Best Personal Loans for 2020

Compare the best personal loan rates and apply online using the comparison tool below.

Filter & Sort

Check Your Personal Loan Rates

with our trusted partners at Bankrate.com

Answer a few questions to see which personal loans you pre-qualify for. It's quick and easy, and it will not impact your credit score.

LENDING PARTNER
APR FROM
TERM
MAX LOAN AMOUNT

For many people who have lost jobs or wages during the COVID-19 pandemic, personal loans could be the best way to cover an emergency expense, consolidate debt or make a large purchase. Credit unions, banks and online lenders are still offering personal loans despite the pandemic — even if your credit score is fair or low, or if your income has recently changed. To determine the best personal loans of 2020, we compared every major lender’s interest rates, loan terms, customer satisfaction, customer support and fees using our proprietary SimpleScore methodology, and updated our ratings to reflect changes due to COVID-19. Just do us a favor: don’t take out a personal loan to buy the LEGO Star Wars Millennium Falcon.

In this article

COVID-19 Update: We're keeping track of how the COVID-19 pandemic is affecting personal loans. Read more.

Best personal loan companies of 2020

Best personal loan companies at a glance

Lender APR range Loan term Min. loan Max loan SimpleScore
LightStream 3.49%–19.99% 24 to 84 months $5,000 $100,000 4.8/5
Marcus by Goldman Sachs 6.99%–19.99% 24 to 72 months $5,000 $40,000 5/5
SoFi 5.99%–16.19% 24 to 84 months $5,000 $100,000 4.6/5
Payoff 5.99%–24.99% 24 to 60 months $5,000 $35,000 4.5/5
Discover 6.99%–24.99% 36 to 84 months $2,500 $35,000 4.4/5
Upgrade 7.99%–35.97% 36 to 60 months $1,000 $35,000 3.5/5
Upstart 8.13%–35.99% 36 to 60 months $1,000 $50,000 3.4/5
LendingClub 10.68%–35.89% 36 to 60 months $1,000 $40,000 3.2/5
Prosper 7.95%–35.99% 36 to 60 months $2,000 $40,000 3.2/5
NetCredit 34%–155% 12 to 60 months $1,000 $10,000 2.3/5
LendingPoint 9.99%–35.99% 24 to 48 months $2,000 $25,000 3/5

Best overall – LightStream

LightStream

Our #1 pick for the best personal loans in 2020.

APR
3.49%–19.99%
Loan Amount
$5K–$100K
Terms
24–84 months
SimpleScore
4.8 / 5.0
close
SimpleScore
LightStream
4.8
  • Rates
    5
  • Loan Size
    5
  • Customer Satisfaction
    4
  • Support
    5
  • Fees
    5
You might not recognize the name LightStream, but it’s the lending division of Truist, the new bank formed by the 2019 merger of SunTrust Bank and BB&T Bank. You can use a Lightstream loan for virtually any reason -- including home improvement, debt consolidation, adoption and fertility treatments — except for “college or post-secondary educational expenses.” But the best part about LightStream? Very low interest rates, as long as your credit score is high enough (minimum 660 to apply).

LightStream does pull a hard credit check when you apply, but makes up for it with a $100 satisfaction guarantee for the first 30 days of your loan, and will beat any competitor’s interest rate by 0.10%. We also admired LightStream’s response to the COVID-19 pandemic (though we wish interest wouldn’t continue to accrue during deferrals). While LightStream and Marcus both earned a near-perfect SimpleScore of 4.8 out of 5.0, we awarded LightStream our #1 pick thanks to its higher loan range and unique guarantees.

Full review

Our Two Cents — To borrow a term from The Mandalorian, LightStream is the Beskar steel of personal loans, but you’ll need a good credit score to enjoy it.

LightStream in the news

In light of the COVID-19 pandemic, Lightstream is allowing borrowers to defer their payment once, as long as the account is not 90 days past due. Deferment won’t negatively impact your credit score, though it is reported to credit agencies.

Best customer satisfaction – Marcus by Goldman Sachs

Marcus

Winner of J.D. Power’s 2019 customer satisfaction survey for personal loans.

APR
6.99%–19.99%
Loan Amount
$5K–$40K
Term range
24–72 months
SimpleScore
5 / 5.0
close
SimpleScore
Marcus
5
  • Rates
    5
  • Loan Size
    5
  • Customer Satisfaction
    5
  • Support
    5
  • Fees
    5
The lending division of the investment bank Goldman Sachs, Marcus, has an established reputation in the personal loans world. But it isn’t only the reputation that draws people in, Marcus by Goldman Sachs offers flexible loans with no origination, prepayment or late fees. Allowing you to tailor your loan to your lifestyle if you qualify, you’ll have some control over your monthly payments and repayment timeline. Other perks include the ability to defer one loan payment if you’ve made 12 or more consecutive monthly payments. In this case, your loan term will be extended for one month, but you don’t pay interest on the deferral month.

You can take out a loan from Marcus for any reason in amounts up to $40,000, though the downside is not everyone will qualify. You must have a credit score of at least 660, be over 18 years old and have a valid U.S. bank account.

Full review

Our Two Cents — Just like the esteemed Cornell that Andy Bernard attended, Marcus by Goldman Sachs has the reputation and benefits you’ll want to show off.

Marcus by Goldman Sachs in the news

Despite the COVID-19 recession, in July 2020 Goldman Sachs reported earnings that exceeded expectations by $3.5 billion. But according to CNBC, that isn’t because of its personal loans: “Of the six biggest banks, Goldman gets the largest share of its revenue from Wall Street activities including trading and investment banking.”

Best for good credit – SoFi

SoFi

A selective online lender with great rates and zero fees.

APR
5.99%–16.19%
Loan Amount
$5K–$100K
Terms
24–84 months
SimpleScore
4.6 / 5.0
close
SimpleScore
SoFi
4.6
  • Rates
    5
  • Loan Size
    5
  • Customer Satisfaction
    3
  • Support
    5
  • Fees
    5
Digital lender SoFi offers some of the lowest interest rates out there. As an added bonus, SoFi doesn’t charge origination, prepayment or late fees. The catch is: it can be difficult to qualify for a SoFi loan because of its rigorous credit standards. A borrower’s minimum credit score must be at least 680, with an annual income of no less than $45,000. However, qualifying for a SoFi loan is based less on your creditworthiness and more on how much of your income is left after expenses.

SoFi has special deals for their borrowers that other lenders can’t match — like members-only networking events. If you lose your job through no fault of your own, SoFi may let you apply for a temporary forbearance for three months at a time. SoFi has a lot of perks, but they are generally reserved for those with the best credit scores.

Full review

Our Two Cents — With the lowest median APR in the industry, SoFi is the club everyone wants to be in.

SoFi in the news

SoFi is moving forward with its second attempt to become a national bank — three years after abandoning its first attempt. Gaining a national bank charter will allow it to offer customers mortgages, credit cards and checking accounts.

Best for credit card consolidation – Payoff

Payoff

A smart alternative to high interest rates on your credit card debt.

APR
5.99%–24.99%
Loan Amount
$5K–$35K
Terms
24–60 months
SimpleScore
4.5 / 5.0
close
SimpleScore
Payoff
4.5
  • Rates
    5
  • Loan Size
    5
  • Customer Satisfaction
    N/A
  • Support
    4
  • Fees
    4
Personal loans from Payoff are intended for one thing: consolidating credit card debt. Even though they aren’t a fit for things like home renovation, the low APRs and lack of fees for origination, prepayment and late payment still make Payoff a good option.

Payoff is refreshingly transparent about its eligibility requirements: you need a minimum FICO® score of 640, a debt-to-income ratio of 50% or less, three years of credit history, two open and satisfactory “trades” (lines of credit) and no more than one installment loan over the last year, no current delinquent accounts and no delinquencies longer than 90 days in the last year. One thing to keep in mind if you’re considering Payoff is that its overall minimum rate is 5.99%, which is higher than other alternatives. Its minimum rate for loans more than $15,000 is 6.99%.

Full review

Our Two Cents — Think of credit card consolidation as the golden idol in Raiders of the Lost Ark that Indiana Jones uses a bag of sand — a Payoff loan — to retrieve.

Payoff in the news

In the spring of 2020, Payoff added relief programs and resources to help members who have been impacted by the COVID-19 pandemic.

Best for improving your credit score – Discover

Discover

Discover’s free tools, low rates, and flexible terms make it one of the best lenders on the market.

APR
6.99%–24.99%
Loan Amount
$2.5K–$35K
Terms
36–84 months
SimpleScore
4.4 / 5.0
close
SimpleScore
Discover
4.4
  • Rates
    5
  • Loan Size
    5
  • Customer Satisfaction
    3
  • Support
    5
  • Fees
    4
If you have good credit and don’t need to borrow more than $35,000, then Discover is an excellent option for personal loans. Like other lenders, Discover doesn’t charge origination or pre-payment fees, but it “may” charge a $39 fee on late payments. Funding is typically very fast, with same-day decisions and direct deposits to your bank account — or to your creditors if you’re consolidating debt. It’s also one of the only lenders to offer repayment terms up to seven years. Discover’s lowest rate is 6.99%, so if you have an excellent credit score, you’ll probably be able to find lower rates from other lenders.

