Kick your debt to the curb with our picks for best personal online loans with no extra fees
Whether you’re paying for home improvements or consolidating debt, the best online loans offer one of the more healthy financing options. Up against credit cards (which have variable rates), personal loans with fixed rates and low APRs win almost every time.
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The Simple Dollar’s Best Personal Loan Companies for 2018
What is a personal loan?
A personal loan is often called an “unsecured loan,” and that’s exactly what it means: A bank or a private lender loans you money without securing collateral. For example, in a mortgage loan, the collateral is your house. If you don’t make the payments, the bank could foreclose on the house and repossess it.
With a personal loan, there’s nothing to repossess. Either you make the payments, or you start racking up late fees and debt collection calls. Because of this, unsecured loans usually have higher interest rates than secured loans. However, even these higher interest rates are often several percentage points lower than credit card interest rates, making personal loans a great choice for credit card debt consolidation.
What to look for in personal loans online
Three criteria matter most when shopping for online personal loans: the interest rate, fees, and a Federal Deposit Insurance Corporation (FDIC) guarantee. All of our top picks met the following criteria:
They offer fixed interest rates.
Fixed interest rates cannot change over the life of the loan. If you have a loan with a variable interest rate, your interest can go up — which means you might pay more in the long run.
They charge minimal fees to borrow.
Some unsecured loan issuers include what they call “origination fees” or “closing fees.” These are extra fees you pay in exchange for the privilege of taking out the loan. The less you have to pay for the “cost of doing business,” the better. Lightstream doesn’t have any origination fees at all, while LendingClub, Prosper, and Avant charge from 1% to 6% depending on the loan term, amount, and other factors.
They’re backed by the Federal Deposit Insurance Corporation.
When you’re dealing with large sums of money, you want the FDIC to have your back. The standard insurance amount is “$250,000 per depositor, per insured bank, for each account ownership category.”
Good credit should get you an APR less than 10 percent
APR stands for “annual percentage rate,” and it represents the percentage of interest that you pay on a loan. Credit cards often charge 20 percent APR or more, but you might not have to settle for a rate like that with personal loans.
John Ulzheimer, a credit expert who has worked for both Equifax Credit Information Services and FICO, explained to us that people with good credit can often score an APR of less than 10%. Remember: Comparing rates from multiple lenders is the best way to make sure you get the most favorable rate possible.
The best online personal loans fees and rates
|Best Online Personal Loan Lenders||Origination Fees||Rates|
|Lightstream||No fees||3.09% – 17.49% APR*|
|Lending Club||1.11% – 5.00%||5.99% – 35.89% APR|
|Prosper||0.50% – 4.95%||5.32% – 35.97% APR|
|Avant||4.75%||9.95% – 35.99% APR|
Rates as of 2/8/2018, *APR with AutoPay enabled.
Personal loan FAQs
Can I use a personal loan to pay off my credit card debt?
Yes, personal loans are a common way to consolidate credit card debt because they usually have better interest rates than credit cards. (A difference of just a few points can save a wad of cash in the long run.) Rolling multiple debts into a single payment also makes it easier to manage your financial health.
If you have a low amount of debt, around $5,000 or less, a balance transfer card might be able to save you more money than a personal loan. For example, the Discover it® 18 Month Balance Transfer Offer has an 18-month 0% intro APR for transfers (then 13.49% – 24.49% Variable APR). Plus, most lenders won’t offer loans below $5,000.
What is a soft inquiry?
When you apply for an unsecured personal loan, the lender checks your credit score with either a hard or soft inquiry (also called a pull). A hard pull can affect your credit score, but soft pulls do not.
Keep in mind that hard pulls rarely affect your credit score more than 3-5 points. And if you’re worried that applying to multiple personal loan issuers at once will look bad on your credit report, rest assured that in many cases the hard pulls will be treated as a single inquiry.
If the hard pull is through a bank or a credit union, then the inquiries are not treated as individual searches for credit. Certain types of inquiries that are within 45 days of each other are counted as one. The assumption is you’re interest rate shopping.
Credit expert, formerly of FICO and Equifax
Can I get a personal loan with bad credit?
If you have a bad credit score (around 580 or below), your options are going to be limited. But it won’t disqualify you from getting a personal loan. In fact, some online lenders specialize in bad credit loans, and have more flexible requirements than banks.
Pre-qualifying for a loan is a good first step toward getting a good rate, and it won’t affect your credit score. Not all lenders offer pre-qualification. If you don’t see the term “pre-qualification” anywhere on your application, check the fine print. Some lenders state that the application process will not affect your credit score.
For reference, here are the FICO credit scores and ranges:
|FICO Credit Score||Range|
Why you should avoid payday lenders
Payday loans are incredibly easy to qualify for and usually have a short two-week term. If you’re in a desperate situation, they might seem like a good solution. The reality is that taking out a payday loan will probably leave you in worse condition.
These loans aren’t created with traditional creditworthiness methods (like FICO), so the lenders have complete control over your APR — and they take advantage of it. Even some of the best payday loans have a 400% interest rate.
Let’s say you originally borrowed $500 with a 30-day term and 521.43% APR (CashOne’s going rate at the time of this writing). That means you’ll accrue $214.29 in interest for a total of $714, principal plus interest. Here’s the kicker: On average, payday loan borrowers remain indebted for around 200 days and deal a massive blow to their financial health.
Focus on personal loans or credit cards instead
The best thing you can do is avoid payday loans altogether. If you have a large amount of debt ($5,000 or more), personal loans are your best alternative. If it’s less than that, check out a credit card with a 0% intro APR on purchases or balance transfers.
Bank, credit union or online lender: How to decide
Sometimes the best unsecured loan is the one offered by your local bank or credit union. If you’ve already built a relationship with a bank, it may be more likely to offer you a low interest rate on an unsecured loan.
If you’re a member of a credit union, start your search there. They usually have lower interest rates than banks and online lenders, although credit union membership criteria can be restrictive. If you can’t get a loan through a credit union, investigate your options with online lenders and banks.
Make sure you compare offers from multiple lenders so that you get the best rate possible. Online loans have an advantage here, since marketplace websites let you compare several lenders in one session.
Check your local bank or credit union’s website to see if it offers personal loans (and since you’re on the site, online loans). Remember to focus on four primary criteria: low APR, no fees, fixed interest, and reputability. If a local bank or credit union is offering no-fee unsecured loans with fixed interest rates below 10 percent APR, consider giving it a try.
Avant branded credit products are issued by WebBank, member FDIC.
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