Personal loan basics

Find answers to questions on how personal loans work, including what they can be used for, how interest works, potential fees, and more.

What is a personal loan?

A personal loan is a specific amount of money that can be borrowed with the agreement that it will be paid back with interest over a set period of time, known as the loan term. The borrowed money can be used to consolidate debt, pay for a home remodel or repairs, or to cover surprise expenses and major life events. Personal loans cannot be used to finance post-secondary educational expenses. All personal loans at Santander Bank come with a fixed interest rate, a fixed term, and are unsecured, meaning you do not need to provide personal assets as collateral to guarantee your loan.

How do our personal loans work?

To receive a personal loan, you first need to submit a loan application. We’ll review factors like your credit score, employment history, and income, but no collateral is required to secure our personal loans. Once approved, you’ll receive the borrowed funds in a lump sum, typically via direct deposit or check. This amount will need to be paid back with a fixed interest rate over a fixed term, so you’ll benefit from knowing exactly what your monthly payments will be.

What are personal loans used for?

Personal loans can be used to pay for many expected, or unexpected, expenses in your life. Maybe your kitchen needs a makeover, your car requires repairs, or it’s time to replace some old appliances. One of the most popular (and wise) uses of a personal loan is to consolidate higher interest debt at a lower rate to reduce monthly payments. However, while a personal loan can give you financial flexibility for nearly any occasion, they cannot be used to finance post-secondary educational expenses.

Can I use a personal loan to consolidate debt?

Yes. Consolidating debt using a personal loan can be a great way to reduce your monthly payments and save money in the long run. It works like this: If you have high-interest debt, you can consolidate it by taking out a personal loan with a lower interest rate, and use that loan to pay off your higher interest debt. That way, all your debt is consolidated in one place at a lower rate, so you’re paying less interest, resulting in lower monthly payments.

What’s the difference between secured and unsecured loans?

All our personal loans at Santander are unsecured, which means you don’t need to put any of your own assets (for example: car, house, etc.) up as collateral to “secure” your loan. One of the primary benefits of this is that the loan approval process is much faster compared to secured loans, which require collateral verification.

How does interest work on a loan?

Paying interest is the cost of taking out a loan. Our personal loans have a simple, fixed interest rate applied to the principal of the loan. A fixed interest rate means your rate will stay the same throughout the term of your loan, resulting in predictable payments. You will pay interest as part of your monthly payment.

What is an Annual Percentage Rate (APR)?

Annual Percentage Rate (APR) represents the yearly cost of borrowing money. All lenders are required by law to disclose APR because it gives borrowers a clear picture of how much they will be paying in both interest and fees over the course of a year.

What is the difference between interest rate and APR?

The interest rate is the cost of borrowing money for your personal loan. The Annual Percentage Rate (APR) adds in some of the upfront costs in addition to the interest, including any lender fees. However, since Santander does not have any upfront fees, the APR and the interest rate are the same.

What is a loan term?

The loan term is the length of time you have to pay back your loan. It’s important to agree upon a term that fits your individual needs—the longer the term of your loan, the lower your monthly payments will be.

Do personal loans have any extra fees?

Santander personal loans have no origination fees or closing costs. However, some other lenders offer personal loans that charge origination fees, which are a percentage of the loan amount. Some banks also call these closing costs. Make sure to factor these in to decide whether a personal loan is worth it.

Are all lenders the same?

Well-known banking institutions, like Santander Bank, are guided by federal regulations and provide banking products that adhere to the highest quality standards. However, not all lenders have an eye to your financial security. When shopping for a personal loan, watch out for the following warning signs: (1) no-credit-check loans, (2) unclear fees and hidden costs, and (3) high-pressure sign-up processes. If you notice any of these red flags, proceed with caution because you may be dealing with a predatory lender.

At Santander, on the other hand, borrowing is clear, straightforward, and easy with no application fees or closing costs, a discount for automatic deductions from your Santander Checking account, and no collateral required. We’re also here to answer any questions you have along the way. You can visit your local branch or contact a Customer Service Center Advisor at 877-768-2265.

How is a personal loan different from credit card debt?

Santander Bank personal loans offer borrowed funds in a lump sum, typically at a significantly lower interest rate compared to credit cards. In addition, our personal loans come with a fixed rate and fixed term, resulting in predictable monthly payments. Whereas credit cards often have higher variable rates that may increase over time and have no set repayment term. Qualifying for either a personal loan or a credit card depends on your credit score, income, and additional factors.

How is a personal loan different from a line of credit?

Santander personal loans have what’s known as a non-revolving credit limit, which means funds are borrowed as a lump sum (usually for a specific purpose) and must be paid back in monthly installments, according to a fixed schedule. A line of credit, on the other hand, follows a different model. It has a revolving credit limit, which means you borrow what you need up to a specified maximum amount (similar to a credit card), and repay only what you borrow plus interest.