One thing we love about Discover is the web and mobile access to its Free Credit Scorecard tool, which includes your up-to-date FICO® score and any recent inquiries or changes to your credit report. Assuming you make payments on time, personal loans can improve your credit score, and Discover’s tool makes it free and easy to keep track.

Full review

Our Two Cents — Discover’s web and mobile access makes keeping track of your loan and credit score simple.

Discover in the news

In response to the COVID-19 pandemic, Discover added a detailed FAQ page with answers and resources for its customers, including personal loan borrowers.

Best for financial support – Upgrade

Upgrade

A great option for fair-credit borrowers, but watch out for the steep origination fees.

APR
7.99%–35.97%
Loan Amount
$1K–$50K
Terms
36–60 months
SimpleScore
3.5 / 5.0
close
SimpleScore
Upgrade
3.5
  • Rates
    2
  • Loan Size
    5
  • Customer Satisfaction
    N/A
  • Support
    4
  • Fees
    3
Supporting a wide range of credit scores and incomes, Upgrade is one of the few online lenders that consider cash flow (a monthly minimum of $800) over credit score. You still must have a credit score of at least 620 to qualify, but that’s much lower than what most lenders accept.

Upgrade does have some things to watch out for — high APRs are just the start. Upgrade charges an origination fee that can go as high as 6% and late fees for any missed payments. It also doesn’t offer direct payment to creditors for debt consolidation and secured loan options. However, Upgrade does offer hardship plans if you lose your job. Should this happen, you may qualify for a temporary reduction in your monthly payment or a loan modification for the term of your loan.

Full review

Our Two Cents — The high APRs and steep fees make Upgrade the equivalent of the one ring to rule them all — easy to give into but bad news in the long run. Sometimes it’s just better to cast it into the fires of Mount Doom.

Upgrade in the news

In June 2020, Upgrade won a Santander InnoVentures-led $40 million investment as part of its Series D funding round. Expect to see continued growth as well as a potential expansion into banking.

Best with no credit history – Upstart

Upstart

Super-fast funding, even for new borrowers without a long track record of good credit.

APR
8.13%–35.99%
Loan Amount
$1K–$50K
Terms
36–60 months
SimpleScore
3.4 / 5.0
close
SimpleScore
Upstart
3.4
  • Rates
    2
  • Loan Size
    5
  • Customer Satisfaction
    4
  • Support
    3
  • Fees
    3
Upstart loans are great for younger borrowers and people with little or no credit history, but high earning potential. Upstart loans can be used for many purposes, such as college tuition, home improvements, medical expenses and debt consolidation. It provides quick funding, often within one day, but loans for education require a three-day waiting period before approval.

To secure a loan with Upstart, borrowers must have a minimum credit score of 620 and a minimum annual income of $12,000. Upstart does charge an origination fee of 0% to 8%, and late fees of 5% of the past due amount or $15, whichever is greater. Also, Upstart’s rates are higher on average than some of our other top picks. But if you’re a new borrower with no recent bankruptcies or delinquent loans who needs fast funding, Upstart may be a great choice.

Full review

Our Two Cents — Looking at more than just your credit score, Upstart is a great option for people with little to no credit history.

Upstart in the news

A leader in artificial intelligence platforms, Upstart recently announced the launch of a new auto lending service. With the aim of dramatically improving the experience, the auto loan platform would eliminate the extra steps the consumer has to take, like tracking down their VIN or license plate number.

Best peer-to-peer lending – LendingClub

LendingClub

A balance transfer loan and hardship assistance make LendingClub a good option for debt consolidation.

APR
10.68%–35.89%
Loan Amount
$1K–$40K
Terms
36–60 months
SimpleScore
3.2 / 5.0
close
SimpleScore
LendingClub
3.2
  • Rates
    2
  • Loan Size
    5
  • Customer Satisfaction
    3
  • Support
    3
  • Fees
    3
LendingClub loans are “peer-to-peer” loans that let you borrow money from a person or a group of people instead of a bank. Borrowers are assigned a grade based on income and credit score, and your grade determines your interest rate. The strict credit score requirements of 600 to even apply may put LendingClub loans out of reach for many. If you need money fast, LendingClub is not the option for you. Waiting for your loan to get funded through the company’s network of peer lenders can take up to two weeks.

LendingClub does have a hardship plan in case you have trouble making payments. Borrowers can make interest-only payments for up to three months until you get back on your feet. It does charge an origination fee between 1% and 6%, and it doesn’t offer a discount for auto-payments.

Full review

Our Two Cents — LendingClub is the grandmother of personal loans. It will get you what you need, but it won’t move as quickly as other lenders.

LendingClub in the news

To support borrowers during the pandemic, LendingClub has launched a Member Center, a centralized portal for assistance and support. The Member Center will have resources and personalized tools to help borrowers regain control of their finances.

Best for fair-credit joint loans – Prosper

Prosper

A solid peer-to-peer alternative if your credit score is fair or you need a joint loan.

APR
6.95%–35.99%
Loan Amount
$2K–$40K
Terms
36–60 months
SimpleScore
3.2 / 5.0
close
SimpleScore
Prosper
3.2
  • Rates
    2
  • Loan Size
    5
  • Customer Satisfaction
    3
  • Support
    3
  • Fees
    3
Prosper is another peer-to-peer lender that accepts high-risk borrowers, but you’ll pay significantly more in interest. To qualify, you must pass Prosper’s proprietary risk-rating system, which takes into account things like credit history, income and credit score. Prosper is also one of the few lenders that offer joint loans, meaning you can apply with someone who has a higher credit score, thus improving your chances at approval.

Applicants must have a minimum credit score of 640 and two years of credit history, but there is no minimum annual income requirement. Prosper does not pay creditors directly if you’re consolidating debt, and you can’t adjust your payment schedule. It charges origination fees ranging from 2.4% to 5%, late fees and insufficient funds fees. However, Prosper offers fast funding and only does a soft credit check.

Full review

Our Two Cents — Prosper is like your backup ice cream flavor at the grocery store. If you can get it, LendingClub is what you really want. But if your credit needs some work, Prosper also satisfies the need for a personal loan.

Prosper in the news

In June 2020, Prosper said it has been able to provide hardship benefits to 99.9% of the 40,000 customers who qualified for COVID-19 relief.

Best loans for bad credit – NetCredit

NetCredit

Worth considering if your credit score is below 600 and you need less than $10,000

APR
34%–155%
Loan Amount
$1K–$10K
Terms
12–60 months
SimpleScore
2.3 / 5.0
close
SimpleScore
NetCredit
2.3
  • Rates
    1
  • Loan Size
    2
  • Customer Satisfaction
    N/A
  • Support
    3
  • Fees
    3
NetCredit offers personal loans with much higher interest rates than many lenders, starting at 34% and soaring to 155% APR. To qualify, you must have a minimum score of 500 and meet their minimum annual income requirement of $20,000 or higher. Because of its high APR range, NetCredit should only be used for fast funding by borrowers with low credit scores and few other options. Still, even a 155% APR is much better than most payday loans, which can range from 300% to 600% and even higher.

NetCredit charges an origination fee of 5% and may charge a late payment fee, but it doesn’t charge a prepayment fee. NetCredit offers fast funding, typically within three days of approval.

Full review

Our Two Cents — Remember when they lined us up in gym class and the captains alternated picking players for their team? Well, NetCredit is the kid left standing alone. You only pick it because you have no other option.

NetCredit in the news

During the COVID-19 pandemic, NetCredit promised to work with borrowers to adjust their repayment schedules. Additionally, NetCredit has disabled the ability to take out a cash advance from existing lines of credit during the pandemic.

Best for same-day approvals – LendingPoint

LendingPoint

With flexible loan options and reasonable terms, LendingPoint offers fair credit borrowers funding in as little as one day.

APR
9.99%–35.99%
Loan Amount
$2K–$25K
Terms
24–48 months
SimpleScore
3 / 5.0
close
SimpleScore
LendingPoint
3
  • Rates
    2
  • Loan Size
    3
  • Customer Satisfaction
    N/A
  • Support
    4
  • Fees
    3
If you have fair credit, LendingPoint can help you secure a personal loan up to $25,000. Checking your options won’t impact your credit, and with same-day approvals, your loan can be deposited as soon as the next day. LendingPoint offers flexible loan options that are designed to meet your needs, meaning you can take out a loan as low as $2,000.

The interest rates of LendingPoint loans aren’t the lowest, but they are not the highest, either. They can climb as high as 35.99% APR, so overall it isn’t the cheapest option out there. But you have up to 48 months to pay back your personal loan, and there’s no penalty if you decide to pay it off early.

Full review

Our Two Cents — Origination fees can run from 0% to 6%, so check the fine print like you would the butter consistency on your movie popcorn before you commit.


