Consumer Advocacy
What you need to know
Personal Loans
  • Personal loans can help you consolidate higher interest debt

  • Look for lenders that offer soft credit inquiries

  • Compare offers from at least three lenders to get the best rate

  • Make sure your credit report is correct before applying for a loan

Our Approach

How we analyzed the best Personal Loans

Flexibility
Since personal loans are not a “one-size-fits-all” type of product we favored companies with a large selection of loans for multiple purposes and term lengths, to accommodate different needs.
Interest Rates
We looked at each of the companies’ interest rates and selected those with the lowest caps.
Discounts & Fees
Some lenders may charge application, loan origination, or prepayment fees. We preferred companies that offered the lowest fees and a variety of discounts.
Customer Service & Reputation
We examined the companies’ methods of communication, number of complaints filed against them, and consumer reviews across different platforms, and chose those with the best track record.
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We receive compensation from these partners, which impacts the order they appear on the page. That said, the analyses and opinions on our site are our own and we believe in editorial integrity.

Our Top Picks: Personal Loans Reviews

This site does not include all companies or all available offers. Companies listed below are listed in alphabetical order.

AmOne review

Best for Debt Consolidation

Personal loans can have a wide variety of uses, consolidating your debts being one of them. AmOne operates a free online service that matches user loan requests with offers from highly rated lenders across the US. An intermediary to a network of peer-to-peer lenders, rather than a peer-to-peer lending site, the company has an entire section dedicated to strategies and solutions for dealing with different debt situations. Its debt consolidation loans range from $100 to $50,000, welcome borrowers of all credit scores and feature no collateral and low rates.

Screenshot, amone.com, March 2021

 

  • Fast and Accessible

Getting a personal loan through AmOne is a quick and straightforward process. After users complete the company’s online form, which takes only a few minutes to fill out, experienced financial specialists will begin to search for secured and unsecured lending providers based on the criteria that they are willing to approve. Users can also call the company directly to establish their situation, instead of filling out the form. Once that’s done, lenders from AmOne’s network will contact potential borrowers to extend a personal loan offer. Some borrowers make their request and get their money disbursed on the very same day.

  • Stellar Customer Feedback

Customer satisfaction with AmOne is high, based on online reviews and testimonials. The company has an excellent 4.5 score on Trustpilot based on 896 reviews. Reviews often mention the simplicity of making a loan request, the speed of the approval process, and the company’s 24/7 US-based live support.

Based on 807 reviews and complaints, AmOne also has a 4.5 rating on Trustlink, a company originally created by the Better Business Bureau that reviews home, personal and professional services. Reviews there also make positive mention of the individual lenders in the company’s network. Lastly, AmOne has an A+ rating on the BBB itself.

Credible review

Credible Labs Inc., also known as “Credible”, is a California-based company that acts as a financial product marketplace to help consumers find financing that caters to their circumstances and needs.

The marketplace has been operating since 2012 and features personal loans from top lenders, including LightStream, Upstart, Avant, and Best Egg. With Credible, consumers can apply for loan amounts ranging between $600 to $200,000 for debt consolidation, credit card refinancing, home improvement, career development, auto financing, and moving expenses, to name a few purposes for borrowing.

Best Rate Guarantee

Screenshot credible.com. For illustrative purposes only, actual results may vary

Something that makes Credible stand out from other personal loan marketplaces is its Best Rate Guarantee. If you close elsewhere with a better rate than you prequalify for on Credible, you'll get a $200 gift card. Terms apply. 

Maximize Your Credit Inquiries

Screen shot from Credible.com. For illustrative purposes only, actual results may vary.

One of the main benefits of comparing personal loan lenders through Credible is that the company only performs a soft credit inquiry to see if you qualify. Checking rates won’t impact your credit score so you're free to compare multiple offers as many times as you wish. Only when you apply for a loan from one of Credible's partners can you expect a hard credit inquiry.

The company is also a great option for those who are self-employed since some of its lenders accept alternative data for income verification. Using Credible's service is simple, and borrowers can obtain personalized prequalified rates from up to 16 companies in two minutes, just by filling out one form.

Top-Rated Customer Support

Screenshot from credible.com. For illustrative purposes only, actual results may vary

Credible is accredited by the Better Business Bureau, where it holds an excellent A+ rating and 5/5 stars, with consumers expressing overall satisfaction with the company’s staff, application process, and services. The company earns 4.7 out of 5 stars on Trustpilot.

Credible’s website is easy to use and has a complete Frequently Asked Questions section where you can find important information about information personal loans, including credit requirements and guides for the loan application process. Since Credible's services are free to use for consumers, the company also explains how it makes money—which is essentially by earning a commission for referrals to its lender partners.

