A personal loan can get you the money you need in short order if you qualify. Personal loans are a popular tool for consolidating and eliminating high interest credit card debt. Just like credit cards, these personal loans don’t require collateral, they are unsecured. But unlike most credit cards, most personal loans offer fixed interest rates and payments, making payments easier to budget for. You’ll also probably be able to borrow a greater chunk of change than you could cover with a credit card, possibly at a lower rate.
Featured Personal Loan Companies
When and When Not to Use a Personal Loan
Before you get an unsecured personal loan, there may be other options to explore first depending on your situation and goals. Personal loans are great if you do not want to pledge anything as collateral, or you don’t have any collateral to pledge. However, unsecured loans probably won’t get you the best rate. For instance, a home equity loan will net you much better terms because it’s less risky for the lender. Also, some lenders have tailored loans for people with bad credit, which may or may not require collateral.
It’s not a wise idea to use a personal loan for a discretionary purchase because of potentially high interest rates. However, personal loans have their place. For instance, you may be a small business owner who needs to cover your quarterly taxes until a major supplier pays their invoice. Or perhaps you want to consolidate high-interest debt and can better manage a single payment.
The Simple Dollar’s Best Personal Loan Picks
The personal loan space is growing with a number of online lenders challenging credit-card companies and traditional banks. In 2016, the trend toward a streamlined lending process, better interest rates and more transparent lending criteria will continue.
In fact, some brick-and-mortar banks are only recently returning to this kind of lending after the subprime mortgage crisis. So if you’re in the market for an unsecured personal loan, you’ll have plenty of options, especially if you have good credit.
Here are the best personal loan options
If you want to get started on your search right now, here are a few lenders that stood out as I looked for the best personal loans:
- Best personal loans overall: Lending Club, Wells Fargo, and Prosper
- Best personal loans for excellent credit: LightStream, Sofi, and Earnest
- Best personal loans for average credit: Avant, Peerform, and Vouch
Read on to find out why these companies and others stood out among the competition. I’ll also discuss unsecured personal loans in greater detail, why they’re difficult to obtain with bad credit, and strategies you can use while shopping to make sure you find a loan that’s right for you.
Best Personal Loans Overall
The companies below are among the biggest names in personal lending, targeting borrowers who have solid credit (and better). They’re worth considering for anyone who needs an unsecured personal loan. However, if your credit is top-notch — or not so hot — make sure you keep reading for some lenders that target excellent- and average-credit borrowers.
One of the two biggest peer-to-peer lenders, Lending Club makes loans up to $40,000. Though very similar to other peer-to-peer lenders in many ways, it is a bit more lenient with credit scores, requiring a minimum of 600, but a bit stricter with other criteria such as debt-to-income data. APRs range from 5.99% to 35.89%* APR. Best APR is available to borrowers with excellent credit.
Lending Club does business in 48 states (right now, you’re out of luck in Iowa and West Virginia). Lending Club also charges a loan origination fee up to 5% and charges a check-processing fee. Terms are three or five years, though Lending Club makes two-year loans to its most credit-worthy borrowers.
Why it’s a solid bet: Lending Club is a major player and pioneer in the peer-to-peer lending business. They also have the same strengths: competitive interest rates, wide availability, and transparency. If you’re thinking of seeing what kind of rate you can wrangle with one of these companies, it’s absolutely worth checking with the other at the same time — neither company uses a “hard pull” that will impact your credit score.
If you have good credit and would rather keep your business with a long-established bank, Wells Fargo could be a good option. With advertised APRs of 6.25% to 19.75% and loans from $3,000 to $100,000, this brick-and-mortar lender could be worth a look for any borrower with solid credit.
Repayment terms can range from 12 to 60 months and there are no prepayment or origination fees. The main downside here is convenience: You can’t apply online unless you’re an existing Wells Fargo customer, so you’ll need to be near one of their branches. Wells Fargo also doesn’t fare as well as many competitors in customer service ratings, and they aren’t as transparent about lending criteria as many online competitors.
Why it’s a solid bet: When it comes to a loan, some people prefer doing business face to face. If you’re among them, Wells Fargo offers competitive rates, the comfort of a big name, and the convenience of a huge branch network — there are more than 6,000 locations nationwide. Wells Fargo also offers a couple other options that aren’t as common with online lenders: A more flexible personal line of credit as well as a loan that you can secure with a savings account or CD in order to get a lower rate.
Second in size compared to Lending Club, Prosper is slightly more liberal with its lending criteria than major competitors. It requires a minimum Experian credit score of 640, but Prosper will look at several other factors to give you a shot at a better interest rate. You can borrow from $2,000 to $35,000 at APRs ranging from 5.99% to 35.97%.