Pro Tip


LendingPoint in the news In July 2020, LendingPoint announced SDKn™, a new lending system and “instant” pre-approval platform it says will provide customers with an even better financing and purchasing experience.

Check Your Personal Loan Rates

Answer a few questions to see which personal loans you pre-qualify for. The process is quick and easy, and it will not impact your credit score.

What is a personal loan?

An option for quick funding, a personal loan is expected to be paid back in monthly payments over a set term. Available from banks, credit unions and online lenders, personal loan offers can be used for anything. They’re a better alternative than high-interest credit cards or payday loans because of their fixed terms — of 24 to 48 months — and comparatively low interest rates. Personal loans keep things simple, making them one of the easiest forms of debt to repay over time.

Common uses of a personal loan:

  • Debt consolidation
  • Covering unexpected expenses
  • Medical bills
  • Wedding expenses
  • Home renovation
  • Paying off high-interest credit card debt

Before you take out a personal loan, you should know there are two main types — secured and unsecured. Understanding how they differ is key to choosing the best loan for your needs.

How secured vs. unsecured loans work

Secured loan: A secured personal loan is backed up by an asset the bank can seize if you don’t repay — such as your car or home. Lenders use your collateral as assurance you’ll pay back your loan. The type of collateral you use will depend on the loan type. When you get a mortgage to buy a home, for example, your house serves as collateral — if you default on your mortgage, the lender can try to foreclose on the home to recover its losses. The same is true when you take out an auto loan to purchase a vehicle: Your loan is secured by the car you buy.

Unsecured loan: With an unsecured loan, you can borrow money without putting down any collateral. Instead of relying on assets, lenders use your credit score as a way to predict your ability to repay your loan. Typically available to those with a good credit history, qualifying for a favorable unsecured loan can be difficult if your credit score is lacking.

Do you need good credit to get a personal loan?

If you want the best personal loan interest rates, then yes, you need a good credit score. But it’s still possible to find a suitable option with fair or bad credit –– you’ll just have a higher APR and tighter restrictions. When you’re only a few points away from a lower rate tier and don’t need the loan right away, work towards raising your score as much as you can. If you can boost your score to the next tier, you’ll be able to unlock better rates.

Types of personal loans

Installment loans

Installment loans are designed to be paid back in predictable monthly payments with a fixed interest rate. Mortgages, auto loans and student loans are all examples of installment loans. More affordable and much less risky, you should always choose an installment option over a payday or emergency loan.

Payday loans

Payday loans are a way to get money fast. Generally amounting to $500 or less, payday loans have high rates and considerable fees. While payday loans can help you if you’re in a bind, they are by default extremely expensive and expected to be repaid the next time you get paid. A payday loan only requires an income and bank account, so if you have bad credit, they can seem like an appealing option. Though this type of loan should be a last resort, never your first option.

Home equity personal loans

Often called a second mortgage, a home equity loan uses your home as collateral to secure the loan. Using the equity you’ve built up in your home, this type of loan typically has a low interest rate. Even though you’ll get a low rate, you should only take out a home equity loan if you know you can afford to pay it off. Remember, if you don’t make your payments on time, you run the risk of losing your home.

Emergency loans

Emergencies happen, regardless if you have the money in your savings account to pay for it. When things like hospital bills or auto repair costs come up, emergency loans can help when you need money quickly. Some lenders offer same-day financing, though you’ll be saddled with a significantly high interest rate. Only consider an emergency loan if you have no other option.

How personal loans work

APRs

The annual percentage rate or APR is the rate of interest charged to borrowers each year. More than just your interest rate, the APR includes any costs and fees you’ll pay in addition to interest. An interest rate alone will represent what percentage of the outstanding balance will be added to the amount owed, while an APR gives you the whole picture. Use it to compare offers from lenders and find ways you can save money in the long run.

There are two types of APRs:

Fixed APR Variable APR
With a fixed APR, the interest rate for your loan will sta the same for the duration of the loan A variable APR will vary depending on the prime lending rate, which is the lowest rate a bank will charge to borrow money

As a result of the COVID-19 pandemic, many people are having a hard time making payments because of job loss. In an effort to help, many lenders are coming up with ways to provide relief to people who need it.

SCE Federal Credit Union President and CEO Dan Rader says most credit unions and banks around the country will continue keeping a pulse on the economic fallout—and eventual recovery—stemming from the COVID-19 crisis as many consumers, workers and households face difficult financial decisions.

“Relief options made available to borrowers include skipping payments with no fee on existing loans, emergency relief loans for up to two months of net pay with payment due within 90 days at 0% APR,” Rader says.

[ Read: Where to Find Financial Relief During the COVID-19 Pandemic ]

Terms

The term is the timeline in which you will repay your loan with interest. Repayment terms vary by lender, but they generally range from one to seven years. A short term will result in a higher monthly payment, but that isn’t always a bad idea –– especially if you can afford it. Undeniably, a long term with a lower monthly payment may be easier to manage, but you’ll pay hundreds more in interest over time.

For example, let’s say you borrow $20,000. Your credit is good, so you qualify for a lower interest rate of 3.49%. If the term of your loan is three years, your payment will be $583.00 per month and you’ll end up paying almost $1,100 in interest. However, if the length of your term is five years, your payment will be $364.00, but you’ll end up paying $1,825.00 in interest.

Fees

Fees are part of the loan process –– for better or for worse. Not all lenders will charge fees and the ones that do may not charge the same ones. But as they tend to add up, you should be aware of them. Typical fees include:

  • Application fee: Before you even get your loan, you may pay an application fee which includes the costs of preparing, processing and reviewing documents.
  • Origination fee: Charged to cover the cost of processing your loan, origination fees happen when you’re approved for the loan and receive the money. It also may be called an underwriting or processing fee.
  • Closing fee: Closing fees generally include a lender’s commission and associated application fees.
  • Return check fee: If you don’t have the cash to cover your payment and your check bounces, you’ll be charged with a return check fee.
  • Late payment fee: Falling behind on your payments will not only will hurt your credit, but you’ll be on the hook for late payment fees.
  • Prepayment penalty: Less common than the other types of fees, a repayment penalty happens if you pay your loan off ahead of schedule. It covers the money the lender lost in interest.

Applying for a personal loan

Personal loan requirements

Credit score

Your credit score is one of the most important factors that decide the term of a personal loan. If you have excellent credit (800 to 850), you are more likely to get a loan with better terms. A poor credit score (579 to 300) will make it difficult to get a low interest personal loan from a traditional lender, such as a bank or credit union. However, there are several online lenders that offer bad credit personal loans. Personal loans for bad credit will come with higher APRs and more fees, but there are still options available. Taking the time to improve your score will help you earn more favorable terms.

Minimum income

Your income is another factor that will determine which personal loan option you can get. This shouldn’t come as a surprise, lenders want proof you have the ability to pay back your loan. Income requirements vary greatly from lender to lender, with some requiring annual thresholds and others settling for monthly. When you’re researching lenders, check the eligibility requirements FAQ section to see their requirements.

Other considerations

Every lender is different and what they consider during the loan process will vary. Some will look at other finance indicators like bankruptcies and how much you have in savings as a way to assess your ability to repay your loan. The debt-to-income ratio is also often considered. If you have high debt liabilities and low income, it could hurt your chances of being approved for a loan.

When to get a personal loan

Large debt consolidation

Personal loans can help you eliminate high-interest debt and simplify your finances. If you have mounds of credit card debt, consolidating with a personal loan at a lower interest rate will help you get your debt under control and work towards paying it off.

Home improvement

Some homeowners may choose a home equity loan for a home improvement project, though a personal loan is often a better choice. A home equity loan is a secured loan. This means if you fail to make payments on your home, the bank could foreclose on your home.

[Read: When Is an Emergency Loan a Good Option?]

Emergencies

We all know emergencies happen and when they do, you need a way to cover the costs. Emergency loans can bridge a financial gap from unexpected car repairs, medical bills or even general economic hardship from unemployment due to COVID-19.

When not to get a personal loan

Even though you can get a personal loan for almost any reason, there are times when it isn’t a good idea. Before you take out a loan, take a look at your balances and bank statements to decide what you can reasonably take on. Especially if your credit is lacking, you don’t want to rush into anything. Things that won’t solve a problem or serve as an investment –– like vacations or luxury items –– are the times when you should consider an alternative.

A vacation or big-ticket item is something you can save up for overtime. Using a personal loan to purchase these types of things could lead to more trouble down the road.

Pros of a personal loan Cons of a personal loan
 

  • Fixed monthly payments
  • Available for a number of reasons
  • Low interest rates

 

 

  • A form of debt
  • If you have bad credit, you’ll have a higher APR
  • Lenders charge fees

 

How to choose the best personal loan for you

Step 1. Determine how much you need. Because you can use a personal loan for anything, some people may be tempted to take out a loan for more than they actually need. But this can get you into trouble. Defaulting on your loan will hurt your credit score and impact the likelihood of getting a loan in the future. Borrowers should only take out what they need.

Step 2. Check your credit score. Typically, lenders base your APR on your credit score, so you should have a firm grasp on your credit standing before applying for loans. Check your credit report for errors and make sure there’s nothing dragging down your score.

