Personal loans account for about 10% of non-revolving credit in the U.S., according to data from the Federal Reserve. While personal loans are offered by many traditional banks and credit unions, they can also be found through more and more online lenders and non-bank institutions.
And even though lending standards have generally tightened across in recent years, there’s a large pool of options to choose from.
So, if you're looking for a personal loan, narrowing down your options may be the biggest challenge. Here are the factors to consider.
Loan amounts
Personal loan amounts can range from around $1,000 to as much as $200,000, but many loans max out at $50,000. Loan amount ranges vary between lenders, and you may not be eligible to borrow up to the limit with any given lender. The loan amount you qualify for is typically based on your credit profile, income, and debt, and available amounts can also depend on where you live.
To compare personal loans, start by figuring out how much you need to borrow. Then, request quotes from lenders with suitable loan amount ranges and see which offer the loan amount you need. If none do, look for the amount that’s the closest.
Annual percentage rates (APRs)
A loan’s APR expresses total annualized borrowing costs. It represents the loan’s interest rate plus any upfront fees, such as origination fees, if upfront fees were distributed evenly over the loan term. Because APRs account for upfront fees, they are more helpful than interest rates for estimating actual borrowing costs. Personal loan APRs currently range from 7% to 36%.
A three-year, $10,000 personal loan with an interest rate of 18.00% and an upfront origination fee of 3% would have an APR of 20.14%.
Important:
The federal Truth in Lending Act (TILA) requires lenders to communicate loan rates as APRs to reflect actual borrowing costs.
The table below shows a cost breakdown for the same loan with different origination fees and APRs.
Interest rates
Interest rates tell you how much you’ll pay to a lender in interest as a percentage of your principal balance. Interest rates are typically fixed for personal loans, and even small differences in rates can significantly impact your total cost.
For example, a five-year personal loan of $12,000 with an interest rate of 18% would cost $6,283 in total interest, while the same loan with an interest rate of 16% would cost $5,509.
Fees and penalties
It’s also important to understand the fees personal loan lenders charge. Fees will add to your borrowing costs and can make or break a loan offer.
Origination fees
The first fee to watch out for is an origination fee, also known as an administration fee. Lender origination fees range from 0% up to around 12% of the loan amount and are typically deducted from loan funds before you receive them.
For example, if you get a $5,000 loan with a 5% upfront origination fee, you’d only receive $4,750 but would have to repay the full $5,000.
Though origination fees are common for personal loans, many lenders offer loans with no origination fees. Borrowers with good credit scores (a FICO score of 670 to 739) or better may also be more likely to qualify for loans without origination fees.
Important:
Note that only origination fees are accounted for in a loan’s APR.
Late or returned payment fees
Payment-related fees are also common. Lenders may charge you a per-incident fee if your payments are late or returned.
For example, Upstart charges a fee equal to $15 or 5% of the past-due amount, whichever is greater, if you don’t make a payment within 10 days of its due date. Additionally, you’ll incur a charge of $15 per occurrence for returned checks or ACH payments.
It’s a good idea to check a lender’s payment-related fees and grace periods, or windows of time during which you can make payments late without penalty.
Repayment terms
Personal loan repayment terms typically range from one to seven years, but some lenders offer terms of 10 years or more.
Choosing the right term for your budget is important. A longer term means lower monthly payments than the same loan over a shorter term, but longer loans also cost more in total interest. Decide on the term you want before comparing loans.
Monthly payments
Monthly payments for personal loans are typically fixed because most personal loans have fixed APRs. This means you can plan how they’ll fit into your budget. When comparing loans, look for monthly payments you’ll be able to easily afford for the entire repayment period. Each month, you make payments toward your principal and interest.
Personal loans are usually amortized. This means that as you repay your loan and your balance decreases, you’ll go from paying mostly interest to making larger payments toward your principal balance each month. In other words, your monthly payments will stay the same, but the funds will be distributed so that you’re paying more toward interest in the beginning of your loan and more toward principal closer to the end.