Interest rates and fees are easy to find and evaluate, and Prosper can make loans in 47 states (loans aren’t available in Iowa, Maine, and North Dakota). As with all peer-to-peer lenders, you could be waiting a week or more for your loan to be funded, however. Prosper also only allows you to choose between three- and five-year repayment terms.
Why it’s a solid bet: Along with Lending Club, Prosper is one of the biggest names in peer-to-peer lending, which should inspire confidence in anyone who is leery of dipping a toe into online lending. It is impressively transparent, widely available, and a bit looser with lending criteria such as debt-to-income ratio and the number of recent credit inquiries on your credit report.
Best Personal Loans for Excellent Credit
If you have great credit, good news: You may qualify for personal loans with impressively low interest rates. However, keep in mind that lenders who offer these low rates will also want to see other markers of financial health, such as steady employment and a low debt-to-income ratio.
LightStream, an offshoot of SunTrust Bank, offers excellent rates for creditworthy borrowers, currently 5.99% to 11.99% for non-home and auto-related personal loans. Another pro: There are no fees for loan origination, prepayment, or anything else.
The main downside here is the high threshold you’ll have to meet to qualify. Your credit score will have to be great, but you’ll also need to prove “stable and sufficient” income and assets as well as a solid savings history, among other requirements.
Why it’s a solid bet: LightStream’s flexible terms and high borrowing limits make it a good choice for prospective borrowers who need a hefty amount and a longer time to pay it back. Loans of $5,000 to $100,000 are available, and terms can be anywhere from 24 to 84 months. If you need money fast, LightStream is also speedier than peer-to-peer competitors — you can have your money in as little as a day.
Sofi may be best known for student loan refinancing, but it also offers extremely competitive personal loans from $5,000 to a whopping $100,000. There are fixed- and variable-rate options ranging from 5.50%-9.99% and 4.04%-8.04%, respectively. You also won’t pay any fees for loan origination or anything else.
Choose from three-, five-, or seven-year repayment terms. You’ll need to meet a high threshold to qualify, with a favorable debt-to-income ratio, dependable employment, and a high credit score. Loans are available in 47 states.
Why it’s a solid bet: If you’re a rate hawk, SoFi offers some of the lowest rates I saw, and its variable-rate option offers a chance for even more savings if you’re willing to accept the risk that rates will rise. (Variable rates are capped at 10.99%.) SoFi also sets itself apart with its hefty loan amounts of up to $100,000 and a unique unemployment protection program that allows you to suspend loan payments.
Earnest, a relatively recent startup, bills itself as “low-cost loans for the financially responsible.” Indeed, this online lender offers very low rates from 4.25% to 9.25% on loans up to $50,000. It also looks beyond your credit score to evaluate other criteria including education, career, and savings.
On the downside, Earnest only offers one-, two-, and three-year loans, but the company will work with you to match repayment terms to your budget. Loans are available in 36 states and Washington, D.C.
Why it’s a solid bet: Earnest could be a great option for younger borrowers who may not have a long credit history. Keep in mind that whatever history you do have will need to be mostly blemish-free, and you’ll also have to show that you have a healthy savings account and income that can easily support living expenses and a loan.
Best Unsecured Loans for Average Credit
It can be hard to find a personal loan with a reasonable interest rate if your credit isn’t top-notch. The lenders below will still consider you if you have less-than-sterling credit, with rates that are much better and practices that are much more reputable than payday lenders and the like.
- Related: What Is a Good Credit Score?
Avant can help you with loans from $1,000 to $35,000 if your credit isn’t good enough to nab the lowest rates, but you don’t want to look into secured loans. This online lender targets borrowers with credit scores of roughly 580 to 700, offering APRs of 9.95% to 36% for its WebBank-backed loans. Avant is available in 46 states (you’re out of luck in Iowa, Maine, North Dakota, and West Virginia). There are no origination fees.
Why it’s a solid bet: Loans of as much as $35,000 are hard to come by if your credit isn’t top-notch, and while the APRs aren’t the lowest around, they’re still fair for an unsecured loan at that level. Since Avant isn’t a peer-to-peer lender, you can have your money more quickly since you don’t have to wait around for investors to fund your loan. Terms are also relatively flexible, ranging from 24 to 60 months.
While most peer-to-peer lenders focus on borrowers with good or excellent credit, Peerform is an option for borrowers with credit scores as low as 600. Its APRs are competitive (7.12% to 28.09%), and its fees are clearly disclosed.
However, this lender is only available in 37 states, and you may need to wait up to two weeks to get your money as investors decide whether to fund your loan. Peerform also charges several fees, including up to 5% for loan origination and a less-common collection fee and service charge.