Step 3. Shop for a lender. Good credit will help you get the best personal loan terms and unlock a number of options — banks, credit unions and established online lenders. Even if your credit needs work, you still have options, though they will come with tighter restrictions, higher APRs and more fees.

Step 4. Prequalify for your personal loan. Most banks, credit unions and online lenders let you prequalify for a loan with a soft credit pull. A simple process you can do in minutes online, prequalifying for a loan will give you a better idea of what terms and what APR you should expect. You’ll likely be asked for your credit score, income, best-to-income ratio, employment history, your age, payment history and if need be, your cosigner’s information.

Step 5. Get approved. Depending on the lender, the approval process for your personal loan can take anywhere from a few hours to a few weeks. This will involve a hard credit pull. Remember: too many at one time will hurt your credit score, so narrow down your options before applying. Once you’re approved, the repayment period starts, so make a budget for your loan payments right away.

Tips for getting a personal loan

Compare APRs

The APRs offered to you will vary by lender, so take the time to shop around for the lowest APR you qualify for. If you’ve got a strong credit score, you’ll likely be able to land a lower APR. If your credit history isn’t as clear, you won’t have those benefits. Even if your credit score isn’t great, that doesn’t mean you should take the first offer to come your way. Your APR will help determine your monthly payment, so finding one you can actually afford is essential.

Get pre-qualified

Pre-qualification is the first step. After you provide your lender with documentation to show your financial standing, you’ll get an estimate of how much you can borrow. Often done online in minutes, pre-qualifying doesn’t impact your credit score because it’s only a soft credit pull. Allowing you to plan a budget for repayment, getting pre-qualified arms you with the information you need to choose the best personal loan for you.

Save on interest

You’ll end up paying interest on your loan –– how much is partly up to you. A bad credit score is going to eliminate the best offers, but you can save on interest by making additional or larger payments each month. A loan with a shorter term will have a higher monthly payment, but you’ll pay less in interest over time. So if you can afford it, a shorter term will save you money in the long run.

Personal loans FAQ

What is a personal loan?

A personal loan is a sum of money set to be paid back over a set period with a defined APR. You can use a personal loan for anything, though the most common uses are: debt consolidation, home renovation, and paying for emergency expenses.

Can you get a personal loan with bad credit?

Having a good credit score will unlock the best personal loans with the lowest APRs. But that doesn’t mean having a lower credit score rules out this option. There are personal loans for bad credit borrowers — you’ll just pay more in interest and fees.

Do personal loans require collateral?

Generally, personal loans do not require collateral. Though bad credit borrowers may only qualify for a secured loan, meaning they will need to provide an asset or collateral to finalize the loan.

How do I apply for a personal loan?

Regardless if you go through a bank, credit union or an online lender, applying for a personal loan is now easier than ever. Most allow you to apply online in minutes.

Advertiser Disclosure

 

Ask the experts

Sam Hawrylack, Co-Founder, Howtofire.com

What advice would you give people who are taking out loans to make ends meet given coronavirus?

A personal loan is your best option if you need to borrow money during COVID-19. Keep in mind that you should apply for a loan with an institution that you have worked with before. Banks prioritize customers with which they have a standing relationship. You will have a more straightforward approval process and overall experience.

You should avoid opting for a line of credit at this time. While it is a quick solution, it is not a wise one. Credit cards have high-interest rates and will cost you more and negatively affect your credit score in the long run.

If a person is worried about making payments, what alternatives would you recommend to help them financially?

There are numerous things you can do at this time to improve your financial situation overall and help you make loan payments. If you qualify for government assistance, take advantage of it. Track your spending to ensure every dollar of your income is used wisely. Consider cutting out some luxuries or making some extra cash through a side hustle. Tapping into your emergency fund should be a last resort.

Camilo Maldonado, Co-Founder, TheFinanceTwins.com

What advice would you give people who are taking out loans to make ends meet given coronavirus?

Make sure you are getting the lowest interest rate possible and a term that you feel comfortable with. Personal loans can have lower interest rates than credit cards, but that’s not always the case.

In addition to talking to your bank, make sure you also get free personal loan quotes online so that you can see what the best rate you can get is.

If you recently lost a job, check to see if you qualify for unemployment or other benefits. If you still need the loan to bridge the gap until you receive your benefits or stimulus check, ask about a prepayment penalty in case you decide to repay the loan before its maturity date.

If you are still working but are facing a reduction in work, ask your company if they have received or plan to obtain a PPP loan to get your typical income back. You should also be aware of the Families First Coronavirus Response Act (FFCRA), which expands paid time off requirements.

Lastly, if you have existing credit card debt or other debts, you should see if you can get a large loan to consolidate all of it at a better interest rate. The Federal Reserve cut interest rates to a low of 0.00 to 0.25%, which means you may be able to save money on your existing debt.

If a person is worried about making payments, what alternatives would you recommend to help them financially?

You will need to lower your expenses, make more income, or do both. When it comes to reducing your expenses, focus on the big-ticket items first. Call your landlord or mortgage lender and tell them you are going through economic hardship. Some jurisdictions have paused evictions, so landlords may be willing to create a payment plan to give you more breathing room. You aren’t the only person struggling, so some lenders have instituted mortgage relief programs.

What are some questions people should ask a bank/lender to ensure they are receiving the best deal?

First, make sure you understand how much the loan will cost in terms of fees and interest rates. Is the interest rate fixed or variable? If it’s variable, you need to ask if there is a cap and how the rate is derived.

Secondly, how quickly will the loan be funded? If you need to make a payment immediately, are they ready to fund you? Lastly, under what conditions can the loan be repaid early? Is there a prepayment fee or penalty?

Lastly, ask how your credit report affects the terms you received. Are you close to qualifying for a better tier? If a loved one is willing to co-sign, would that lower your rate?

Being able to answer these questions will not only help you find the best deal but also help you understand and repay the loan.

Andrew Latham, Personal Finance Counselor, Supermoney.com

If a person is worried about making payments, what alternatives would you recommend to help them financially?

If you own a home but don’t qualify for a regular home equity loan or line of credit, you may want to consider a shared equity agreement. A shared equity agreement, also known as a home equity investment, is a relatively new product that allows homeowners to cash out on their equity without falling in debt. This option is also available to borrowers with a high debt-to-income ratio, who are usually not considered for traditional home equity financing products.

It works like this. Investors give homeowners a lump sum in exchange for a share in the future value of their homes. When the homes are sold (or when the contract term ends), the investors receive their share from the sale. If the value of the house increases, so does the amount the investor gets. If the house drops in the value, the investor also shares in the loss. The main advantage that shared equity agreements offer is that there are no monthly payments, no interest, and no debt.

How does a personal loan compare to a line of credit? What makes a personal loan a better option?

Personal loans are ideal for one-time expenses such as home improvements or emergency car repairs. Personal loans can also be used to consolidate credit card bills into a single payment with lower interest rates.

These loans usually have fixed interest rates and monthly payments, which help with budgeting because you know exactly how much you have to pay each month, and there is a path to paying off the loan and getting out of debt. With lines of credit, it can be tempting to pay the minimum and extend the interest payments for more extended periods.

How has COVID-19 affected the behaviors of banks and lenders?

Many lenders have stopped offering loans until they are confident they have a good handle on the new credit landscape. There are two main reasons:

First, lenders are concerned about the spike in unemployment. They are also backlogged by the surge in applications.

Second, American households were already dealing with high levels of debt. Many are overextended, and their debt-to-income ratio won’t qualify them for a new loan despite having equity. The latest data by the Federal Reserve shows the steepest increase in household debt since the Great Recession.

Overall household debt hit $14.5 trillion. That is $1.5 trillion more than the previous peak in 2008, and 27% more than our last “debt trough” in 2013. Not surprisingly, lenders are not in a hurry to grant loans when they aren’t sure borrowers can afford them.

Todd Christensen, Financial Counselor, Moneyfit.org

What advice would you give people who are taking out loans to make ends meet given coronavirus?

Don’t take out a personal loan until you have explored ways to earn additional income or cut as many lifestyle expenses as possible (e.g., cable/satellite TV, dining out, multiple cell phone payments, etc.)

Financing your current lifestyle will definitely come at a cost to your future lifestyle.

If you take out a personal loan to maintain your current lifestyle choices, you aren’t shooting yourself in the foot. You’re shooting your future self in the gut.

If a person is worried about making payments, what alternatives would you recommend to help them financially?

You only have three options. First, figure out how to bring in more income. Second, cut out expenses. Third, do a combination of one and two.

Finding addition income can involve getting a better paying job (unlikely during a recession with high unemployment), asking for a raise at work, taking on a second job, going with a side hustle or getting charitable or government support

Cutting expenses should involve eliminating all trivial purchases, considering the elimination of lifestyle purchases (daily coffees, dining out or delivery, clothing shopping/retail therapy, etc.), and a review of your major monthly expenses to see if you can downsize or refinance them (home, vehicle, business equipment, etc.)

