We’ve been reviewing personal loans for seven years, and for our most recent update we looked at 15 of the most popular online lenders. We looked at traditional lenders and peer-to-peer lenders, which have become popular in recent years because they can give you access to loans without going through traditional banks.
We looked for lenders with simple applications that could be processed and approved quickly. These loans are unsecured, meaning they do not require any collateral. Personal loans are often used to pay off credit cards, medical debt, home improvements or to fund new businesses.
Best for Multiple Loan Choices
Best for Multiple Loan Choices: LendingTree
LendingTree isn’t a private loan provider or a P2P lending site, but it can connect you with many different lenders and is a great clearinghouse for finding loan rates and information.
When you submit a loan request on its website, LendingTree consolidates offers from multiple online lenders and lets you pick the best one. You can evaluate the APR you’ll be paying on your loan, the length of the loan term and how much your monthly payment will be.
Best if You Have Little or No Credit History
Best if You Have Little or No Credit History: Upstart
Upstart is a lender that looks at more than just your FICO score and how long you have had credit. It also takes into account your education, what subject you studied in school and your work history. Since it began, Upstart has funded over 57,000 loans and will fund loans up to $50,000. For those with a limited credit history but who have a good education and earning potential, Upstart may be a great loan option.
Best Peer-to-Peer Lending
Best Peer-to-Peer Lending: Lending Club
Lending Club is the best P2P lender we reviewed. It has less stringent eligibility requirements when compared to other lenders. Lending Club offers business loans and personal loans. To be eligible for a personal loan you’ll need to meet Lending Club’s income and credit requirements. Business loans require your business meet sales requirements and have been active for at least 12 months. This peer-to-peer lender also offers a dedicated advisor.
Best for Low Fees
Best for Low Fees: SoFi
SoFi has the lowest fees we saw, but it has stricter eligibility requirements than many of the other lenders we reviewed. SoFi looks at your credit, employment and education history to determine if you qualify for one of its loans. You must currently be employed to qualify for a loan from this lender, and you must have graduated from a Title IV accredited university that meets SoFi’s requirements. If you do qualify, however, the company doesn’t charge many of the fees that other lenders do, and the fees it charges are lower than the other lenders we reviewed.
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 a lender. The company 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
As with most loans, your credit rating is scrutinized. Each lender has its own requirements, but you're more likely to obtain a personal loan if you have good credit and a dependable, steady income. If you have not 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, depending on the loan size and your debt-to-income ratio.
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 won’t be the full $10,000 because the origination fee has been taken out.
The last fee is a check-processing fee. Most companies nowadays add an extra charge to process check payments.
How to Get a Personal Loan
Do your research. Though it’s tempting to grab the first loan you see, taking the time to research your options can pay off – quite literally – in the long run. Before applying for a loan, look at any requirements it may have. Does it require a co-signer or collateral? Does the lender run a soft or hard credit check? Are there better options through your bank or local credit union? Knowing the answers to these questions can help point you in the right direction.
See if you pre-qualify. Many loans give you the ability to see if you are eligible for them before formally applying. The pre-qualification process typically requires you to verify your employment, age, residency and income, and it may involve a credit check. Be sure to check whether the lender will do a soft or hard credit check, so your credit score isn’t unnecessarily impacted.
Shop Around. There are thousands of loan options out there from a variety of lenders. Once you get pre-approved, taking the time to shop around gives you a better chance to find the best deal for your needs. While looking around, it’s important to keep in mind what a lender will get out of you taking out a loan through them. Many lenders are predatory, advertising a great deal while disguising sky-high interest rates and fees or ridiculous terms. Try to avoid loans with variable interest rates that flux over the life of the loan, in favor of fixed rates instead. Your best bet is a loan through your local credit union.
Apply. Before formally applying for a loan, be sure to read any fine print. Here you should be able to see all the fees, rates, terms and conditions attached to the loan. You should also be able to see any hidden fees here, including application fees, establishment fees, origination fees or early repayment fees. If you’re unsure about anything in the fine print, we recommend contacting the lender directly and asking for clarification.
Get approved. This is the easiest step! The lender will inform you that you have been approved and for how much. Note that some lenders may approve you for an amount exceeding what you needed; and though it’s tempting to accept the full amount, doing so can cost you more in the long run with fees and interest.
