At a Glance
If you’re wondering where to get a personal loan, know that there are multiple options available, each with pros and cons depending on your personal situation. In this article, learn more about the best place to get a personal loan, what to avoid, and tips for comparing your options.
What is a personal loan?
For those unfamiliar, a personal loan is money borrowed from a lender which is paid back in, typically, monthly installments over a predetermined number of years. This sum of money being paid back includes either a fixed or variable interest rate and can be used for whatever a borrower wishes.
How do personal loan work?
Most personal loans are unsecured, which means that there is no form of collateral backing up the loan. Those with lower-than-average credit scores, bad debt-to-income ratios, or a lack of credit history may only be offered a secured loan or one that is guaranteed by a co-signer.
Once you receive the funds for your requested personal loan, they can be accessed for the intended purpose immediately. As time goes on, you will be responsible for paying a monthly sum back to the lender that includes any interest accrued and the portion of the loan for that month. Loan terms will vary lender-by-lender.
Learn more: How do personal loans work? | Credello
Reasons to get a personal loan
There are many reasons a person may consider getting a personal loan. Common examples include:
- Home renovations
- Medical expenses
- Wedding expenses
- Purchasing a car or boat
- Random unexpected expenses
In many cases, you may not have a surplus of cash on hand ready to cover the above expenses. This can be an excellent reason to turn towards taking on a personal loan, but only if you can take on the debt and make all payments on time and in full.
Learn more: Good reasons to get a personal loan
Where to get a personal loan
When researching personal loan options, you’ll find there are different types of lenders, including online lenders, credit unions, and banks. Weigh the pros and cons of each when deciding which is right for your situation:
Personal loans from online lenders
There are many online lenders available today, typically with fast and convenient customer service support and online applications. In some cases, they can tell you almost immediately whether you qualify or not. This makes the process of applying for and receiving funds faster and easier.
Online lenders may also be a better option for those with poor credit scores. However, interest rates can vary significantly, so be sure to compare multiple lenders to find the best rate.
|Application and approval process happens quickly
|Many charge origination fees
|Convenient online customer service support
|Interest rates can vary significantly
|Funds are available quickly
|No in-person support available
|Can qualify with poor or no credit
Personal loans from credit unions
If you’re a member of a credit union, this can be a great option for getting a personal loan. If you’re not a member but you meet the membership criteria to join, you can do so, but you typically need to then open an account. Examples of membership criteria include:
- Working in a certain industry
- Living in a certain geographical area
- Having a family member who is a member, or eligible to join
Credit unions are nonprofit and member-owned institutions, so they typically offer lower interest rates and fewer fees. They also may be willing to work with members who have poor credit by considering additional aspects of your finances when making the approval decision.
|Competitive interest rates
|Must be a member of the credit union
|Some charge origination fees
|Work with those who have poor credit
Personal loans from banks
Banks have both in-person and online support and options, which makes them convenient regardless of which you prefer. While banks offer competitive interest rates, they are typically higher than other options and borrowers likely need a higher credit score to even qualify.
|Discounted rate if you currently bank with them
|May need to be an existing customer
|Can offer competitive interest rates
|Good or excellent credit required for low rates
|Funds can be received within a few business days
|Not all banks offer personal loans
|In-person and online customer support
|May charge some fees
|Stricter lending guidelines
Why to avoid payday and title loan lenders
Some types of lenders have expensive, unfair, and even abusive practices and loans they force on borrowers. These include payday lenders and title loan lenders.
- Payday lenders claim that payday loans are a great way to have funds between paychecks. Like a personal loan, you’d borrow a lump sum and pay it back (along with fees) on your next payday. However, if you don’t pay it back on time, the loan term can be extended, creating a cycle of debt that’s difficult to escape. The fees can also be extensive.
- Title loan lenders offer small, short-term loans in exchange for the title to your vehicle. To get the title back, you must pay the loan off (plus fees) within 30 days. If you don’t, the lender will take your vehicle.
Using these lenders, you can risk being charged outrageous fees, losing your vehicle, or getting stuck in a debt cycle that’s virtually impossible to get out of, even if you’re a responsible borrower. When shopping lenders, make sure to avoid these red flags:
- High APRs and fees, some of which can even get into the triple digits.
- Short repayment terms, even as short as two weeks.
- Lack of transparency and information on the company website, including APRs, terms, and amounts.
- Easy approval process, including no credit check options.
- Pressure to take out the loan.
How to decide which type of lender has the best loan for you
Deciding the best places to get personal loans depends upon the loan terms you are offered by each lender. Additionally, some lenders such as credit unions may require you to sign up for membership prior to applying, which usually costs money. If this isn’t something you wish to do, then other lenders may be better choices.
Some lenders may offer faster approvals or denials, along with pre-qualification offers which can give you a strong indication of the terms you may be offered. Consider all these factors along with the terms you are offered by different lenders to determine which type is best for you.