Why it’s a solid bet: Peerform’s rates are among the best you’ll find with average credit, and the website is impressively transparent about exactly what you’ll need to qualify for a loan. Peerform also lends up to $25,000, a generous amount for average-credit borrowers. Just be aware that you won’t be able to choose a repayment term with Peerform — all loans require a three-year term.
Vouch is an interesting new company that, as its name implies, requires at least one person to “vouch” for you in order for you to get a loan. Essentially, you can get friends or family to pledge a certain amount of money ($100 and up) in case you don’t pay back your loan, lessening the lender’s risk and leading to a lower interest rate than you might get otherwise.
Vouch makes loans from $500 to $15,000. APRs range from 7.35% to 29.99%, with loan origination fees from 1% to 5%. You’ll need a credit score of at least 600. Terms are relatively short at one to three years.
Why it’s a solid bet: Vouch has essentially made the traditional idea of co-signing a lot less threatening by allowing friends to back you with smaller, manageable amounts instead of being on the hook for an entire loan if you don’t pay. So if you have a big network to lean on, your interest rate will go down and the amount of money you can borrow may go up. Vouch also may be a good option for someone who is looking for a smaller loan that they can pay back quickly, since lower amounts and shorter terms are on offer.
PersonalLoans.com offers several types of loans from traditional bank personal loans, peer-to-peer loans, and installment loans. This service is available in all 50 states and loan amounts go up to $35,000 with APRs ranging from from 5% to 36%.
Keep in mind, PersonalLoans.com is only a referral site and not a direct lender. This makes it hard to know in advance critical information that might be easier to understand with a direct lender like which fees will be attached to your loan or which APR rates will be offered.
Why it’s a solid bet: PersonalLoans.com is a great option for borrowers looking for a quick turnaround on their loan. Just a three-step application process and you can have loan approval in minutes. Not only is it a well designed and informative website, since PersonalLoans.com is a referral resource, they can find you multiple offers with competitive interest rates, which is a huge timesaver when shopping around.
How I Picked the Best Personal Loans
You’ll want a competitive rate from your unsecured loan, but you’ll also want the flexibility to pick a term that works for you, low or no extra fees, and a lender with whom you’re comfortable doing business. Here are the factors I considered when picking the best unsecured loans:
- Low APRs: The lender’s advertised interest rates are in line with or better than those advertised by the competition.
- Low or no fees: Some lenders don’t charge fees other than interest; others may charge origination fees, late payment fees, or prepayment fees. If fees are present, they must not be significantly higher than its competitors’.
- Higher loan limits: Though you want to be careful not to borrow more than you can afford, the best lenders won’t cap their loans at low amounts, letting you borrow what you need.
- Flexible terms: Some lenders only allow you to pick from a couple of terms, such as three or five years. Lenders earned points for flexibility for allowing shorter or longer terms to accommodate a wider range of needs.
- Serves most of the country: While most major banks have national reach (or close to it), online lenders may only be able to do business in a limited number of states. Bonus points went to lenders with a wider reach.
- Transparent, informative website: The best lenders are transparent about APRs, loan limits, terms, fees, and other crucial information. It should be clear where to get these details, and you shouldn’t have to give your personal information in order to see it.
- Reputation: I considered each lender’s longevity, online reviews, and status with the Better Business Bureau. BBB accreditation is a plus, not a necessity, especially for newer companies. I also considered customer service ratings from the 2014 J.D. Power Retail Banking Study when applicable. I gave individual reviews less weight, as many negative reviews are from prospective borrowers unhappy about being denied.
Of course, before you decide to take out any loan, it’s always wise to educate yourself. Keep reading to make sure you know exactly what you’re getting with an unsecured loan and how to score the best deal.
What Is a Personal Loan?
An unsecured personal loan is simply a fixed-rate loan that you can receive without collateral to guarantee it. With secured loans, you’re allowing the lender to use one of your assets — for instance, your car or house — to recoup their losses if you fall behind on payments. When your loan is unsecured, the lender has no such recourse if you don’t pay up.
Of course, that doesn’t mean there are no consequences if you default on an unsecured loan. Your credit will take a nosedive, and your lender could sue or send its very unpleasant collections department after you. However, the lack of collateral ultimately means unsecured loans are riskier for the lender.
Unsecured personal loans are available at certain banks and credit unions, as well as online through startups including peer-to-peer lenders. Though the lender may ask why you’re borrowing, you can generally use these loans for any purpose: debt consolidation, home improvement, business expenses, new cars, a budget-busting wedding, or even a trip around the world. Credit cards and student loans are also unsecured loans, though with more specific purposes.
Do I need good credit for a personal loan?
For the most part, yes. It’s possible that you’ll find a willing lender even with poor credit, but you’ll likely be paying an astronomical interest rate in order to lessen that lender’s risk.