Credible’s customer support team is available via live chat, email, and over the phone.

Figure Personal Loans review

Best for Fast Application and Funding

Speed is the main highlight of Figure, an online fintech company founded in 2018 that offers personal loans and lines of equity, as well as mortgage refinance and asset management services. The company prides itself on having one of the fastest applications for a personal loan — and one of the shortest gaps between the moment of approval and the disbursement of a client’s funds. The company uses blockchain technology and artificial intelligence to create an entirely digital application and funding process that is secure and takes as little as possible to complete. If you need money fast, Figure is the way to go for your personal loan.

Screenshot, Figure.com, March 2021

Application Process

Applying for a loan with Figure consists of a series of short steps starting with an online form that asks for your personal and financial information. This includes your address, financing purpose, annual gross income, and more. After filling out this one form, consumers can already take a look at the offers they prequalify for.

After selecting an offer, consumers asked to provide additional information, verify their identity, and link their income sources. Lastly, they are asked to sign documents and are assigned a Certified Senior Advisor to explain any specifics of their loan and guide them through the end of the process.

The entire application process can be completed in minutes. Once a borrower’s loan has been approved, funding can take as little as two to five days.

Personal Loans Details

The personal loans offered by Figure have loan amounts that start at $5,000 and go up to $50,000. Borrowers can choose from either a 3-year or 5-year fixed rate with APRs ranging from 5.99% to 15%. Figure loans have origination fees ranging from 0% to 4.99%.

Qualifying for a loan with Figure will require applicants to have average to good credit, at least. Additionally, borrowers must be employed at the time of applying, have a valid U.S. issued ID, and have a debt-to-income ratio of less than 40%, excluding household expenses.

LendingTree review

Best for Poor Credit Scores

Screen shot from LendingTree.com. Taken June 17, 2019.

With over 100 million customers served, LendingTree is one of the nation’s largest online lending marketplaces. Founded in 1996, the North Carolina-based company has a large network of lenders offering a variety of financial products and services, such as credit cards, home loans, small business loans, and personal loans.

Since LendingTree is an online marketplace, consumers can find personal loans for almost any purpose, including debt consolidation, home improvement, medical and moving expenses, emergencies, large purchases or special events. One of the main perks of applying for a personal loan through LendingTree is that some of its lenders accept borrowers with credit scores as low as 525, offering minimum and maximum loan amounts of $1,000 and $50,000, respectively.

To view your personalized rates, you must fill out a form with your name and contact details, the last four digits of your social security number, annual income, desired loan amount and purpose, and details about your property. Once you submit this information, the company will create a free account for you, where you’ll be able to find and compare offers from multiple lenders. It should be noted that although the company requires you to enter the last four digits of your social security number, this won’t impact your credit score since LendingTree only performs soft credit inquiries.

Financial Help Available

Screen shot from LendingTree.com. Taken June 17, 2019.

If you’re interested in improving your financial health, LendingTree can help you achieve that by connecting you to debt relief and credit repair agencies. Additionally, the website offers a free credit and debt analyzer, designed to evaluate your financial situation and identify the areas where you may need to make adjustments, to have a better financial outlook.

Online Tools

Screen shot from LendingTree.com. Taken June 17, 2019.

LendingTree’s website is full of tools and resources to help consumers make smart and informed decisions. These include a personal loan payment calculator, a debt consolidation calculator, plenty of articles about personal loans, a loan officer directory, and lender reviews by state. LendingTree offers customer support via email and over the phone.

LightStream review

Best for Home Improvment and Family Planning

Lightstream’s motto, “Loans for Practically Anything,” is upheld on its website by the company’s wide array of specialized loans. From Basement Remodeling to Boat Repair to Horses, Lightstream really emphasizes the versatility of its debt products. Rates vary depending on loan purpose, loan term, and your credit history, but when you visit Lightstream.com, you are able to get a general idea of the interest rate you will be offered when you specify the type of loan you are interested in applying for. Terms can be as long as 7 years, and there are no fees or prepayment penalties. However, they do perform a hard credit pull and currently don’t offer pre-approvals.

Requirements

As an online lending branch of Truist, Lightstream fills a wide array of personal loan needs in the industry, (yes, you can get a horse loan), with competitive rates. However, this does come with certain requirements. Borrowers must have a minimum of five years of good credit (minimum score of 660), but the bank also looks at credit history, assets, and savings, with the aim of establishing a solid background of capable financial management. They also perform hard credit pulls and don’t offer pre-approvals, so consumers should be aware that Lightstream is not a place to shop around.