How does a personal loan compare to a line of credit? What makes a personal loan a better option?

A personal loan comes with an established pay off date and set monthly payments. However, a line of credit has no pay off date and allows the borrower to make a minimum payment each month only. Credit cards are lines of credit tied to a card. A home equity line of credit (HELOC) is another example. Personal loans may require a larger monthly payment, but the set repayment schedule causes fewer long-term debt problems than a line of credit does. Ultimately, a line of credit leads to the feeling of always being in debt.

Michael Sullivan, Personal Financial Consultant, Take Charge America

If a person is worried about making payments, what alternatives would you recommend to help them financially?

Always engage your lender if you are having problems repaying loans. That is not a successful strategy at all times, but right now many consumers are having problems, and lenders can only choose between being flexible or assuming huge losses. Ask for forbearance. Ask for a hardship plan. Ask to have interest rates lowered and penalties waived. Ask for every concession you can think of, and if you aren’t comfortable doing all that, call a credit counseling agency and ask for help.

What are some questions people should ask a bank/lender to ensure they are receiving the best deal?

Consumers need to approach a lender with a deal that has been announced and politely request “that signature loan for 6.5% for 12 months” or “that credit card with a 13.9% APR and 1% cash back.” Do not assume that you will get the advertised deal. They are seldom available, but it provides a negotiating point. You can always call your regular lender and ask them to match the advertised deal. The goal is to get close to the best-advertised deal by contacting at least three lenders for a quote and taking the best deal. And read the agreement carefully. Lenders often put in terms that were not disclosed in discussions.

How does a personal loan compare to a line of credit? What makes a personal loan a better option?

A line of credit is a personal loan that has been approved but not used. With a personal loan, you get the money. With a line of credit, you get assurance that you can borrow whenever you need the money. A line of credit can be canceled, so it is not the best option for most consumers with a real need. It is a good option for businesses that need to address cash flow issues.

How has COVID-19 affected the behaviors of banks and lenders?

The COVID-19 pandemic, like every major crisis, has exposed banks and lenders to FUD — fear, uncertainty and doubt. When faced with the unknown, banks and lenders tend to freeze. Loan applications take longer. Due diligence on loan applications becomes much more involved as lenders try to avoid losses. They cannot adequately predict changes in home values or auto values, and they cannot be sure about a borrower’s job future or even survival.

Because of FUD, lenders are keeping interest rates — which are still low in real terms — artificially high as insurance against loss. They are looking for larger down payments on major purchases to limit risk. The government has stepped in to require and enable a certain amount of lending, but the lenders are concerned and acting slowly and carefully.

Too long, didn’t read?

For many people, a personal loan is the only way out of a tight financial spot. Whether it be for consolidating debt or covering unexpected expenses, personal loans can come in handy. It’s easy to take advantage of a big loan to plan for the future, but you should only take out what you presently need to avoid hardships down the line. Planning for repayment and being realistic about your budget is setting yourself up for financial success.

Methodology

The SimpleScore is our proprietary scoring metric to compare products and services at The Simple Dollar in a transparent, evidence-based way. Our editorial team identifies five quantifiable aspects to compare for every brand, determines the rating criteria for each aspect score, then averages the five aspect scores to produce a single SimpleScore. For personal loans, we compared interest rates, loan sizes, customer satisfaction, support and fees for every major lender. Our ratings are meant to be a directional tool to help you in the process of choosing a personal loan provider. Be sure to continue your research and shop around for the best personal loan that fits your specific needs. Learn more about our methodology.

Keep reading

Last updated July 31, 2020 to address how personal loans have changed during the first summer of the COVID-19 pandemic.

We welcome your feedback on this article and would love to hear about your experience with the personal loans we recommend. Contact us at inquiries@thesimpledollar.com with comments or questions.

Advertiser Disclosure
COVID mask

The impact of COVID-19 on personal loans.

The coronavirus pandemic has forced lenders and borrowers alike to reconsider how to use personal loans. As government assistance programs like the CARES Act expire, more Americans may turn to personal loans as a way to cover short-term expenses. The good news is that many banks, credit unions and online lenders are offering coronavirus hardship loans, which come with lower interest rates and favorable terms. Though not everyone qualifies for this type of loan, it’s designed for those who’ve suffered a loss or reduction of income.

Lenders are also waiving fees and deferring payments to help borrowers make ends meet during the COVID-19 pandemic. For example, HSBC Bank is deferring personal loan payments and waiving late fees for 120 days from the time you enroll in HSBC’s hardship program.

More resources

Check Your Personal Loan Rates

Answer a few questions to see which personal loans you pre-qualify for. The process is quick and easy, and it will not impact your credit score.


Taylor Leamey
Taylor Leamey
Personal Finance Reporter

Taylor Leamey is a personal finance reporter at The Simple Dollar who covers banking, savings, mortgages, loans and credit cards. Her writing has also been featured at Reviews.com, Interest.com and ISP.com.

Reviewed by

  • Adam Morgan
    Senior Editor

    Adam Morgan is a senior editor at The Simple Dollar and an award-winning journalist who’s covered finance and culture for 15 years. His writing has been featured in The Guardian, Los Angeles Times, Chicago Tribune, The AV Club, and elsewhere.

Best Personal Loans for 2020

Compare the best personal loan rates and apply online using the comparison tool below.

Filter & Sort

Check Your Personal Loan Rates

with our trusted partners at Bankrate.com

Answer a few questions to see which personal loans you pre-qualify for. It's quick and easy, and it will not impact your credit score.

LENDING PARTNER
APR FROM
TERM
MAX LOAN AMOUNT

For many people who have lost jobs or wages during the COVID-19 pandemic, personal loans could be the best way to cover an emergency expense, consolidate debt or make a large purchase. Credit unions, banks and online lenders are still offering personal loans despite the pandemic — even if your credit score is fair or low, or if your income has recently changed. To determine the best personal loans of 2020, we compared every major lender’s interest rates, loan terms, customer satisfaction, customer support and fees using our proprietary SimpleScore methodology, and updated our ratings to reflect changes due to COVID-19. Just do us a favor: don’t take out a personal loan to buy the LEGO Star Wars Millennium Falcon.

In this article

COVID-19 Update: We're keeping track of how the COVID-19 pandemic is affecting personal loans. Read more.

Best personal loan companies of 2020

Best personal loan companies at a glance

Lender APR range Loan term Min. loan Max loan SimpleScore
LightStream 3.49%–19.99% 24 to 84 months $5,000 $100,000 4.8/5
Marcus by Goldman Sachs 6.99%–19.99% 24 to 72 months $5,000 $40,000 5/5
SoFi 5.99%–16.19% 24 to 84 months $5,000 $100,000 4.6/5
Payoff 5.99%–24.99% 24 to 60 months $5,000 $35,000 4.5/5
Discover 6.99%–24.99% 36 to 84 months $2,500 $35,000 4.4/5
Upgrade 7.99%–35.97% 36 to 60 months $1,000 $35,000 3.5/5
Upstart 8.13%–35.99% 36 to 60 months $1,000 $50,000 3.4/5
LendingClub 10.68%–35.89% 36 to 60 months $1,000 $40,000 3.2/5
Prosper 7.95%–35.99% 36 to 60 months $2,000 $40,000 3.2/5
NetCredit 34%–155% 12 to 60 months $1,000 $10,000 2.3/5
LendingPoint 9.99%–35.99% 24 to 48 months $2,000 $25,000 3/5

Best overall – LightStream

LightStream

Our #1 pick for the best personal loans in 2020.

APR
3.49%–19.99%
Loan Amount
$5K–$100K
Terms
24–84 months
SimpleScore
4.8 / 5.0
close
SimpleScore
LightStream
4.8
  • Rates
    5
  • Loan Size
    5
  • Customer Satisfaction
    4
  • Support
    5
  • Fees
    5
You might not recognize the name LightStream, but it’s the lending division of Truist, the new bank formed by the 2019 merger of SunTrust Bank and BB&T Bank. You can use a Lightstream loan for virtually any reason -- including home improvement, debt consolidation, adoption and fertility treatments — except for “college or post-secondary educational expenses.” But the best part about LightStream? Very low interest rates, as long as your credit score is high enough (minimum 660 to apply).

LightStream does pull a hard credit check when you apply, but makes up for it with a $100 satisfaction guarantee for the first 30 days of your loan, and will beat any competitor’s interest rate by 0.10%. We also admired LightStream’s response to the COVID-19 pandemic (though we wish interest wouldn’t continue to accrue during deferrals). While LightStream and Marcus both earned a near-perfect SimpleScore of 4.8 out of 5.0, we awarded LightStream our #1 pick thanks to its higher loan range and unique guarantees.

Full review

Our Two Cents — To borrow a term from The Mandalorian, LightStream is the Beskar steel of personal loans, but you’ll need a good credit score to enjoy it.

LightStream in the news

In light of the COVID-19 pandemic, Lightstream is allowing borrowers to defer their payment once, as long as the account is not 90 days past due. Deferment won’t negatively impact your credit score, though it is reported to credit agencies.