Receive your funds. Once you’re approved, you’ll receive your money either by direct deposit or physical check. How long it takes to get your money varies by lender. With some lenders, it may take a couple of weeks; with others, you’ll receive the money the same day that you’re approved.
Repayment. You’ll start paying back the loan according to the terms set forth by your lender. In most cases, you’ll have a set monthly payment. If you want to pay off the loan all at once, check beforehand to see if the lender allows you to do so without penalty.
Managing Your Loan
One of the benefits of getting an online personal loan is that it’s easier to manage than one you’d take out in person at a bank or credit union. Once you log on to your lender’s website, you should be able to view all pertinent details for your loan. In most cases, you should be able to view related documents, along with your current balance, next payment amount and due date, payment instructions, a single payment portal and lender contact information.
Good lenders will also provide you with your payment history, automatic payment setup, the ability to view and edit your account information as well as a way to review your loan’s rates, fees, terms and conditions. They’ll also have an intuitive and clearly labeled interface that makes it easy for you to view all of your pertinent information, and they won’t try to hide anything from you in confusing menus or fine print. We also like lenders that provide a mobile app so you can view your loan, its related information and even make a payment, no matter where you are. Good lenders may also include a link where you can view your FICO credit score, allowing you to manage both the loan and your credit while repaying the loan.
When to Avoid a Personal Loan
When you’ve got an unexpected expense, or simply need to add some temporary padding to your bank account, it’s tempting to apply for a personal loan advertised online. However, this may not be the best idea for the health of your finances or your credit.
Make sure you’ve looked through all your options and are sure a personal loan won’t negatively impact your financial health. You can even look at low-interest and low-limit credit cards to help you. If you aren’t sure, we’ve compiled a list of three times when it’s unwise to take out a personal loan.
While working on rebuilding your credit. If you’ve committed to work hard on improving your credit, you’ll want to avoid doing anything that will impact it negatively, like taking out a personal loan. Though it may seem like the logical way of paying down a bunch of smaller debts or another similar tactic, it will likely require a hard inquiry on your credit which could hurt it. You’d need to make sure that the benefits of taking a loan here would outweigh the cons.
When saving up for big event purchases without resale value. If you have a large financial event on your horizon, like a vacation or wedding reception, you might be thinking about taking out a personal loan to help cover some of the costs. However, since event purchases like these have no resale value, it’s just more money you’ll owe in the long run and another bill to pay. We recommend saving up in advance for event purchases.
When you aren’t being mindful of your current spending habits. If you aren’t regularly tracking your everyday purchases and credit health – especially if you’re buying lots of costly things on credit that you don’t really need – and are still thinking about taking out a personal loan, we don’t recommend doing so. Rather, we recommend looking over your budget, seeing where you can tighten things up and perhaps even using a low-limit credit card to help you cover this kind of spending.
When to Get a Personal Loan
Above, we listed a few situations where you probably shouldn’t take out a personal loan. Of course, there are also plenty of good reasons to get one. Here are a few examples.
Home improvements. Whether it’s for an emergency, such as a flood, or you want to remodel your kitchen to increase your resale value, a personal loan is a viable option. This is especially true if you lack the equity needed to borrow credit against your home. Both repairs and remodeling can mean a return on your investment in the long run if you ever sell your house, making them a great thing to use a personal loan for.
Paying off medical expenses. Few expenses add up quicker than medical bills, especially if they are for procedures or events you didn’t plan for. A personal loan can be helpful whether you have one small bill or several large ones. It could cover anything from routine trips to the dentist to cosmetic surgery to emergency room hospital bills.
Financing a purchase. Whether you need to finance something for your small business, or you simply want to buy a new boat or car, a personal loan can sometimes be cheaper than dealer financing or taking out a business or auto loan. It can also make a cash transaction run more smoothly. A personal loan for your small business is especially handy in the event you don’t qualify for a small business loan.
Consolidating or reducing debt. Having multiple financial accounts, student loans or high-interest credit cards open with high balances can really take a bite out of your monthly finances and hurt your credit if you start missing payments Taking out a personal loan to reduce your overall owed amount, or to consolidate your debts, is a good way to rein in your finances and improve your credit at the same time.
Financing personal development. Though most people think of college – and, consequently, student loans – as the options you must to turn to for personal development, keep in mind that one size doesn’t always fit all. There are lots of alternative educational resources out there for personal development that student loans won’t cover. Typically, these types of educational opportunities allow you to improve your resume, work toward a promotion or find a better-paying job, giving you a return on the investment you make with this loan.