On the plus side, they answer applications within 24 hours, when filled out during business hours. This means that the money can be in your account in as little as one business day, if documents are completed by 2:30pm ET. And they offer some of the highest limits we’ve seen for personal loans, lending as much as $100,000. As we mentioned above, terms are also longer than the standard 60 months, extending up to 84 months. Finally, Lightstream offers unsecured loans to borrowers who’ve been able to establish their excellent credit history and financial management.

Interest Rates

Though we touched on this briefly above, it’s worth mentioning that Lighstream’s interest rates are highly competitive. When we first started looking into Personal Loans and had narrowed down our list to 23 companies, Lightstream stood out far from the rest, not just because of its lowest APR (which is low, but not unique), but because its hightest topped out its APRs at at 15 percentage points lower than some competitors (assuming you select AutoPay. Their lowest APR is only available to consumers with excellent credit profiles for certain types of auto loans. 

PenFed review

Best for Small Personal Loans

Not everyone is looking for a huge loan of thousands of hundreds of dollars. Some consumers just want—or need—to take out a modest amount coupled with the security and benefits that an established lender provides.

Enter the Pentagon Federal Credit Union, better known as PenFed, America's second-largest federal credit union. This Virginia-based lender was established in 1935 and provides its services to over 2.1 million members worldwide. Its personal loans start as low as $600 and have maximum amounts of $50,000. They also have no payoff penalties or origination fees.

 

Screenshot, penfed.org, March 2021

 

  • Membership Benefits

Consumers must first become a member of PenFed to take out a loan with the credit union. Membership is available to current or prior servicemembers and government employees, as well as family members of both groups. People who live or work at an eligible location or are a member of one of over 50 different associations can also join PenFed.

In addition to highly competitive rates on personal loans, PenFed members benefit from industry-leading interest rates for checking accounts and money market certificates. Members also enjoy a variety of discounts on auto, financial, personal, and retail products and services. Moreover, unlike other military-affiliated financial services companies, PenFed’s high-yield online savings account only requires a $5 initial balance and has no monthly fees.

  • Highly Competitive Rates

PenFed’s personal loans have some of the most favorable rates in the industry, with APRs as low as 4.99%. Naturally, this requires having a good credit score, but even those without excellent scores will find the credit union’s rates agreeable. All PenFed loans have fixed APR; individual rates are determined by the size of the loan and the borrower's creditworthiness.

SoFi review

Best Overall Lender

Screen shot from SoFi.com. Taken June 17, 2019.

Founded in 2012 and headquartered in San Francisco, California, SoFi Lending Corp offers a variety of financial products, including student loan refinancing, mortgages and mortgage refinancing, private student loans, and personal loans.

Though most lenders offer loan amounts up to $45,000, SoFi’s personal loans range between $5,000 to $100,000, with 2-to-7-year terms, making it a good option for consolidating debt, making home improvements or paying for expensive medical procedures. The company’s personal loans are unsecured, with fixed or variable interest rates.

.Aside from its flexible financing options and low interest rates, SoFi’s unique lending approach is what makes it our choice for best overall. Most lenders will only consider borrowers with a certain FICO score and debt-to-income ratio. Although SoFi also considers these factors, it also takes into account the borrower’s financial history and professional experience for approval.

Since the company doesn’t have physical branches, the entire loan application process must be completed online or through SoFi’s mobile app. Customer support is available seven days a week, via email and over the phone, in case you need further assistance.

No Fees Required

Screen shot from SoFi.com. Taken June 17, 2019.

As SoFi is an online lender, the company is not only able to offer low interest rates but also doesn’t charge loan application or origination fees. Additionally, the company doesn’t charge prepayment penalties, allowing you to pay off your loan balance whenever you want and, as of April 18th, 2018, there are no late payment fees either.

Plenty of Benefits

Screen shot from SoFi.com. Taken June 17, 2019.

When it comes to borrower benefits, SoFi is definitely ahead of its competitors. The company offers a 0.125% rate discount on its loan products just for being a member and there is also a 0.25% discount for borrowers who choose AutoPay when they fill out their loan application form.

SoFi’s loan products also come with unemployment protection, which is designed to pause any upcoming payments temporarily until the borrower becomes employed again. Career coaching is also available for all members, as well as financial advisory services and community events to encourage networking.

Upstart review

Best for Alternative Credit Data

Screen shot Upstart.com. June 15, 2019.

Incorporated in 2012, Upstart was founded on the premise that FICO-based lending models are outdated and limited because they don’t quantify risk correctly. According to a joint Upstart and Transunion retro study, 83% of Americans have never defaulted on a loan, yet don’t have access to prime credit.