Tips for comparing personal loan lenders
When shopping for a personal loan lender, there are factors to consider beyond interest rates and monthly payments. Other items to compare include:
- APR, which includes the interest rate and any extra fees and can be a better apples-to-apples comparison between lenders.
- Loan terms typically range from 12 to 84 months. A shorter term means fewer payments, but they may be a higher cost. Longer terms mean lower monthly payments, but you’re paying more in interest over the life of the loan.
- Customer service, including ratings and reviews from current and previous customers.
- Other features, such as automatic withdrawal payment options, grace periods, or others.
- Fees, like origination fees, early payoff penalties, and others.
Be sure to compare different banks, credit unions, and online lenders in your area, and get prequalified if possible for the most accurate estimates of what your term and rates will be with each lender.
Then, apply with the lender who meets all of your expectations and requirements.
Tips for getting the best personal loan
The best way to get a personal loan with good credit or bad credit is an intensive process. Use some of the following tips to help ensure you are receiving the best deal possible:
- Don’t be afraid to research more than one offer
- Submit prequalification applications when possible
- Mark down any additional fees (such as origination fees) that may increase your total amount paid back
- Consider the purpose of your loan and evaluate whether there are specific loans structured towards that purpose
Rather than rushing into a personal loan decision with a certain lender, evaluating your different loan options can be the best way to see your best offering.
How to pre-qualify for a personal loan
Most lenders allow you for loan prequalification online, with the process sometimes only taking a few minutes. And because prequalifying triggers a soft credit check, which doesn’t affect your credit score, you can prequalify with different lenders to get the most accurate estimates of options.
In most cases, simply:
- Enter the amount of money you want to borrow.
- Provide information about the purpose of the loan.
- Share your credit score and other personal information needed such as employment status, income, and address.
- Get your estimated rates and loan terms.
Keep in mind that getting prequalified for a loan doesn’t mean you’ll be approved for the actual loan, and your interest rate and other loan terms can change once you’re approved. However, getting prequalified can just give you an accurate estimate for comparison purposes.
How to apply for a personal loan
There are a few steps to applying for a personal loan:
- Check your credit score. Knowing this information can be helpful when prequalifying for a loan, and if you know your score needs improvement, you can take steps to do so prior to applying for a loan. This can help you get the best interest rates.
- Get estimated rates using a personal loan calculator. This gives you a starting point when researching different lenders and comparing estimated rates based on your desired loan amount, term, and credit score.
- Get prequalified when you can.
- Compare lenders and review loan terms, paying particular attention to APRs, terms, fees, customer service ratings and reviews, and types of loans you’d qualify for.
- Apply once you’ve decided on a lender. You’ll typically need proof of identification, address, employment and income, as well as bank account information, personal information, and information about the loan.
- Accept the loan and finalize loan documents once you’re approved. The funds will then be deposited into your bank account within a few business days.
Learn more: How to apply for a personal loan | Credello
There are a few factors within your control to help increase your chances of getting approved for a personal loan. First, if your credit score is below 640, take steps to improve it. The better your score, the greater your chances of being approved and you’ll qualify for a lower interest rate. You can also have a cosigner help you with the loan, or choose a secured personal loan, which uses collateral (like a house or car) to help you get approved. Also be sure to shop around for your best options.
If you have a good to excellent credit score, proof of employment and income, and a low debt-to-income ratio, it is not difficult to qualify for a personal loan. You can still qualify without these things, or with a poor credit score, but you may need a cosigner or collateral to do so.
Other types of loans you can consider likely depend on what you need the funds for. For example, you can use:
- Auto loans when purchasing a new vehicle.
- Student loans to help for college and graduate school.
- Mortgage loans if you’re purchasing a new home.
- Debt consolidation loans designed specifically for consolidating debt.
Additionally, home equity loans (HEL) or a home equity line of credit (HELOC) allows you to borrow up to a percentage of the equity in your home for any purpose.
Interest rates on personal loans can vary due to a number of factors, which can make what is considered a good interest rate vary. However, average borrowers typically qualify for an interest rate between 10%-28%, so any value below 10% would be considered good.
When looking for the best place to borrow a personal loan, you should consider the APR that is in the loan terms. The APR is the sum of the interest rate plus any fees that is calculated on a yearly basis. This is also your “all-in” number for calculating what you will likely owe on the loan.
When looking for the best place to get a personal loan with low interest, you should also consider the fees that are associated with the loan. The most common fees to keep an eye out for are origination fees, late payment fees, application fees, and prepayment penalties.
While there isn’t a specific limit for the amount of personal loans you can have at once, lenders may not like seeing you have a certain amount of outstanding debt. Overbearing yourself with debt may result in an inability to meet payments, which can severely damage your credit score.
During the process of finding the best place to get an unsecured personal loan, it’s also worth looking at whether or not you can refinance that personal loan. Yes, in most cases you should be able to refinance a personal loan by taking out another loan (at a better rate) and using that sum to pay off the old loan.