Best customer satisfaction – Marcus by Goldman Sachs

Marcus

Winner of J.D. Power’s 2019 customer satisfaction survey for personal loans.

APR
6.99%–19.99%
Loan Amount
$5K–$40K
Term range
24–72 months
SimpleScore
5 / 5.0
close
SimpleScore
Marcus
5
  • Rates
    5
  • Loan Size
    5
  • Customer Satisfaction
    5
  • Support
    5
  • Fees
    5
The lending division of the investment bank Goldman Sachs, Marcus, has an established reputation in the personal loans world. But it isn’t only the reputation that draws people in, Marcus by Goldman Sachs offers flexible loans with no origination, prepayment or late fees. Allowing you to tailor your loan to your lifestyle if you qualify, you’ll have some control over your monthly payments and repayment timeline. Other perks include the ability to defer one loan payment if you’ve made 12 or more consecutive monthly payments. In this case, your loan term will be extended for one month, but you don’t pay interest on the deferral month.

You can take out a loan from Marcus for any reason in amounts up to $40,000, though the downside is not everyone will qualify. You must have a credit score of at least 660, be over 18 years old and have a valid U.S. bank account.

Full review

Our Two Cents — Just like the esteemed Cornell that Andy Bernard attended, Marcus by Goldman Sachs has the reputation and benefits you’ll want to show off.

Marcus by Goldman Sachs in the news

Despite the COVID-19 recession, in July 2020 Goldman Sachs reported earnings that exceeded expectations by $3.5 billion. But according to CNBC, that isn’t because of its personal loans: “Of the six biggest banks, Goldman gets the largest share of its revenue from Wall Street activities including trading and investment banking.”

Best for good credit – SoFi

SoFi

A selective online lender with great rates and zero fees.

APR
5.99%–16.19%
Loan Amount
$5K–$100K
Terms
24–84 months
SimpleScore
4.6 / 5.0
close
SimpleScore
SoFi
4.6
  • Rates
    5
  • Loan Size
    5
  • Customer Satisfaction
    3
  • Support
    5
  • Fees
    5
Digital lender SoFi offers some of the lowest interest rates out there. As an added bonus, SoFi doesn’t charge origination, prepayment or late fees. The catch is: it can be difficult to qualify for a SoFi loan because of its rigorous credit standards. A borrower’s minimum credit score must be at least 680, with an annual income of no less than $45,000. However, qualifying for a SoFi loan is based less on your creditworthiness and more on how much of your income is left after expenses.

SoFi has special deals for their borrowers that other lenders can’t match — like members-only networking events. If you lose your job through no fault of your own, SoFi may let you apply for a temporary forbearance for three months at a time. SoFi has a lot of perks, but they are generally reserved for those with the best credit scores.

Full review

Our Two Cents — With the lowest median APR in the industry, SoFi is the club everyone wants to be in.

SoFi in the news

SoFi is moving forward with its second attempt to become a national bank — three years after abandoning its first attempt. Gaining a national bank charter will allow it to offer customers mortgages, credit cards and checking accounts.

Best for credit card consolidation – Payoff

Payoff

A smart alternative to high interest rates on your credit card debt.

APR
5.99%–24.99%
Loan Amount
$5K–$35K
Terms
24–60 months
SimpleScore
4.5 / 5.0
close
SimpleScore
Payoff
4.5
  • Rates
    5
  • Loan Size
    5
  • Customer Satisfaction
    N/A
  • Support
    4
  • Fees
    4
Personal loans from Payoff are intended for one thing: consolidating credit card debt. Even though they aren’t a fit for things like home renovation, the low APRs and lack of fees for origination, prepayment and late payment still make Payoff a good option.

Payoff is refreshingly transparent about its eligibility requirements: you need a minimum FICO® score of 640, a debt-to-income ratio of 50% or less, three years of credit history, two open and satisfactory “trades” (lines of credit) and no more than one installment loan over the last year, no current delinquent accounts and no delinquencies longer than 90 days in the last year. One thing to keep in mind if you’re considering Payoff is that its overall minimum rate is 5.99%, which is higher than other alternatives. Its minimum rate for loans more than $15,000 is 6.99%.

Full review

Our Two Cents — Think of credit card consolidation as the golden idol in Raiders of the Lost Ark that Indiana Jones uses a bag of sand — a Payoff loan — to retrieve.

Payoff in the news

In the spring of 2020, Payoff added relief programs and resources to help members who have been impacted by the COVID-19 pandemic.

Best for improving your credit score – Discover

Discover

Discover’s free tools, low rates, and flexible terms make it one of the best lenders on the market.

APR
6.99%–24.99%
Loan Amount
$2.5K–$35K
Terms
36–84 months
SimpleScore
4.4 / 5.0
close
SimpleScore
Discover
4.4
  • Rates
    5
  • Loan Size
    5
  • Customer Satisfaction
    3
  • Support
    5
  • Fees
    4
If you have good credit and don’t need to borrow more than $35,000, then Discover is an excellent option for personal loans. Like other lenders, Discover doesn’t charge origination or pre-payment fees, but it “may” charge a $39 fee on late payments. Funding is typically very fast, with same-day decisions and direct deposits to your bank account — or to your creditors if you’re consolidating debt. It’s also one of the only lenders to offer repayment terms up to seven years. Discover’s lowest rate is 6.99%, so if you have an excellent credit score, you’ll probably be able to find lower rates from other lenders.

One thing we love about Discover is the web and mobile access to its Free Credit Scorecard tool, which includes your up-to-date FICO® score and any recent inquiries or changes to your credit report. Assuming you make payments on time, personal loans can improve your credit score, and Discover’s tool makes it free and easy to keep track.

Full review

Our Two Cents — Discover’s web and mobile access makes keeping track of your loan and credit score simple.

Discover in the news

In response to the COVID-19 pandemic, Discover added a detailed FAQ page with answers and resources for its customers, including personal loan borrowers.

Best for financial support – Upgrade

Upgrade

A great option for fair-credit borrowers, but watch out for the steep origination fees.

APR
7.99%–35.97%
Loan Amount
$1K–$50K
Terms
36–60 months
SimpleScore
3.5 / 5.0
close
SimpleScore
Upgrade
3.5
  • Rates
    2
  • Loan Size
    5
  • Customer Satisfaction
    N/A
  • Support
    4
  • Fees
    3
Supporting a wide range of credit scores and incomes, Upgrade is one of the few online lenders that consider cash flow (a monthly minimum of $800) over credit score. You still must have a credit score of at least 620 to qualify, but that’s much lower than what most lenders accept.

Upgrade does have some things to watch out for — high APRs are just the start. Upgrade charges an origination fee that can go as high as 6% and late fees for any missed payments. It also doesn’t offer direct payment to creditors for debt consolidation and secured loan options. However, Upgrade does offer hardship plans if you lose your job. Should this happen, you may qualify for a temporary reduction in your monthly payment or a loan modification for the term of your loan.

Full review

Our Two Cents — The high APRs and steep fees make Upgrade the equivalent of the one ring to rule them all — easy to give into but bad news in the long run. Sometimes it’s just better to cast it into the fires of Mount Doom.

Upgrade in the news

In June 2020, Upgrade won a Santander InnoVentures-led $40 million investment as part of its Series D funding round. Expect to see continued growth as well as a potential expansion into banking.

Best with no credit history – Upstart

Upstart

Super-fast funding, even for new borrowers without a long track record of good credit.

APR
8.13%–35.99%
Loan Amount
$1K–$50K
Terms
36–60 months
SimpleScore
3.4 / 5.0
close
SimpleScore
Upstart
3.4
  • Rates
    2
  • Loan Size
    5
  • Customer Satisfaction
    4
  • Support
    3
  • Fees
    3
Upstart loans are great for younger borrowers and people with little or no credit history, but high earning potential. Upstart loans can be used for many purposes, such as college tuition, home improvements, medical expenses and debt consolidation. It provides quick funding, often within one day, but loans for education require a three-day waiting period before approval.

To secure a loan with Upstart, borrowers must have a minimum credit score of 620 and a minimum annual income of $12,000. Upstart does charge an origination fee of 0% to 8%, and late fees of 5% of the past due amount or $15, whichever is greater. Also, Upstart’s rates are higher on average than some of our other top picks. But if you’re a new borrower with no recent bankruptcies or delinquent loans who needs fast funding, Upstart may be a great choice.

Full review

Our Two Cents — Looking at more than just your credit score, Upstart is a great option for people with little to no credit history.

Upstart in the news

A leader in artificial intelligence platforms, Upstart recently announced the launch of a new auto lending service. With the aim of dramatically improving the experience, the auto loan platform would eliminate the extra steps the consumer has to take, like tracking down their VIN or license plate number.

Best peer-to-peer lending – LendingClub

LendingClub

A balance transfer loan and hardship assistance make LendingClub a good option for debt consolidation.