To that end, the team at Upstart decided to use Artificial Intelligence and Machine Learning to expand the way the company makes its risk assessments, incorporating non-conventional variables and optimizing the system according to daily loan-level repayment and delinquency data. What this means in practical terms is that Upstart considers more than just credit scores when deciding whether to lend to consumers--they also look into education, employment, and annual income.

Flexible Requirements

Since Upstart’s lending model is so unique, we thought it was important to delve into it a little more. Though the company relies on more than just credit score, potential borrowers should know that they must have a minimum score of 620, though Upstart may accept applicants with insufficient history to have a score at all. They must also have a minimum annual income of $12,000--which can come from a full- or part-time job, disability or retirement income, or even just a job offer letter. You must also have a maximum debt-to-income ratio of 45%.

 

Screen shot Upstart.com. June 15, 2019.

Further, applicants cannot have any recent bankruptcies or delinquent loans, or more than six hard pulls on their credit within the last six months--except for inquiries related to student loans, car loans, or mortgages. While borrowers were originally required to also have a college degree, this requirement was recently dropped.

Loans can be used for a wide variety of reasons, including personal expenses, education, large expenses, or for starting a business. However, according to the company, the average borrower is a college graduate between 28 and 35 years old, with around $12,000 in credit card debt.

Easy Application

Upstart has stated that it has fully automated around two-thirds of its approved loans, meaning that those borrowers haven’t had to go through a phone screening, or a manual underwriting process (which has an average closing time of 50 hours).

Screen shot Upstart.com. June 15, 2019.

The application process is streamlined and completely online, as the company guides you through a quick and easy process which they state takes less than five minutes. After entering information such as what the loan is for (important, as different purposes may have varying rates), credit score, your level of education achieved, how much you have in savings, and your primary source of income, the company gives you an initial approval or denial. If the former, you’ll then obtain an estimated rate which should give you an idea whether you’d like to continue the process.

Interest Rates and Loan Terms

Since Upstart caters to consumers with average or even non-existent credit, it should be no surprise that its APRs are on the higher end for the industry, between 7.69 and 35.99. Loan amounts are also mid-range, starting at $1,000 and maxing out at just $50,000. Finally, though there aren’t any prepayment fees, origination fees can reach 8.0%, and there is a late fee of 5% of past due amount or $15, whichever is greater. Loans terms are between 3 to 5 years, paid monthly.

In short, Upstart’s terms are not the most generous in the industry--but neither are they the most onerous. And consumers with average credit scores may find that the company can offer some of the best options for their situation. And they wouldn’t be alone. With over 3.3 billion dollars in loans originated and a recent investment of $50 million (with attendant partnerships with banks for expansion purposes), Upstart’s model is growing rapidly.

Our Research

More insight into our methodology

Before beginning our search for the best personal loan lenders, we conducted more than 100 hours of research, gathered information from approximately 53 sources, and consulted experts in three different financial fields, to gain a better understanding of what consumers needed in a lender.

Once we understood the pros and cons of personal loans from every angle, we were able to establish some guidelines to evaluate the companies and select those that stood out from the rest.

We started with a list of 23 of the nation’s top personal loan lenders. In our list, we included big banks, online lenders, and peer-to-peer lending sites. We examined the types of loans each one offered, as well as their term lengths, minimum and maximum loan amounts, interest rates, methods of communication, number of complaints filed against them, overall reputation among consumers, and available discounts and fees. Afterwards, we were able to narrow our list to 11 lenders, from which we chose the top six that surpassed the industry standard.


Flexibility

Personal loans are an installment debt that serves multiple individual needs. Personal loans can be a tool to pay off debt faster, act as a financial bridge in case of an emergency or help you achieve long-term goals, like starting a business

In our search for the best lenders, we looked for companies that could offer a variety of loans, such as credit card and debt consolidation, adoption, home improvement, medical emergency, and special event loans, just to name a few. We also chose companies that offer at least 3 or more loan terms, with flexible loan amounts ranging between $1,000 and $100,000.


Interest Rates

With personal loans, lenders charge an annual percentage rate or APR. The APR includes the interest charged by the lender plus any administrative fees and additional fees, so you have an idea of the overall cost of the loan per year

Most personal loans are unsecured, meaning that they have higher interest rates than other secured loans--such as mortgages or auto loans--but their interest rates are usually lower than those of credit cards. Our top picks have lower APRs than the average company, fluctuating between 3.99% and 35.89%.


