With so many options available on the market, it’s a good idea to shop around to find the best place to get a personal loan. Below, we take a look at some of the places you should consider, places you should think twice about and places you should avoid.
- Best Places to Get a Personal Loan
- Personal Loan Alternatives to Consider
- Personal Loan Alternatives to Avoid
- How to Choose the Best Place to Get a Personal Loan
Best Places to Get a Personal Loan
Today, there are many options to get a good unsecured personal loan from banks and credit unions to online lenders.
|Banks||Good if you have great credit history and/or an existing bank account||Borrowers with poor credit will have trouble qualifying|
|Credit unions||Lower rates than banks and willing to work with those with low credit scores||May require membership and/or branch visit to apply|
|Peer-to-peer / marketplace lenders||Competitive rates, especially for average to fair credit||Funding can take up to a week or more|
|Online lenders||Competitive rates, relaxed credit requirements and quick funding||May need to shop around to get the best rate|
Both national and regional banks will offer personal loans with a variety of loan amounts, terms and rates. While banks are known for issuing larger personal loans (in many cases up to $100,000), they generally look for borrowers with good to excellent credit history. Your relationship at the bank can also be important -- some banks only give personal loans to individuals who already have an account with the bank. Many of the larger banks now offer online applications, so you don’t even need to stop by a branch to apply.
Bottom line: Banks can be a good option if you have great credit history and already have a checking or savings account with them. Many banks offer online applications and automated payment options.
Unlike big banks, many credit unions work with borrowers who have limited credit history or below average credit scores. Relationships are also important with credit unions, as you’ll need to be a member to apply in most cases. Thankfully, you should be able to find a credit union that you’re eligible to join (some only require that you live or work in the area they serve). Many credit unions offer lower rates than banks, so they can be a better choice if you have good credit. Depending on the credit union, you may have to make a branch visit to apply.
Bottom line: Credit unions offer lower rates than many banks, and most credit unions are open to borrowers who don’t have great credit. However, you may need to visit a branch to apply, and you'll need to be a member.
Peer-to-Peer / Marketplace Lenders
Instead of receiving a loan from a bank or lender directly, investors will fund your loan offer through a marketplace. Because many individuals will fund your loan, the risk is more spread out, meaning rates can be just as competitive as those offered by a bank or credit union. Terms with peer-to-peer personal loans tend to be shorter, which can be good if you want to pay back your loan quickly. Credit requirements also tend to be more relaxed. However, funding will take a little longer, on average, since multiple investors will need to fund your loan.
Bottom line: Marketplace lenders can be a good option for borrowers with average to good credit. Funding takes a little longer than other online lenders (up to one week or more).
Taking out a loan from an online lender may not initially seem like a good idea, but many online lenders offer very competitive rates and terms -- plus quick funding! Look for lenders that have APRs under 36% and terms of at least one to three years. Beware of lenders that have APRs higher than 36% or don’t show their APRs at all. Many online lenders don’t require perfect credit to apply, instead taking into consideration other factors, such as your work and educational history, ability to save and income. If you apply for a loan from an online lender, you can also expect to receive funds within one to three days.
Bottom line: Online lenders offer very competitive rates and provide fast funding. Many online lenders will also lend to borrowers who may not qualify at for a bank loan. Credit requirements will vary by lender.
Personal Loan Alternatives to Consider
Sometimes borrowing against your retirement savings or house can make sense. But you need to think twice before you commit as these loans can have pretty dire consequences if you can’t repay.
|0% intro APR or balance transfer credit card||Interest-free period up to 24 months||Tempting to spend on the card without paying down debt, borrowers with low credit scores will not qualify|
|Borrow from 401(k)||Borrowing from yourself with interest||Jeopardizing retirement savings and not all employers participate|
|Home equity line of credit (HELOC)||Low variable interest rates||High upfront fees, house is collateral|
0% Introductory APR or Balance Transfer Credit Card
If you have a credit score of at least 700, you should consider a balance transfer credit card. Many of these cards offer introductory APRs of 0% for 12 or more months, and some don’t charge any balance transfer fees if you transfer a balance within the first 45 to 60 days of getting the card. This can be a great way to pay down existing debt without racking up any more in interest. Most of these cards will offer points or cashback on purchases, but you should pay down your debt before spending money. Chase, Citi and Barclaycard all offer excellent balance transfer credit cards.
Bottom line: For those with great credit, a good balance transfer credit card can often be a better option than a personal loan. However, you need to make sure you're paying off the debt.
If you have an eligible 401(k) or retirement plan, you can borrow up to $50,000 or half of the amount you have, whichever is smaller, to use for almost any purpose. However, these loans are not without their risks. Because you are borrowing funds from your retirement plan, you will be missing out on some of interest you would have gained on your investments and setting yourself back on your retirement goals. While you will pay yourself back with interest, it’s usually lower than what you could earn through the market. In general, you’ll need to pay the loan back within five years. Not all employers allow employees to borrow from their 401(k)s.