These opportunities include bootcamps, seminars, conferences and similar events, all of which provide ongoing education that may be required for your job or teach vital networking skills needed within your profession. You might also need to pay for expensive professional certifications to make yourself more marketable.
Other major life events. Sometimes life just happens. Without any warning, you may need to pay for a funeral or relocate across the country for a job. If your savings don’t cover such expenses, a personal loan might be the best option.
Personal vs. Payday Loans
There are several differences between personal and payday loans. Consumers also may have different purposes in mind when seeking a loan. Credit requirements may vary as well.
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 no collateral. Loan seekers with marginal credit may be able to obtain this type of loan with the help of a cosigner.
Alternative Personal Loans Through Your Credit Union
If a traditional loan doesn’t seem like the perfect fit, check out the personal loan options available to you through a credit union. You can use these loans for pretty much anything, just as you would with a traditional personal loan. Since credit unions are not-for-profit organizations, you can expect to receive a lower interest rate on your loan than you would elsewhere, even if you have an average or poor credit score. Credit unions are member-owned and designed to focus on the needs of their members rather than profits, which is why they can offer lower rates and fees.
Typically, credit unions can offer you secured and unsecured personal loan options. A secured loan requires you to make a deposit as collateral, which the credit union will use to cover its losses should you default on the loan. This type of loan has lower rates than the secured option and may allow you to earn interest on your deposit. An unsecured loan doesn’t require this and is the more common option. No matter which option you choose, however, credit union loan rates are much more affordable than nearly any other option out there.
Personal Loan Traps to Watch Out For
Whether because of an unexpected emergency or the stress of the upcoming holidays, it’s easy to be tempted by a personal loan when money gets tight. However, rushing through the loan process can lead you to fall victim to the traps that can accompany these types of loans.
Before applying for a personal loan, be sure to research it thoroughly. Though this process can be time-consuming, it can potentially save you a lot of money and stress in the long run. Careful research can get you a loan with lower fees and interest rates, as well as better terms and conditions. We recommend shopping around for a loan, rather than jumping at the first one that looks acceptable, especially at those offered by credit unions.
Once you are approved for a loan, ensure that you only borrow the amount that you need. It’s not uncommon for lenders to approve you for more than you need hoping that you’ll take the higher amount so they can make money off of you via interest and fees.
These loans are usually small, short term and available to those with high-risk or marginal credit. They are called payday loans because, originally, the loan term lasted only till the borrower’s next payday. Consumers turn to these loans to pay for unexpected emergencies or to cover living expenses. They should be a last resort since they come with burdensome fees
What We Evaluated, What We Found
For our reviews, 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 except that some loan services charge an additional fee for processing check payments.
Some of the services on our lineup work with multiple lenders, and we can’t review every lender out there. 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 consider 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 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, and the loan process can be overwhelming. 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 in the consumer information section of its website.
Some of your rights include the following:
Credit decisions cannot be based on your race, color, gender, national origin or other such identifiers. 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 resources to those desiring to improve their credit. In many states, it is the Consumer Credit Counseling Service that can assist you.
How to Monitor Your Credit
Keeping an eye on your credit is important even when you aren’t actively seeking out a personal loan. Monitoring your credit can help you make smarter financial decisions and potentially even help you get qualified for better loans with better rates and terms.
The better your credit is, the more likely you are to be approved for a personal loan, especially one with good rates and terms. Learning about your credit’s health and history can give you an idea of how likely you are to be approved for a loan, or if it’s even a good time for you to be applying for a loan.
There are many ways to monitor your credit, all of which are easy and cost little to nothing. The Federal Trade Commission states that you are entitled to “one free copy of your credit report every 12 months from each of the three nationwide credit reporting companies.” Additionally, most banks and credit cards provide similar services, or you can use a third-party app like Mint, Credit Karma or Wallethub.
Mint helps you track your spending and provides a credit report and education about credit scores. Apps like Credit Karma can provide you with your credit scores from TransUnion and Equifax, with regular updates. They let you view the factors that affect your credit, such as credit card utilization, open accounts, hard inquiries and payment history. These apps can even recommend credit cards and loans tailored to your credit history and help determine if you pre-qualify for them.