Discounts & Fees

Some lenders may charge application, loan origination, returned check, check processing, late-payment and administrative fees. Additionally, some may charge a prepayment penalty if you pay off your loan ahead of schedule

We featured lenders that offer competitive fees and a variety of discounts, including automatic payment and loyalty discounts, plus rewards for paying on time.


Customer Service & Reputation

As part of our lender evaluation process, we researched the number of complaints filed against each on the Consumer Financial Protection Bureau (CFPB). The CFPB is the US government agency that ensures consumer protection in the financial sector by monitoring financial institutions and their practices, and collecting consumer complaints

We also favored companies that offer different methods of communication and have a solid reputation among their clients across different review websites.

Helpful information about Personal Loans

A Brief Introduction to Personal Loans

In 2018, personal loans were the fastest growing consumer debt in America, according to data from Experian, one of the three main credit reporting agencies in the United States. The average consumer loan balance was of $15,143 and online lenders originated over 40% of all new personal loans.

While it’s possible that, as Experian speculates, historically low unemployment rates might be giving Americans the confidence to take out loans more often, there’s no doubt that personal loans are becoming more common every day.

Unlike mortgage or auto loans, which have a specific purpose, personal loans can be used for a variety of individual needs. Some of the most common uses for personal loans are:

  • Debt consolidation The average credit card APR is 17.10%, which is considerably high, especially since you can get a personal loan with an interest rate as low as 3.99%. This is why many consumers choose to take out personal loans to consolidate higher interest debt, save money, and have the convenience of a single monthly payment.

  • Medical expensesA 2017 survey by the National Center for Health Statistics revealed that approximately 43.3 million Americans have medical debt. While health insurance can help defray some of these costs, things like an emergency surgery can take a huge financial toll on anyone, especially if you were already low on funds to begin with. Many lenders offer personal loans specifically for medical expenses, to help lessen the financial burden on these situations.

  • EducationMost people get student loans to pay for their educational expenses. However, this option may not be available for extracurricular courses or continuing education, which is why personal loans can be an ideal choice in these cases.

  • Home improvement When you don’t have enough equity to get a cash-out mortgage refinance loan, but still need to do some home renovations, personal loans can be a way of obtaining the funds you need.

  • Business Personal loans have more flexible requirements than business loans, making them a good option for small-to-medium business owners that need an extra cash infusion to keep their businesses running.

  • Weddings It is estimated that the average cost for a wedding in the United States is approximately $33,000. Getting a personal loan to pay for a wedding can help you finance these costs.

  • Big purchasesMany consumers use personal loans as a way to buy big-ticket items, such as a boat or an RV, since most people find it easier to pay for these things over time rather than upfront.

  • Vacations Just as personal loans can help you cover the costs of a wedding or a big purchase, they can also be used to finance your next trip.

Personal loans can help you get out of debt faster, act as a financial bridge under certain circumstances, or make a big purchase more affordable. Still, they’re just a temporary solution and it’s extremely important to understand the difference between a “want” and a “need” before getting one.

For example, if you’re looking to get a personal loan to refinance debt and obtain a much lower interest rate than what you currently have, then it’s probably a good idea to do so, as long as you don’t go back to your old spending habits. “If I don’t take a look at how I spend, and how I manage my finances, I’m going to pay it off, I’m going to be fine and, all of a sudden, I’m going to start with my bad habits, and I’m going to build up credit card debt again,” says professor Kurt A. Schindler, a certified financial planner with over 30 years of experience who teaches financial planning at the University of Puerto Rico.

Getting a personal loan to consolidate debt without taking the right steps to correct bad spending habits could lead to defaulting on the loan, which could cause serious long-term consequences. After 30 days of missing a payment, your credit score can drop between 50 and 75 points, and eventually you could face lawsuits and even wage garnishments if your debt is transferred to a collection agency. “Whenever you go delinquent on a credit card, personal loan, or even an auto loan or mortgage, that delinquency will have an exponential impact on your credit score,” says Peter Klipa, senior vice president of Creditor Relations at the National Foundation for Credit Counseling (NFCC).

If you’re thinking about getting a personal loan to finance your wedding costs or to go on a lavish vacation, you should also know that the purpose of the loan can impact its interest rate, particularly if you get it through a peer-to-peer lending site. In other words, borrowing money for a vacation could cost more than borrowing it for a medical emergency, even if it’s the same amount.

Nevertheless, getting a personal loan can be a smart move given the right circumstances, and can serve as a tool to help you reach your goals.

