Finding the best personal loan provider for you can mean shopping around for different providers. Personal loans come with a variety of terms, interest rates, fees, and customer support options. Knowing what you need from the start can help you narrow down your options.
You can often borrow between $1,000 and $50,000 with a repayment term of up to seven years, and APRs (annual percentage rates) typically range from 8 percent to 36 percent, depending on your credit score and other factors.
How to Compare Personal Loans
Each personal loan lender offers unique services, so before applying for a loan, compare at least three lenders based on the criteria below to determine which lender can provide you with the best loan for your financial needs.
The best lender for you will be easy to deal with and offer terms that you can understand and afford.
Denny Seijk
Senior Loan Writer at Bankrate
Approval Requirements
Each lender has their own criteria for approving borrowers, and most lenders consider factors like credit score and income to determine loan eligibility.
However, other lenders may also take into consideration your educational background and work history. Finding out the eligibility requirements before applying can help you narrow down the choice of lenders that will offer you a loan within your credit profile.
interest rate
Currently, the average interest rate on a personal loan is over 12 percent. However, interest rates can vary from around 7 percent to 36 percent. The interest rate you receive is based on your credit score and the term of the loan.
Lenders advertise low interest rates to attract customers, but the lowest personal loan rates are usually for good customers with credit scores above 800. A good credit score can get you a competitive interest rate, but it won’t be the lowest rate advertised.
Co-signer
If your credit score isn’t good enough, you can expect to pay more interest. Look for a lender that lets you apply with a co-borrower or co-signer. This can improve your chances of approval and the interest rate you can get. Not all lenders offer this option, so you should research before applying.
If you’re still only eligible for a higher interest rate after getting a co-signer, it’s best to improve your credit score before applying. A higher interest rate could mean paying thousands of dollars more over the life of the loan.
Fee
Even if you are able to secure a competitive interest rate, be sure to check as fees such as application fees, prepayment penalties and origination fees can increase the overall cost of the loan.
Loans for people with bad credit are likely to come with origination fees: Some lenders charge up to 12 percent of the loan amount, but the amount varies widely.
“Make sure you understand all of the fees associated with your loan,” says Denny Sejic, senior loan writer at Bankrate. “The fees are deducted from your funds, so if you need a specific amount of cash, this could be a surprise.”
Loan amount
Lenders typically offer personal loans between $1,000 and $50,000, with some lenders offering personal loans up to $100,000. For many people, this standard range should be enough to cover most major expenses. Larger loan amounts are available to borrowers with higher incomes and better credit scores.
When applying, check the lender’s cut-off. Some have a much lower maximum loan amount, sometimes even less than $35,000. While this amount may be enough for you, take this into consideration when comparing lenders, especially if the lender charges a high origination fee.
Repayment Options
The amount of time it takes you to pay off your loan will have a big impact on how much a lender makes in interest, and a two-year repayment term may mean higher monthly payments, but it could save you hundreds, or even thousands, of dollars over the life of the loan.
The opposite is true for longer loan terms. If your lender is offering a six- or seven-year term, you may be able to get a lower monthly payment. However, you’ll also pay significantly more interest. Ideally, you want your monthly payment to be as high as possible to reduce the amount of interest you pay.
Unique Features
Many lenders offer extra perks to sweeten the deal for their customers. For example, some lenders may offer free credit score monitoring or credit reports to help you stay on top of your credit standing. Others offer online privacy protection services to keep your information safe and out of the hands of cybercriminals.
Some lenders also offer auto-payment discounts to help lower your borrowing costs, and for a small fee, you may have the option to sign up for unemployment insurance, which allows you to pause payments and help protect your credit if you lose your job.
Customer Service and Experience
Some lenders only have an email form for submitting questions, while others offer phone or chat options. If you’re looking for a personal loan from a bank or credit union, you might even be able to get help in person at a branch.
In addition to checking out contact options, check out the lender’s track record on consumer review websites like Trustpilot and the Better Business Bureau (BBB) to determine if it’s a good idea to do business with them.
Types of loans offered
Personal loans can be secured or unsecured with variable or fixed interest rates. Many types of personal loans are marketed for specific purposes.
Bad credit loans are offered by lenders to customers who have had credit problems in the past.
A debt consolidation loan allows you to pay off multiple debts with a new loan, usually at a lower interest rate, streamlining the repayment process by making one monthly payment.
Emergency loans are designed to cover unexpected expenses or last-minute financial emergencies.
Home improvement loans are used to make expensive improvements to your home without touching the equity you’ve built up.
What you need to know before applying for a personal loan
It’s important to understand exactly how the process works and how your financial situation affects your chances of approval. Here are three facts and tips to remember before you start applying:
- Check out our member discounts. If you’re an existing bank or credit union customer, you may be able to get a discount if you purchase another product. Many also offer interest rate discounts and extended grace periods.
- Many aspects of your credit affect your eligibility. When lenders look at your score, most of them look deep into the details of your credit history, total debt, and repayment habits. So, if you have a short credit history and lenders don’t cater to such borrowers,
- Your credit score will take a hit. When you apply for a loan, the lender will do a hard credit pull to verify your credit history, which will temporarily lower your credit score by a few points.
How to Get a Personal Loan
There’s no one-size-fits-all approach to personal loans. The best personal loan for you will depend on your financial situation and the type of loan you’re eligible for.
- Narrow your choices based on your qualifications and the factors that matter most to you: interest rates, loan amounts and fees are all worth considering.
- Apply for pre-qualification with each lender, which allows you to see interest rates without hurting your credit and makes it easier to compare your options.
- Check the lender’s terms. One lender may be more favorable than another when it comes to interest rates, but they may have prepayment penalties that make it difficult to pay off your loan sooner than scheduled.
Fill out a complete application to ensure you qualify, and if you do, the lender will ask you to sign the final documents before disbursing the loan.
Before applying for a loan, do the math to help you make an informed decision. High origination fees and interest rates don’t mean a lender isn’t worth considering. A personal loan from a lender with a bad reputation or poor customer service could cost you even more.
Conclusion
Ultimately, the best personal loan will depend on the reputation of the lender and the terms and perks that come with their offer. Whether you qualify for a loan will depend on your credit score, income, and overall financial history, but be sure to get quotes from multiple lenders and evaluate interest rates and fees.
If you take the time to research, you can find the lender that best suits your financial situation.
