A personal loan is an amount of money that you can borrow and use for a variety of purposes. You can consolidate debts, plan a holiday, pay for home renovations or fund a project. You can apply for one at your bank, online lenders, or credit unions, and you then repay the loan over time, usually with interest. Some personal loans also have fees attached.

One thing to note is that personal are different from car loans, student loans and mortgage loans, which are limited to paying off the one thing. Although most personal loans can be used for pretty much anything, be aware that some lenders will restrict the way you can use the loan.

It is also different from a personal line of credit, which is not a lump sum of money like a personal loan. A personal line of credit is like a credit card in that when you spend it, the amount available to use is reduced. When you make a payment toward your credit line, then it will give you more credit. A personal loan is a lump sum and as you pay it off, the amount you owe decreases. There is also a fixed end date that the loan has to be paid in full.

There are two types of personal loans that you can apply for:

1. Secured—this is the type that does require some type of collateral, such as your car or home, as a condition of borrowing the money. You can also secure this type of personal loan with a savings account. If you do not repay the loan or do not make payment, then the lender can keep your collateral to satisfy the repayment of the loans.

2. Unsecured—this personal loan will not require any collateral to receive the money. Sometimes if you apply for an unsecured personal loan, the lender may consider you a high risk and charge you a higher interest rate.

Have you ever taken out a personal loan? Tell us about it in the comments.