Bottom line: While it is a loan from yourself (to yourself), you could be sabotaging your retirement plans if you don't pay back the loan quickly.
Home Equity Line of Credit
If you have equity in a home, you can apply for a home equity line of credit (HELOC), sometimes referred to as a second mortgage. It works similar to a credit card, with a variable interest rate and a line of credit that you can continually draw from. HELOCs normally come with very low interest rates, making them an attractive option. However, because the line of credit is given to you using your home as collateral, you may be forced to sell your house if you can’t pay back the loan. This is obviously a huge risk to taking out a HELOC. HELOCs also come with high upfront fees and costs, such as home appraisal costs, application fees and annual fees.
Bottom line: HELOCs may seem attractive with their low variable interest rates, but they have high upfront costs and fees. You could also be risking your home if you can’t repay.
Personal Loan Alternatives to Avoid
If you’re planning on taking out a personal loan, there are definitely lenders and loans to avoid. Below, we list some of the loans you shouldn’t take out.
|Loan||Why to Avoid|
|Payday loans||High APRs in excess of 400%, short payback times and hidden fees|
|No credit check loans||High APRs in excess of 300%, hidden fees|
|Car title loans||High APRs in excess of 200%, car as collateral|
|Credit card cash advance||High APRs and fees, interest begins accruing immediately|
When people think of predatory lending, they normally think of payday loans -- and for good reason. Payday loans charge exorbitant fees and interest rates, with APRs regularly topping 300% to 400%. They also have short payback terms of only a few weeks, making it all too easy to fall into a debt cycle. In fact, payday loan borrowers are more likely to declare bankruptcy. Because of this, some states have moved to ban or significantly limit payday loans.
Bottom line: Payday loans are as predatory as they come with high interest rates, short terms and hidden fees. Avoid at all costs.
No Credit Check Loans
If you have poor credit, it can be tempting to get a loan that doesn’t require a credit check. However, no credit check loans come with many of the same downsides as payday loans, such as high APRs between 50% to 500%. While they are amortized and have longer terms, you’ll still be paying through the nose on interest. For example, on a $5,000 two-year loan with a 396% APR, you’d repay over $35,000.
Bottom line: While these may seem like a standard personal installment loan, they are saddled with astronomical APRs and fees. They are not any better than a payday loan.
Car Title Loans
With a car title loan, the lender will use your car to secure the loan. Similar to payday and no credit check loans, title loans have APRs exceeding 100% to 200%. In some ways they are even worse than payday and no credit check loans because the lender charges you high rates and can repossess your car if you don’t pay. In fact, according to the Consumer Finance Protection Bureau, one in five title loan borrowers will have their cars repossessed.
Bottom line: Not only are you risking your car if you take out a title loan, but you won’t get a good deal on an interest rate (average APRs are around 200% to 300%!).
Cash Advances from Credit Cards
Getting a cash advance on your credit card is an all-around awful deal. Cash advances begin accruing interest immediately, come with high fees and have very high interest rates. On average, the upfront fee will be either $9 or 4% of the amount withdrawn, whichever is greater, and interest rates will be around 25%. So if you withdraw $1,000, you’d pay $40 upfront just to access your cash -- and this doesn’t include interest. You can find a better deal on a standard personal loan.
Bottom line: Cash advances have high fees and rates and start accruing interest immediately -- an overall terrible deal for you. While interest rates aren't as bad as with other options, you can still find a better rate elsewhere.
How to Choose the Best Place to Get a Personal Loan
While getting a good rate is important when shopping for a personal loan, it’s not the only thing you should consider. With so many lenders now in this space, interest rates are very competitive, so you should look for lenders that differentiate themselves in other ways. If you have average credit, for instance, you may want to find a lender that uses broader criteria, such as your educational and employment history or annual income, when evaluating your loan application. This can help you qualify for a better rate than just using your credit history.
Other lenders may offer repayment flexibility by allowing you to reschedule or lower payments at no charge or by letting you to pay by any method. This flexibility offers peace of mind as you can avoid getting hit with a late fee and a ding to your credit score if you need to push back a payment. Some lenders will also let you to pay by check or another method without incurring a fee, which can be a good option for borrowers who don’t or can’t set up automatic withdrawal. You should also be on the lookout for lenders that don’t charge prepayment penalties. If you can afford to pay back your loan more quickly, it’s good to know that you can save on interest and not be charged a fee for paying early.
Some lenders are now differentiating themselves by the additional services they offer their borrowers. Many online lenders, such as Prosper and OneMain Financial, now offer free budgeting and savings tools to help you better manage your finances overall. Others, such as SoFi, offer networking and social events for their members as well as free career services. This can be great if you are looking for a more personal touch from your lender.