APR
10.68%–35.89%
Loan Amount
$1K–$40K
Terms
36–60 months
SimpleScore
3.2 / 5.0
close
SimpleScore
LendingClub
3.2
  • Rates
    2
  • Loan Size
    5
  • Customer Satisfaction
    3
  • Support
    3
  • Fees
    3
LendingClub loans are “peer-to-peer” loans that let you borrow money from a person or a group of people instead of a bank. Borrowers are assigned a grade based on income and credit score, and your grade determines your interest rate. The strict credit score requirements of 600 to even apply may put LendingClub loans out of reach for many. If you need money fast, LendingClub is not the option for you. Waiting for your loan to get funded through the company’s network of peer lenders can take up to two weeks.

LendingClub does have a hardship plan in case you have trouble making payments. Borrowers can make interest-only payments for up to three months until you get back on your feet. It does charge an origination fee between 1% and 6%, and it doesn’t offer a discount for auto-payments.

Full review

Our Two Cents — LendingClub is the grandmother of personal loans. It will get you what you need, but it won’t move as quickly as other lenders.

LendingClub in the news

To support borrowers during the pandemic, LendingClub has launched a Member Center, a centralized portal for assistance and support. The Member Center will have resources and personalized tools to help borrowers regain control of their finances.

Best for fair-credit joint loans – Prosper

Prosper

A solid peer-to-peer alternative if your credit score is fair or you need a joint loan.

APR
6.95%–35.99%
Loan Amount
$2K–$40K
Terms
36–60 months
SimpleScore
3.2 / 5.0
close
SimpleScore
Prosper
3.2
  • Rates
    2
  • Loan Size
    5
  • Customer Satisfaction
    3
  • Support
    3
  • Fees
    3
Prosper is another peer-to-peer lender that accepts high-risk borrowers, but you’ll pay significantly more in interest. To qualify, you must pass Prosper’s proprietary risk-rating system, which takes into account things like credit history, income and credit score. Prosper is also one of the few lenders that offer joint loans, meaning you can apply with someone who has a higher credit score, thus improving your chances at approval.

Applicants must have a minimum credit score of 640 and two years of credit history, but there is no minimum annual income requirement. Prosper does not pay creditors directly if you’re consolidating debt, and you can’t adjust your payment schedule. It charges origination fees ranging from 2.4% to 5%, late fees and insufficient funds fees. However, Prosper offers fast funding and only does a soft credit check.

Full review

Our Two Cents — Prosper is like your backup ice cream flavor at the grocery store. If you can get it, LendingClub is what you really want. But if your credit needs some work, Prosper also satisfies the need for a personal loan.

Prosper in the news

In June 2020, Prosper said it has been able to provide hardship benefits to 99.9% of the 40,000 customers who qualified for COVID-19 relief.

Best loans for bad credit – NetCredit

NetCredit

Worth considering if your credit score is below 600 and you need less than $10,000

APR
34%–155%
Loan Amount
$1K–$10K
Terms
12–60 months
SimpleScore
2.3 / 5.0
close
SimpleScore
NetCredit
2.3
  • Rates
    1
  • Loan Size
    2
  • Customer Satisfaction
    N/A
  • Support
    3
  • Fees
    3
NetCredit offers personal loans with much higher interest rates than many lenders, starting at 34% and soaring to 155% APR. To qualify, you must have a minimum score of 500 and meet their minimum annual income requirement of $20,000 or higher. Because of its high APR range, NetCredit should only be used for fast funding by borrowers with low credit scores and few other options. Still, even a 155% APR is much better than most payday loans, which can range from 300% to 600% and even higher.

NetCredit charges an origination fee of 5% and may charge a late payment fee, but it doesn’t charge a prepayment fee. NetCredit offers fast funding, typically within three days of approval.

Full review

Our Two Cents — Remember when they lined us up in gym class and the captains alternated picking players for their team? Well, NetCredit is the kid left standing alone. You only pick it because you have no other option.

NetCredit in the news

During the COVID-19 pandemic, NetCredit promised to work with borrowers to adjust their repayment schedules. Additionally, NetCredit has disabled the ability to take out a cash advance from existing lines of credit during the pandemic.

Best for same-day approvals – LendingPoint

LendingPoint

With flexible loan options and reasonable terms, LendingPoint offers fair credit borrowers funding in as little as one day.

APR
9.99%–35.99%
Loan Amount
$2K–$25K
Terms
24–48 months
SimpleScore
3 / 5.0
close
SimpleScore
LendingPoint
3
  • Rates
    2
  • Loan Size
    3
  • Customer Satisfaction
    N/A
  • Support
    4
  • Fees
    3
If you have fair credit, LendingPoint can help you secure a personal loan up to $25,000. Checking your options won’t impact your credit, and with same-day approvals, your loan can be deposited as soon as the next day. LendingPoint offers flexible loan options that are designed to meet your needs, meaning you can take out a loan as low as $2,000.

The interest rates of LendingPoint loans aren’t the lowest, but they are not the highest, either. They can climb as high as 35.99% APR, so overall it isn’t the cheapest option out there. But you have up to 48 months to pay back your personal loan, and there’s no penalty if you decide to pay it off early.

Full review

Our Two Cents — Origination fees can run from 0% to 6%, so check the fine print like you would the butter consistency on your movie popcorn before you commit.


Pro Tip


LendingPoint in the news In July 2020, LendingPoint announced SDKn™, a new lending system and “instant” pre-approval platform it says will provide customers with an even better financing and purchasing experience.

Check Your Personal Loan Rates

Answer a few questions to see which personal loans you pre-qualify for. The process is quick and easy, and it will not impact your credit score.

What is a personal loan?

An option for quick funding, a personal loan is expected to be paid back in monthly payments over a set term. Available from banks, credit unions and online lenders, personal loan offers can be used for anything. They’re a better alternative than high-interest credit cards or payday loans because of their fixed terms — of 24 to 48 months — and comparatively low interest rates. Personal loans keep things simple, making them one of the easiest forms of debt to repay over time.

Common uses of a personal loan:

  • Debt consolidation
  • Covering unexpected expenses
  • Medical bills
  • Wedding expenses
  • Home renovation
  • Paying off high-interest credit card debt

Before you take out a personal loan, you should know there are two main types — secured and unsecured. Understanding how they differ is key to choosing the best loan for your needs.

How secured vs. unsecured loans work

Secured loan: A secured personal loan is backed up by an asset the bank can seize if you don’t repay — such as your car or home. Lenders use your collateral as assurance you’ll pay back your loan. The type of collateral you use will depend on the loan type. When you get a mortgage to buy a home, for example, your house serves as collateral — if you default on your mortgage, the lender can try to foreclose on the home to recover its losses. The same is true when you take out an auto loan to purchase a vehicle: Your loan is secured by the car you buy.

Unsecured loan: With an unsecured loan, you can borrow money without putting down any collateral. Instead of relying on assets, lenders use your credit score as a way to predict your ability to repay your loan. Typically available to those with a good credit history, qualifying for a favorable unsecured loan can be difficult if your credit score is lacking.

Do you need good credit to get a personal loan?

If you want the best personal loan interest rates, then yes, you need a good credit score. But it’s still possible to find a suitable option with fair or bad credit –– you’ll just have a higher APR and tighter restrictions. When you’re only a few points away from a lower rate tier and don’t need the loan right away, work towards raising your score as much as you can. If you can boost your score to the next tier, you’ll be able to unlock better rates.

Types of personal loans

Installment loans

Installment loans are designed to be paid back in predictable monthly payments with a fixed interest rate. Mortgages, auto loans and student loans are all examples of installment loans. More affordable and much less risky, you should always choose an installment option over a payday or emergency loan.

Payday loans

Payday loans are a way to get money fast. Generally amounting to $500 or less, payday loans have high rates and considerable fees. While payday loans can help you if you’re in a bind, they are by default extremely expensive and expected to be repaid the next time you get paid. A payday loan only requires an income and bank account, so if you have bad credit, they can seem like an appealing option. Though this type of loan should be a last resort, never your first option.

Home equity personal loans

Often called a second mortgage, a home equity loan uses your home as collateral to secure the loan. Using the equity you’ve built up in your home, this type of loan typically has a low interest rate. Even though you’ll get a low rate, you should only take out a home equity loan if you know you can afford to pay it off. Remember, if you don’t make your payments on time, you run the risk of losing your home.

Emergency loans

Emergencies happen, regardless if you have the money in your savings account to pay for it. When things like hospital bills or auto repair costs come up, emergency loans can help when you need money quickly. Some lenders offer same-day financing, though you’ll be saddled with a significantly high interest rate. Only consider an emergency loan if you have no other option.

How personal loans work

APRs

The annual percentage rate or APR is the rate of interest charged to borrowers each year. More than just your interest rate, the APR includes any costs and fees you’ll pay in addition to interest. An interest rate alone will represent what percentage of the outstanding balance will be added to the amount owed, while an APR gives you the whole picture. Use it to compare offers from lenders and find ways you can save money in the long run.

There are two types of APRs:

Fixed APR Variable APR
With a fixed APR, the interest rate for your loan will sta the same for the duration of the loan A variable APR will vary depending on the prime lending rate, which is the lowest rate a bank will charge to borrow money

As a result of the COVID-19 pandemic, many people are having a hard time making payments because of job loss. In an effort to help, many lenders are coming up with ways to provide relief to people who need it.

