Personal loans can be an excellent source of funding if you need to make an important purchase or cover an emergency expense, but personal loans can differ widely in how expensive they are and how well they fit your needs. You can get a personal loan from online lenders, banks, and credit unions.
Where to get a personal loan
A personal loan is a type of installment loan that can be used for a variety of purposes. These loans generally come with a set repayment amount and schedule and a fixed interest rate. Here's where you can get a personal loan:
- Online lenders: Online lenders serve as a kind of catch-all term for nontraditional loan providers. These marketplaces use online platforms to provide loans for borrowers from either companies or investors. The process is typically 100% digital.
- Banks: Banks, whether giant global banks or small community banks, can be reputable sources for personal loans, and can offer an in-person experience if you prefer.
- Credit unions: Credit unions fulfill many of the same functions of a bank, but are nonprofit institutions that serve a specific population, such as a community, an employer, or a labor union. You typically need to be a member to receive their benefits, however.
- Peer-to-peer (P2P) lenders: Peer-to-peer lenders are typically online-only platforms where investors are involved in and can potentially profit from funding loans, instead of just financial institutions. Prequalification, application, and approval are often done exclusively online.
If you have trouble deciding between lenders, consider more factors than interest rates and loan amounts. "Borrowers should also pay attention to flexibility in repayment terms, online tools or apps offered by the lender, and the customer service experience," says Gates Little, president of The Southern Bank. "These factors may play a significant role in how smooth the process of borrowing and repaying will be."
Online lenders
Online lenders can be digital-only arms of existing banks or credit unions, peer-to-peer lenders (where investors lend directly to borrowers), or other forms of nontraditional financial institutions. These lenders offer all the unique upsides and downsides of a digital process, from fast and easy applications to a lack of options for customer service.
Pros:
- Easy online applications: Online lenders often have extremely streamlined and simplified online applications, from prequalifying to see your loan options, to easy and fast document submissions.
- Fast experience: These smooth online processes can often get you a same-day decision on your loan — and sometimes even a same-day disbursement of your money. On average, however, you will typically receive your funds between 2 to 14 days.
Cons:
- Higher APRs for low-credit borrowers: You’re more likely to see a wide range of APRs with online lenders than with banks and credit unions. While borrowers with low credit scores can sometimes still qualify for loans from these lenders, they will also often be offered loans with quite high APRs.
- Can be difficult to get personal support: While online lenders often have multiple ways to contact customer support, (phone lines, chat, and/or email) there’s no in-person option. Finding help outside of normal business hours may be limited.
*APRs as of October 3, 2023. Upstart, SoFi, and LightStream are all Credible partners.
Banks
Banks are a great source for personal loans, and many offer the perks of online lenders (easy online applications and fast decisions and disbursement) with the added benefits of in-person service if you have questions or want hands-on help.
Personal loans from banks come with lower interest rates on average than payday loans or credit cards, making them a great option for large or emergency expenses.
Pros:
- Can often choose between online and in-person application and service: If you value an in-person experience and want an easy online process, you can likely find a bank in your area that can offer either option or both.
- Can offer better rates if you have a relationship: Many banks will offer discounted interest rates for customers with existing relationships or those who are willing to pay from a linked account with the same bank.
Cons:
- May have higher APRs on average: While personal loans from banks tend to have lower maximum APRs than many other borrowing options, rates can still be slightly higher on average than personal loans from credit unions, which are nonprofit member organizations. Online lenders, who save money by not having physical branches and staff, may also offer lower starting APRs to borrowers with excellent credit.
- Often have more stringent borrowing standards: Since banks are a for-profit enterprise, many look for borrowers with higher credit scores and generally have higher qualification standards than credit unions or online lenders might.
*APRs as of October 3, 2023
Credit unions
Credit unions are financial institutions that cater to specific memberships. Credit unions, instead of trying to turn a profit for themselves, feed any profits back into the membership by lowering fees, raising savings rates, and lowering loan rates.
Pros:
- Lower rates: Personal loans from credit unions can have slightly lower rates than banks, due to the nonprofit nature of the organization. As of June 2023, the national average rate for a personal loan from a credit union was 10.32%, compared to 11.04% for a national bank, according to the National Credit Union Administration.
- In-person service: While some credit unions will have fast and easy online applications, many are smaller and will need you to complete your loan application in person. (This can be a pro for some, and a con for others.)
Cons:
- Have to be a member: Credit unions don’t have customers, they have members. You will need to find a credit union where you qualify for membership. To join, you will typically pay a small fee of between $5 to $25.
- Can have slower processing times: Again, this will vary widely depending on your credit union’s size and other factors, but it may take longer for a credit union to process your loan application, make a decision, and disburse your money than it would for a large national bank or online lender.
*APRs as of October 3, 2023
Peer-to-peer lenders
Peer-to-peer (P2P) lenders offer loans funded by investors instead of traditional sources like banks or credit unions. Some P2P loans are directly funded by investors, while others involve partnerships with banks that originate the loans and sell them to the P2P platforms, which then sell them to investors.
Pros:
- Online applications: Since P2P lenders are typically online-only, you may be able to shop, compare prequalified offers, and apply for a loan entirely online.
- Eligibility requirements may be less strict in some cases: Factors such as credit score, credit history, and income may play a lesser role in a P2P loan application than applying with a traditional lender would.
- Potential for fast funding: Like other types of online lending, a P2P loan could take less time to process than an in-person application at a bank or credit union.
Cons:
- Fewer options: P2P lenders are uncommon, so you might have limited options to shop and compare rates. Prosper and Upstart are the two major players in P2P lending.
- Potential consumer risk: The P2P industry is less regulated than traditional lending, and some lenders have been penalized by federal agencies for offenses such as improper disclosure of fees.
- High maximum APR: While some P2P lenders may provide competitive low-end APRs, the high end of their APR ranges may be higher than those of banks, credit unions, and online lenders. If you have a bad credit score, you may be more likely to pay an APR above 30% with a P2P lender.
How lenders compare
How to apply for a personal loan
Personal loan applications can vary from lender to lender, but here’s what you can expect:
- Look at your credit report: Your credit score has a major impact on the loan amount you qualify for and the APR you’re offered. You can visit AnnualCreditReport.com to get a free credit report and make sure there are no errors bringing your score down. If you have a low credit score, you can boost your score before applying for a personal loan.
- Prequalify if possible: Many lenders have an easy online prequalification process that allows you to see the terms of the loans available to you based on your financial situation. Your lender will typically perform a soft credit check, which doesn’t affect your score. So it can be a good idea to prequalify and know the best offers available before you formally apply and trigger a hard inquiry. One thing to note, your final rate may differ from what you prequalified for.
- Compare terms: Once you have your loan terms from multiple lenders, take a look at the APRs, loan amounts, and repayment terms to see which is right for you. The APR will directly affect how much it costs you to borrow, but also remember that the longer your repayment term, the more interest you will pay overall. It’s usually best to choose the lowest rate and the shortest repayment term with a monthly payment you know you can afford.
- Submit your application: Once you’ve chosen the best option for you, it’s time to complete the application. If you only prequalified for the loan, you’ll need to submit documentation for things like your identity, your employment, and your income. Make sure you read and understand the fine print before you sign and finalize the loan. Your lender will perform a hard inquiry at this time, which can lower your credit score temporarily.
- Prepare for repayment: Once you receive your money, start planning for repayment. Put the due dates on your calendar and consider setting up automatic payments.
Learn More: How To Apply for a Personal Loan
FAQ
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