Types of Personal Loans

Just like with other financial products, there are different types of personal loans, to accommodate multiple consumer needs. Personal loans are divided into two main categories: secured and unsecured. Here are a few differences between both:

  • Collateral – This is the main difference between them. Secured loans are backed by an asset that acts as collateral for the loan. Assets can be anything valuable, like a house, boat, vehicle, or a certificate of deposit. If the borrower defaults on the loan, the lender can repossess the asset and sell it to recoup its losses. On the other hand, unsecured loans don’t require a collateral, meaning that the lender assumes all the risk.

  • Loan amounts – Unsecured loan amounts typically range between $500 and $50,000, depending on the lender. Secured loan amounts can be much higher than that, since they’ll be based on the collateral they’re backed with. For example, if you use your house as collateral, most lenders offering secured loans will allow you to borrow up to 80% of its value. If your house is worth $250,000, and you have a mortgage balance of $150,000, that means you could borrow up to $80,000.

  • Interest rates - “The higher the risk, the higher the cost,” says Schindler. Since unsecured loans are riskier for the lender, they tend to have higher interest rates than secured loans.

  • Eligibility requirements – Usually secured loans are more flexible when it comes to credit score and debt-to-income ratio requirements than unsecured loans.

  • Use of funds – Unsecured loans can be used for a variety of purposes and lenders typically don’t place as many restrictions on how to use the funds as they do for secured loans.

Both unsecured and secured loans have similar application processes and lender fees. Also, as personal loans, they are considered installment debt, and as such, they have fixed terms. The term is the length of time established by the lender for the borrower to pay back the loan. Terms for both types of loans are usually short, ranging between one and five years.

A Note on Interest

Besides choosing the personal loan’s purpose, amount, term, and whether it’ll be secured or unsecured, you can also choose the type of interest you want. Personal loans can have a fixed or variable interest rate.

With a fixed rate, your payments will remain the same over the life of the loan and you’ll know the overall cost from the start. If you choose a variable rate, your payment amount can fluctuate each month, based on current market conditions. This could be beneficial if interest rates are low, but it can also pose a challenge if rates increase, since you could end up paying more than with a fixed rate loan. However, most lenders have a variable rate cap, meaning that no matter how much interest rates increase, you’ll never pay more than the maximum percentage established on your contract.

 

Interest rates for personal loans can range from approximately 4% to 35.99%, but the rate you receive will be determined by several factors, including your credit score, income and outstanding debts.

Lenders

Personal loans can be obtained through banks, credit unions, online lenders and peer-to-peer lenders. Here are some of the pros and cons of borrowing from each:

  • Banks – These are by far the most popular type of lender.

Pros

Cons

Banks offer one-on-one attention through loan officers and other financial professionals that assist you through the entire process, plus they’re heavily regulated by the government and other consumer protection agencies.

Because they’re more regulated than other financial institutions, banks have stricter eligibility requirements, making it harder for consumers with a fair credit score to obtain a loan.

  • Credit unions – Similar to banks, credit unions offer a variety of financial products and services, but are member-owned and not-for-profit.

Pros

Cons

Since they are not-for-profit, they may offer lower interest rates and more flexible terms than banks.

In order to obtain a personal loan, you must become a member and have some money invested in them.

  • Online lenders – As previously mentioned, online lenders have become more popular in recent years. Last year alone, they generated over 40% of all personal loans in the United States.

Pros

Cons

Because they lack physical branches, online lenders can offer lower interest rates than most banks and credit unions and quicker funding.

Unlike banks and credit unions, very few online lenders offer relationship or loyalty discounts and you’ll have to go through the entire application process on your own, unless they offer a loan officer or concierge service.

  • Peer-to-peer lenders – Also abbreviated “P2P”, these lenders also offer their services through an online platform. P2P lenders match consumers with investors that are willing to lend them money based on their circumstances.

Pros

Cons

P2P lenders are a great option for consumers with fair-to-poor credit scores, since the investors may consider alternative data to approve the loan.

Because the money doesn’t come from an institution rather than an individual, interest rates and origination fees might be higher than with the average lender, including banks.

 

Before applying for a personal loan, it’s important to choose a lender that not only caters to your personal and financial needs, but that can also offer competitive rates, excellent customer support and that is financially stable. That being said, it’s important to explore your options prior to committing to any lending products or services.

Applying for a Personal Loan: Step-by-step

Now that we’ve covered the basics of personal loans, it’s time to discuss the steps to getting one.

Step 1: Assess your Situation

Before you apply, it’s important to think about your situation and understand why you want to get a personal loan. As we already discussed, it’s essential to distinguish between a “want” and a “need” prior to borrowing money. Sure, a trip to Europe sounds nice, but is it worth paying for it during the next three years?

Also, think about your finances and how much money you need. Borrowing more than what you can afford could cause you to default on the loan, which comes with serious repercussions.

