Why Borrow Online?
The top performers in our review are LendingTree, the Gold Award winner; Prosper, the Silver Award winner; and Avant, the Bronze Award winner. Here's more on choosing a service to meet your needs, along with detail on how we arrived at our ranking of the top 10 online personal loan services.
How to Choose an Online Personal Loan Service
Online personal loans are simple to apply for and applications are generally processed quickly. Further, personal loans may offer competitive rates, and you can use the funds for a variety of reasons. These loans are unsecured, meaning they do not require collateral. The loans may be an option for borrowers with marginal credit with a cosigner. Many people use personal loans to pay off high-interest credit cards, fund a new business or to pay medical debt.
How to Apply for an Online Loan
Applying for a personal loan online in many cases is simple. The initial application process may only take a few minutes. Information varies from lender to lender, but you'll most likely be asked to provide your address, employment status, estimated credit rating, social security number and income information.
You may also be asked to provide further supporting documentation such as proof of income and your address. This basic information helps the lender or broker determine whether you are a good candidate for a loan. Your credit will also be verified using the three major credit-reporting agencies. Many lenders run what is called a "soft credit" check that will not negatively affect your credit score.
Many online personal loan services, such as LendingTree, are not actual lenders. LendingTree says it is a marketing lead generator and a duly licensed mortgage broker, not an actual lender. LendingTree obtains your basic information and then connects you with potential lenders you might acquire a loan from. Your loan will be through the specific lender you ultimately decide to work with, not the online company you initially applied through.
Factors That Influence Your Loan Rate
Like most loans, your credit rating is scrutinized. Each lender has their own requirements, but generally speaking, you're more likely to obtain a personal loan if you have good credit and a dependable, steady income. If you do not have established credit through traditional lines, such as credit cards, a mortgage, or auto loans, the lender may consider your payment history with other bills such as utilities or rent.
Interest rates can vary greatly. If you have good credit, you can likely obtain a competitive rate. If your credit is bad or marginal, you can expect to pay a much higher rate, or you may not receive an offer at all.
Lenders may also evaluate your income. Many have minimum income requirements, and these vary from lender to lender, but usually the requirement is a few thousand dollars per month or more, depending on the loan size and your debt-to-income ratio.
To learn more about unsecured loans, see our articles about personal loans.
Loan Fees to Consider
The first fee to consider is the actual interest rate. Rates vary greatly. Just a few percentage points in the long run can make a huge difference so you'll want to shop for the best rate possible.
A second loan expense to consider is origination fees. Not all loan companies charge this fee. The origination fee is taken from the loan balance. For example, if you get a $10,000 loan, but the lender charges an origination fee, your initial deposit will be $10,000 minus the origination fee.
The last fee is a check-processing fee. Most companies nowadays charge to process check payments.
Personal vs. Payday Loans
There are several differences between personal and payday loans. Consumers also may have different purposes in mind when seeking loans from both types of services. Credit requirements may vary as well.
Here's more about each type of loan:
These types of loans are usually in the thousands, are repaid over a few years, and take into account your credit rating and history. Consumers seek out personal loans to fund expenses that a traditional loan may not cover. They use personal loans to consolidate debt, including credit-card and medical debt; to fund a new business venture or as a small business loan; or to cover home repairs. Some even use loans to fund events such as a wedding or vacation. To the lender, your ability to repay the loan is more important than what you plan to use the loan for.
Personal loans are often unsecured and require collateral. Those with marginal credit may be able to obtain this type of loan with the help of a cosigner.
These loans are usually small, short term and may be available to those with high-risk or marginal credit. They are called payday loans because, originally, the terms were intended to be just until the borrower’s next payday. Consumers turn to these loans to pay for unexpected emergencies or to cover living expenses.
What We Evaluated, What We Found
For our review, while we didn't obtain a loan through each service, we did evaluate the application process, customer support and repayment options. Most services provide simple-to-use online applications. We contacted customer support representatives by email and telephone.
For the most part, we had positive experiences with each loan service's customer support staff. Most took their time with us to thoroughly answer our questions and response times were within an acceptable range. We didn't find too much variance with repayment options other than that some loan services charge an additional fee for processing check payments.