Major peer-to-peer lenders typically won’t lend to borrowers with credit scores lower than roughly 640-660, and if your score is that low, your APR will be well into the double digits. For instance, peer-to-peer lender Prosper offers APRs as low as 5.99% for borrowers with the best credit. Borrowers with the lowest scores could be paying 35.97%.
If your credit isn’t great, experts advise starting with your existing bank, which may have a better idea of your finances. You may also want to try a credit union, which may be more flexible with its lending criteria. But a secured loan will almost certainly get you a better APR if you’re willing to put up the collateral. So will a co-signer with better credit, but that person will be on the hook for repayment if you default — a tremendous financial risk that could certainly ruin your relationship.
A word of caution: You may run across lenders who say they’ll give you an unsecured personal loan without even checking your credit. This is a common proclamation among payday lenders, who only require proof of income to make you a small, short-term loan. But the APR could be in the triple digits, and you may end up rolling over the loan from one month to the next when you have no real ability to repay. As a rule, be wary of any no-credit-check loan.
If you’re searching for a loan with bad credit, be sure to check out my post on the best bad-credit loans for some more reputable options.
Four Shopping Tips for Personal Loans
#1: Shop around
Never sign on the dotted line the first place you look for a personal loan. Each lender will have a slightly different formula when considering your application, which means your interest rate will vary — perhaps significantly — from one lender to the next. One convenient way to search for an unsecured loan online is by using a site such as PersonalLoans.com, which can match you with the best personal loan for your needs.
If your credit is great and you’re able to pay off a loan quickly, you might want to consider treating a credit card with a 0% (or otherwise very low) introductory APR as a personal loan. Of course, you’ll need to make sure the credit limit is high enough for your needs. You’ll also need to have the discipline not to add to your balance, and to pay it off before your low interest rate expires, typically in 15 to 18 months. If you think you can swing this, be sure to check out our post on the Best Balance Transfer Credit Cards for some great 0% introductory APR credit cards.
#2: Keep an eye on fees
Make sure you know whether there are fees other than the interest you’ll pay associated with your personal loan. Common fees include an origination fee (typically a percentage of the amount you’re borrowing, which can vary from under 1% to as much as 5%). Also note whether there are fees for late payments ($15 or 5% of your outstanding balance is typical). Other fees may include charges for unsuccessful payments or payments made by check.
Also be on the lookout for prepayment fees. These are fees lenders charge if you pay off your entire loan early (which means the lender won’t be getting the full amount of interest it would have if you had made payments as scheduled for the full loan term). Most lenders I researched won’t hit you with a prepayment penalty for unsecured personal loans, but it’s definitely worth double-checking.
#3: Choose the right term
You’ll want to see how flexible your lender is on loan terms. Some online lenders may only let you choose between three- and five-year terms, for instance. Term is important because it affects how much you ultimately pay over the life of the loan. A longer term can help keep your payments manageable, but it means you’ll be paying more in the end. On the flip side, a shorter term will mean higher payments, but you’ll shell out less overall.
For a more concrete example, let’s say I take out a $10,000 unsecured personal loan at 12% interest. According to this Bankrate calculator, I would pay $11,957 over a three-year term, but $13,347 over a five-year term. If I can afford the higher monthly payment ($332 a month for three years instead of $222 a month for five years), the shorter term means significant savings.
#4: Be careful of scams
There are several unscrupulous lenders who want to scam potential borrowers. Here are a few tips that will help you make sure you’re dealing with a legitimate company:
- Don’t pay upfront fees. Remember that you should never pay anything simply to apply for a loan. If a potential lender demands payment to evaluate your credit and other financial information, run the other way.
- You should contact them — not the other way around. If a lender is badgering you, whether through phone calls, mailings, or online, consider that a big red flag. Legitimate lenders simply don’t need to be this aggressive to attract borrowers.
- Guarantees are bogus. No legitimate lender can promise that they’ll approve your loan application before evaluating your finances. Even payday lenders need proof of income before they’ll make a loan.
- Verify, verify, verify. Make sure you double-check the lender’s physical address, which should be readily available. Also consider looking them up with the Better Business Bureau or your state banking regulators.
- You should feel in control. Take your business elsewhere if a lender threatens you in any way, tries to dissuade you from considering competitors’ offers, or tries to get you to borrow more than you owe.
Finding the Best Personal Loans
Don’t limit your search to either brick-and-mortar or online lenders when you’re searching for the best unsecured personal loans. Online lenders are convenient, but banks and credit unions may offer competitive APRs and more personal service if your credit is good.
On the flip side, you may be able to find an online lender who can offer a better rate if you fit their preferred borrowing profile. Remember to consider potential terms and fees before you sign up for a loan, too — little fees and extra interest can add up in a big way.