is your signature. Be sure to read all the fine print in detail before you uncap that pen.
Your driver’s license or some equivalent form of photo ID will likely be necessary in order to verify your identity.
Income Verification
Lenders will consider your income when qualifying you for a loan — after all, they have good reason to be interested in whether or not you’ll be able to repay the debt. Along with asking you to list your annual income, verifying documents such as tax returns may also be required.
Proof of Address
In order to prove your residence, and therefore eligibility for any type of personal loan, you may need to provide utility statements, bank statements, or other official documents.
Getting a Personal Loan
Taking out a personal loan is a big financial responsibility, but it can also be a smart money move if you need to handle large, unexpected expenses at the last minute, or to consolidate existing debt. For someone who has bad credit, a small personal loan responsibly managed can be one way to bolster their credit score.
Just remember that all loans come at a price — interest charged — and considering the total amount you’ll pay back to the lender over time is important in order to have a full understanding of the cost of the loan.
For example, if you take out a $10,000 personal loan at a 7% interest rate to be repaid over a term of five years, you’ll pay back a total of $11,880.72, or an additional $1,880.72 in interest. That’s not including any origination fees, late fees, or prepayment penalties a lender might charge.
The Takeaway
If you’re considering a personal loan, reading the loan agreement in depth is a good way to understand for sure what you’re agreeing to. That loan agreement will contain many details about funds borrowed and how they will be repaid.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.
SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.
FAQ
Does a personal loan agreement need to be notarized?
No, a personal loan agreement does not need to be notarized to be legally binding — it simply needs to be signed by each party to the agreement.
What is a private personal loan agreement?
A private personal loan agreement is the binding legal contract between a borrower and a private lender for a personal loan.
Why do you need a loan agreement?
The personal loan agreement serves to outline the specific terms of the loan and protect both parties in case either fails to uphold the agreement.
Photo credit: iStock/Chaay_Tee
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
This article is not intended to be legal advice. Please consult an attorney for advice.