In Matthew Botkin’s opinion, founder and president of Building Financial Solutions, Inc. and co-author of the best-selling book “Achieve Financial Freedom – Big Time,” personal loans should be everyone’s last resort, and advises consumers to keep expenses minimal, save as much as possible and increase their income to sustain their lifestyle, to avoid needing one.

Step 2: Shop for Lenders

A common mistake amongst consumers is not comparing enough offers. Just like you don’t buy the first house you see, you shouldn’t get a personal loan with the first lender that pops up in your browser.

Lenders have different fees, eligibility requirements, interest rates, terms, minimum and maximum loan amounts, funding times, methods of communication and discounts. Comparing multiple lenders can help you save money over the life of the loan and ensure you get the right product that fits your needs.

Additionally, when shopping for lenders, it’s important to look at their reputation. According to Klipa, “reputation is really important. While some consumers don’t like to deal with the big banks, the reality is that big banks have clear credit card and personal loan lending policies, they are very compliant.” He also adds that while smaller lenders aren’t bad, “you have to do a little bit more homework to understand who they are.” Reading consumer reviews on websites like the Better Business Bureau or the Consumer Financial Protection Bureau can help you determine whether it’s a good idea to apply with that particular lender or if you should stay away from it.

Step 3: Gather the Required Information

When you apply for a personal loan, you’ll have to provide your name, date of birth, contact details, social security number, bank account information, and your employer’s contact details, plus:

  • Passport, military or state issued ID

  • Certificate of citizenship (if applicable)

  • At least one utility bill (to verify your address)

  • Pay stubs (depending on the institution, you may have to provide up to two months worth of these)

  • Copies of your tax returns, W-2s and/or 1099s for the last two years

  • Statements of any outstanding debts (including mortgage payments)

If you’re self-employed, you’ll have to provide alternative documentation such as official copies of six to 12 months’ worth of bank statements, asset depletion income, profit and loss statements, or copies of your two most recent tax returns to verify your income information.

Besides this, most lenders require you to be at least 18 years or older to qualify, be a US citizen or permanent resident, have a minimum credit score of 640 and a debt-to-income ratio under 43%. The debt-to-income ratio, also abbreviated as DTI, is a measure of how compromised your income is. Lenders calculate this by dividing your monthly debt payments by your monthly gross income.

Once you’ve reviewed all of the lender’s eligibility requirements and have gathered all of these documents, it’s time to apply.

What To Watch Out For When Applying For a Personal Loan

Guaranteed loans / Payday loans

A guaranteed loan, commonly known as “payday loan,” is a short-term loan, usually ranging between $100 and $1,000, where the borrower gets a cash advance and agrees to pay back the principal amount, plus any accrued interest and fees on their next paycheck.

Payday lenders usually don’t perform a credit check prior to approving the loan, making them a popular option for those with a poor credit history that need to obtain money fast to cover an emergency expense. While there are no credit score requirements to get this type of loan, the borrower has to provide their personal details along with a personal check or give electronic access to their bank account, so the lender can collect the money at the end of the term.

Payday loans should be a last resort when borrowing money. Because of their extremely high APRs, they are considered a predatory lending practice. According to a 2019 map published by the Center for Responsible Lending, payday loans have an average APR of close to 400% in most states, but this rate could be as high as 652% in states like Utah and Nevada.

 

If you need money fast, a good option is to apply for a personal loan through an online lender. Most online lenders, particularly peer-to-peer sites, offer quick funding, some even have same-day funding. If this is not an option, you could also try borrowing money from friends or family members and avoid payday loans at all costs.

Using a Personal Loan to Pay Off Student Loans

A lot of us know what it’s like being stuck with multiple student loan payments after school. Personal loans could help you consolidate these into a single monthly payment and release your cosigners. Additionally, personal loans can get discharged in case of bankruptcy.

Despite how attractive this may sound, using a personal loan to pay off your student loans also come with its disadvantages. First, your interest payments won’t be tax deductible anymore. Second, you won’t be eligible to apply for any income-driven repayment plans, forbearance or forgiveness programs. Lastly, not all lenders issue personal loans to pay off student loan debt and, those who do, usually require an excellent credit score to do so.

If your goal is to consolidate multiple payments, you could do so through a lender that offers student loan refinancing, which will allow you to keep the aforementioned benefits.

Your Credit Report

Your credit report is extremely important when you apply for a personal loan. Based on your score and credit history, the lender will decide whether they can approve the loan, and what the interest rate will be.

Having mistakes in your credit report could decrease your chances of getting approved, making you seem “riskier” than what you are. Another thing that could impact your credit report is having multiple credit inquiries within a short period of time.