Funding speed
If you need a personal loan fast, pay attention to funding speed estimates between lenders. Some lenders fund loans as soon as the same day you’re approved, while others may take several business days to process disbursements.
Collateral requirements
Personal loans may be secured or unsecured. Secured personal loans require you to pledge collateral, such as a vehicle or savings account, while unsecured loans are secured by your credit rather than an asset.
Unsecured personal loans are generally harder to qualify for than secured loans, so you may prefer one option over the other depending on your credit profile and circumstances.
Not all personal loan lenders provide secured loans, but some, such as Upgrade and OneMain Financial, offer these in addition to unsecured loans.
Compare: Secured vs. Unsecured Personal Loans
Eligibility requirements
Lenders set their own eligibility requirements for unsecured loans. In general, lenders prefer applicants with good credit (FICO score of 670 to 739) or better, but your odds of approval also depend on other aspects of your borrowing history, such as your debt and income.
If you have good to excellent credit, you may have access to low rates and large loans with many lenders. Some lenders are more likely than others to consider applicants with fair credit (a FICO score of 580 to 669) or even poor credit (a FICO score lower than 580). Look for bad-credit loans if you could use more leniency.
Application process
The ease of applying can also help you choose a loan. Many lenders let you prequalify online without a hard credit check, meaning your credit won’t be impacted.
Most lenders also offer online applications. If a lender requires an in-person application, takes days to process applications, or does not offer prequalification, it may not be ideal for you.
Good to know:
Prequalifying for a personal loan does not impact your credit score, but you’ll need to apply for a loan to receive an official offer. Applying for a loan often involves a hard credit check, which can temporarily ding your credit score.
Learn More: How To Apply for a Personal Loan
Customer service channels
Check if you’re comfortable with the support channels and service hours a lender offers in case you have a question about or issue with your loan. A good place to start is a lender’s contact page on its website.
Options may include: a support phone line (generally with limited business hours), 24/7 live chat services, a secure messaging platform, email services, and/or in-person support at branches.
Consumer ratings
Research a lender’s customer satisfaction track record by looking up its ratings with third-party review sites like the Better Business Bureau (BBB) and Trustpilot. Note the overall ratings and scan reviews for common complaints or praises, and notice whether feedback is largely positive or negative.
The importance of loan terms and conditions
Every personal loan comes with fine print, and these terms and conditions can tell you what to expect when you take out a particular loan. You can usually find the general terms and conditions for everyone on a lender’s personal loan product page, but you won’t receive details specific to your borrowing agreement until you sign a loan contract.
Many lenders share details about the following on product pages:
- Approval processes and credit check practices
- APR ranges
- Funding times
- Origination fees
- Usage policies
Some also provide credit score and income requirements to qualify for the lowest advertised rates. Lenders may also offer different loan terms to applicants in different states or restrict access altogether in some states, and you can find this information in the terms and conditions as well.
FAQ
What is the average APR for personal loans?
The average APR for personal loans varies depending on the length of the loan term and your credit score. For example, if your credit score falls between 680 and 719, the average APR on a three-year personal loan is 22.56%, according to Credible personal loan data. However, if your credit score is 780 or above, the average APR for the same loan drops to just 12.57%.
How do loan terms affect the total cost of a loan?
Longer loan terms typically cost more than shorter loan terms for two main reasons. First, they can present more risk to lenders and may, therefore, come with higher interest rates. Second, interest charges often accrue daily, so every additional day of a loan term will add to your costs.
Can fees be negotiated with personal loan providers?
It’s possible to negotiate with personal loan providers, but there are no guarantees. To improve your odds, shop around and collect quotes from various lenders before you call. You may be able to use the information you get as leverage in the conversation. For example, you could ask a lender to match the lower APR of a competitor.
FAQ
What is the average APR for personal loans?
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How do loan terms affect the total cost of a loan?
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Can fees be negotiated with personal loan providers?
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