In addition, some of the services on our lineup work with multiple lenders, so we do not know what your experience might be with the lender you ultimately end up working with. We also could not compare rates and terms. Rates vary greatly depending on your income, credit rating, location, state regulations and more. Your experience will be unique, and we suggest that you carefully review each service and the terms of the loan before signing.
How Are Personal Loans Funded?
Not all online personal loan services are bank funded. Some are funded by individual investors. Lending Club and Prosper offer investment opportunities to individuals who want to fund loans, portions of loans or loan portfolios. Typically, investors are repaid the amount they loaned plus interest. This is not the same as peer-to-peer lending, but rather, it's an investment option for individuals with capital. Prosper investors have funded over $6 billion in loans.
Your Rights as a Consumer
Lenders are legally obligated to provide consumers certain protections. Legal documents are often confusing, the loan process can be overwhelming, or perhaps you are unsure what questions to ask. Below is a list of your consumer rights and the questions you are entitled to ask. This isn't a complete list. The Federal Trade Commission (FTC) website offers some helpful resources for consumers in the consumer information section of their website.
As a consumer, some of your rights include the following:
- Credit decisions cannot be based on your race, color, gender, national origin and more. Credit decisions can, however, be based on your financial status. If you feel you have been unlawfully discriminated against, contact your state attorney general's office.
- You do not have to reveal your marital status if you are applying for a loan in a non-community property state.
- Creditors are not allowed to discriminate if you receive public assistance.
- Within 30 days of applying for a loan, you should receive notification whether you've been accepted or rejected.
You have the right to ask for the following:
- If you are denied your loan request, ask why. There may be information on your credit report you may not be aware of or there may be incorrect information. You also have the right to obtain a free copy of your credit report.
- Inquire about the total cost of the loan, including interest, fees and other charges. While a low monthly payment may seem attractive, you may discover, on closer analysis, that it is not in your best interests. For example, some lenders charge fees for processing check payments.
- Request clarification on any terms or legal language you do not understand. Do not sign any type of legal agreement if you do not fully understand the terms.
Avoiding Personal Loan Scams
Loan scams are real, and you should be wary of offers that seem too good to be true. The FTC and other consumer-rights groups regularly warn consumers about loan scams. Here's how you can protect yourself:
- Always be suspicious of unsolicited loan offers. If you receive a phone call or mail you didn't request, you should be careful.
- Be wary of lenders that are not interested in your credit history. All legitimate lenders and banks will evaluate your credit history.
- Verify that the lender you are considering is registered in your state.
- Do not send any money to a lender that asks you to make a payment upfront before you've received your loan funds. Legitimate lenders will not ask you to do that.
- If you're using a loan broker, always verify the bank or institution. Do your research. Physical locations, P.O. boxes, etc. should be thoroughly investigated.
If you have bad credit and are seeking a personal loan, you'll need to be extra cautious. That said, there are numerous legitimate lending agencies available to help those with marginal credit. In addition, each state provides free assistance to those desiring to improve their credit by offering several programs and resources. In many states it is the Consumer Credit Counseling Service that can assist you.
Our Verdict & Recommendations
We recommend that you apply for a few loans and compare rates and terms. Applying for a few loans will not negatively affect your credit rating. Since even a small difference in interest rate can make a costly difference in the long run, you should rate shop. You'll also benefit from exploring options that may lower your rate such as automatic payments or perhaps adding a more qualified cosigner.
If you are interested in peer-to-peer or investor supported loans, you may want to consider Prosper or Lending Club. If you want to shop more than one lender with one application, LendingTree can help you access multiple lenders. If you'd prefer to visit an actual office location, Springleaf has over 800 local offices. SoFi is a fast-growing loan service that may be a good option for obtaining a no origination fee loan.
For those with a limited credit history but who have a good education and earning potential, Upstart may be an option. Numerous options are available, including your own bank or credit union. The most important thing is to shop rates and find the most agreeable terms.
Top Ten Reviews seeks, whenever possible, to evaluate all products and services in hands-on tests that simulate as closely as possible the experiences of a typical consumer. In this case, we did not obtain a personal loan. You'll want to carefully review the terms of any loans that may be offered to you, should you apply. The personal loan services in our comparison had no input or influence over our test methodology, nor was the methodology provided to any of them in more detail than is available through reading our reviews. The results of our evaluation were not provided to the companies in advance of publication.