Credit inquiries make up 10% of your FICO score, which probably doesn’t seem like a big deal, but it actually is. There are two types of credit inquiries: soft credit pulls and hard credit pulls. Unlike hard credit pulls, soft credit pulls do not affect your credit, since they’re just a way to see if you may qualify for a particular product. Hard credit pulls are attached to the application and will show up on your report for up to two years.

Before applying for a personal loan, it’s crucial to always look for lenders that offer a soft credit pull to see if you qualify for a loan, rather than those who just perform a hard credit pull. Still, at some point, all lenders must do a hard credit pull if you wish to proceed with the application and approval process.

Likewise, you should check your credit report prior to applying. “Credit is a moving picture and things can change literally every month,” says Klipa. Ensuring your credit report is correct will not only increase your chances of getting approved but it could also secure you a better rate.

Insurance

Some lenders, especially banks and credit unions, will offer you life or unemployment insurance as part of your personal loan. While life insurance may help secure your next of kin’s financial future by ensuring they won’t be stuck with your personal loan payments after your death, it’s also expensive, and so is unemployment insurance.

Personal loans are short-term. If you’re relatively healthy and have a stable job, chances are you won’t be needing any of these products. Adding them would only increase your monthly payments, making them unaffordable.


FAQs about Personal Loans


Can I get a personal loan with bad credit?

It depends on the lender. Most traditional lenders have minimum credit score requirements of 640, but others will approve loans to people with credit scores below that. Still, having a low credit score will most likely result in a loan with a high-interest rate, which is important to keep in mind prior to applying. If you’re thinking about getting a personal loan, but your credit score is less than stellar, you could try applying through a peer-to-peer lending site, since they tend to have more flexible requirements than traditional banks or credit unions. Another option is getting a cosigner or a co-applicant to increase your chances of getting approved. Nonetheless, you should try improving your credit score before applying for a personal loan to ensure you get the best rate possible. Some ways of improving your credit score include paying your bills on time and lowering any revolving credit balances. Some entities, like the National Foundation for Credit Counseling, which is one of the nation’s largest nonprofit financial counseling organizations, offer financial advice for those who need assistance managing their debt, potentially helping them recoup their financial health. You can schedule an appointment with one of the foundation’s credit counselors by visiting their website.

Will a personal loan help me build credit?

The short answer is yes. According to FICO, payment history determines 35% of your credit score. If you take out a personal loan and pay on time each month, this will help you establish a payment history with creditors, which will improve your credit score over time. Also, personal loans add to your credit mix, which is one of the main five factors used by credit scoring models along with your credit’s length, number of hard inquiries, credit utilization and payment history. If you’re interested in building credit, you can also apply for what’s called a “credit-builder loan.” Credit-builder loans are usually offered by credit unions and community or regional banks. With this type of loan, the borrower sets the amount they wish to borrow, and the institution deposits that amount into a secured savings account. Then, the borrower makes monthly payments (just like they would with any other loan), and at the end of the term, the lender gives the money back to the borrower, sometimes with the accrued interest. Another option is getting a secured personal loan, which is easier to obtain than an unsecured personal loan because it’s backed by a collateral.

Which is better--a personal loan or a credit card?

Both personal loans and credit cards have their pros and cons. Personal loans usually have lower interest rates than credit cards, but because they have fixed terms, some lenders may charge a prepayment penalty if you pay off the loan early. Besides that, you must borrow a specific amount, which can’t be changed after the funds are disbursed. Credit cards are easier to obtain than personal loans and require much less paperwork. You can spend as you go, there are no prepayment penalties, and some of them have introductory offers in which the borrower doesn’t have to pay interest on purchases for a certain number of months. On the downside, they tend to have higher interest rates and lower maximum amounts than personal loans. In the end, it all depends on what you need and what you think is best for your situation. For example, if you’re thinking about purchasing an expensive item, but will be able to pay it off in a couple of months, then a credit card is probably the best option. However, if you want to remodel your entire kitchen, then a personal loan may be your best option, since you’ll have more time to pay it off and you’ll probably get a better interest rate than with a credit card.

Our Personal Loans Review Summed Up

Company NameBest for
LightStream Personal LoansBest for Family Planning
Upstart Personal Loans (Powered by Credible)Best for Alternative Credit
Rocket Personal LoansStreamlined Online Experience
SoFi Personal LoansBest Overall Lender
Credible Personal LoansBest Rate Guarantee
LendingTree Personal LoansBest for Poor Credit Scores
Figure Personal LoansFast Application and Funding
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