SCE Federal Credit Union President and CEO Dan Rader says most credit unions and banks around the country will continue keeping a pulse on the economic fallout—and eventual recovery—stemming from the COVID-19 crisis as many consumers, workers and households face difficult financial decisions.

“Relief options made available to borrowers include skipping payments with no fee on existing loans, emergency relief loans for up to two months of net pay with payment due within 90 days at 0% APR,” Rader says.

[ Read: Where to Find Financial Relief During the COVID-19 Pandemic ]

Terms

The term is the timeline in which you will repay your loan with interest. Repayment terms vary by lender, but they generally range from one to seven years. A short term will result in a higher monthly payment, but that isn’t always a bad idea –– especially if you can afford it. Undeniably, a long term with a lower monthly payment may be easier to manage, but you’ll pay hundreds more in interest over time.

For example, let’s say you borrow $20,000. Your credit is good, so you qualify for a lower interest rate of 3.49%. If the term of your loan is three years, your payment will be $583.00 per month and you’ll end up paying almost $1,100 in interest. However, if the length of your term is five years, your payment will be $364.00, but you’ll end up paying $1,825.00 in interest.

Fees

Fees are part of the loan process –– for better or for worse. Not all lenders will charge fees and the ones that do may not charge the same ones. But as they tend to add up, you should be aware of them. Typical fees include:

  • Application fee: Before you even get your loan, you may pay an application fee which includes the costs of preparing, processing and reviewing documents.
  • Origination fee: Charged to cover the cost of processing your loan, origination fees happen when you’re approved for the loan and receive the money. It also may be called an underwriting or processing fee.
  • Closing fee: Closing fees generally include a lender’s commission and associated application fees.
  • Return check fee: If you don’t have the cash to cover your payment and your check bounces, you’ll be charged with a return check fee.
  • Late payment fee: Falling behind on your payments will not only will hurt your credit, but you’ll be on the hook for late payment fees.
  • Prepayment penalty: Less common than the other types of fees, a repayment penalty happens if you pay your loan off ahead of schedule. It covers the money the lender lost in interest.

Applying for a personal loan

Personal loan requirements

Credit score

Your credit score is one of the most important factors that decide the term of a personal loan. If you have excellent credit (800 to 850), you are more likely to get a loan with better terms. A poor credit score (579 to 300) will make it difficult to get a low interest personal loan from a traditional lender, such as a bank or credit union. However, there are several online lenders that offer bad credit personal loans. Personal loans for bad credit will come with higher APRs and more fees, but there are still options available. Taking the time to improve your score will help you earn more favorable terms.

Minimum income

Your income is another factor that will determine which personal loan option you can get. This shouldn’t come as a surprise, lenders want proof you have the ability to pay back your loan. Income requirements vary greatly from lender to lender, with some requiring annual thresholds and others settling for monthly. When you’re researching lenders, check the eligibility requirements FAQ section to see their requirements.

Other considerations

Every lender is different and what they consider during the loan process will vary. Some will look at other finance indicators like bankruptcies and how much you have in savings as a way to assess your ability to repay your loan. The debt-to-income ratio is also often considered. If you have high debt liabilities and low income, it could hurt your chances of being approved for a loan.

When to get a personal loan

Large debt consolidation

Personal loans can help you eliminate high-interest debt and simplify your finances. If you have mounds of credit card debt, consolidating with a personal loan at a lower interest rate will help you get your debt under control and work towards paying it off.

Home improvement

Some homeowners may choose a home equity loan for a home improvement project, though a personal loan is often a better choice. A home equity loan is a secured loan. This means if you fail to make payments on your home, the bank could foreclose on your home.

[Read: When Is an Emergency Loan a Good Option?]

Emergencies

We all know emergencies happen and when they do, you need a way to cover the costs. Emergency loans can bridge a financial gap from unexpected car repairs, medical bills or even general economic hardship from unemployment due to COVID-19.

When not to get a personal loan

Even though you can get a personal loan for almost any reason, there are times when it isn’t a good idea. Before you take out a loan, take a look at your balances and bank statements to decide what you can reasonably take on. Especially if your credit is lacking, you don’t want to rush into anything. Things that won’t solve a problem or serve as an investment –– like vacations or luxury items –– are the times when you should consider an alternative.

A vacation or big-ticket item is something you can save up for overtime. Using a personal loan to purchase these types of things could lead to more trouble down the road.

Pros of a personal loan Cons of a personal loan
 

  • Fixed monthly payments
  • Available for a number of reasons
  • Low interest rates

 

 

  • A form of debt
  • If you have bad credit, you’ll have a higher APR
  • Lenders charge fees

 

How to choose the best personal loan for you

Step 1. Determine how much you need. Because you can use a personal loan for anything, some people may be tempted to take out a loan for more than they actually need. But this can get you into trouble. Defaulting on your loan will hurt your credit score and impact the likelihood of getting a loan in the future. Borrowers should only take out what they need.

Step 2. Check your credit score. Typically, lenders base your APR on your credit score, so you should have a firm grasp on your credit standing before applying for loans. Check your credit report for errors and make sure there’s nothing dragging down your score.

Step 3. Shop for a lender. Good credit will help you get the best personal loan terms and unlock a number of options — banks, credit unions and established online lenders. Even if your credit needs work, you still have options, though they will come with tighter restrictions, higher APRs and more fees.

Step 4. Prequalify for your personal loan. Most banks, credit unions and online lenders let you prequalify for a loan with a soft credit pull. A simple process you can do in minutes online, prequalifying for a loan will give you a better idea of what terms and what APR you should expect. You’ll likely be asked for your credit score, income, best-to-income ratio, employment history, your age, payment history and if need be, your cosigner’s information.

Step 5. Get approved. Depending on the lender, the approval process for your personal loan can take anywhere from a few hours to a few weeks. This will involve a hard credit pull. Remember: too many at one time will hurt your credit score, so narrow down your options before applying. Once you’re approved, the repayment period starts, so make a budget for your loan payments right away.

Tips for getting a personal loan

Compare APRs

The APRs offered to you will vary by lender, so take the time to shop around for the lowest APR you qualify for. If you’ve got a strong credit score, you’ll likely be able to land a lower APR. If your credit history isn’t as clear, you won’t have those benefits. Even if your credit score isn’t great, that doesn’t mean you should take the first offer to come your way. Your APR will help determine your monthly payment, so finding one you can actually afford is essential.

Get pre-qualified

Pre-qualification is the first step. After you provide your lender with documentation to show your financial standing, you’ll get an estimate of how much you can borrow. Often done online in minutes, pre-qualifying doesn’t impact your credit score because it’s only a soft credit pull. Allowing you to plan a budget for repayment, getting pre-qualified arms you with the information you need to choose the best personal loan for you.

Save on interest

You’ll end up paying interest on your loan –– how much is partly up to you. A bad credit score is going to eliminate the best offers, but you can save on interest by making additional or larger payments each month. A loan with a shorter term will have a higher monthly payment, but you’ll pay less in interest over time. So if you can afford it, a shorter term will save you money in the long run.

Personal loans FAQ

What is a personal loan?

A personal loan is a sum of money set to be paid back over a set period with a defined APR. You can use a personal loan for anything, though the most common uses are: debt consolidation, home renovation, and paying for emergency expenses.

Can you get a personal loan with bad credit?

Having a good credit score will unlock the best personal loans with the lowest APRs. But that doesn’t mean having a lower credit score rules out this option. There are personal loans for bad credit borrowers — you’ll just pay more in interest and fees.

Do personal loans require collateral?

Generally, personal loans do not require collateral. Though bad credit borrowers may only qualify for a secured loan, meaning they will need to provide an asset or collateral to finalize the loan.

How do I apply for a personal loan?

Regardless if you go through a bank, credit union or an online lender, applying for a personal loan is now easier than ever. Most allow you to apply online in minutes.

Advertiser Disclosure

 

Ask the experts

Sam Hawrylack, Co-Founder, Howtofire.com

What advice would you give people who are taking out loans to make ends meet given coronavirus?

A personal loan is your best option if you need to borrow money during COVID-19. Keep in mind that you should apply for a loan with an institution that you have worked with before. Banks prioritize customers with which they have a standing relationship. You will have a more straightforward approval process and overall experience.

You should avoid opting for a line of credit at this time. While it is a quick solution, it is not a wise one. Credit cards have high-interest rates and will cost you more and negatively affect your credit score in the long run.

If a person is worried about making payments, what alternatives would you recommend to help them financially?

There are numerous things you can do at this time to improve your financial situation overall and help you make loan payments. If you qualify for government assistance, take advantage of it. Track your spending to ensure every dollar of your income is used wisely. Consider cutting out some luxuries or making some extra cash through a side hustle. Tapping into your emergency fund should be a last resort.

Camilo Maldonado, Co-Founder, TheFinanceTwins.com

What advice would you give people who are taking out loans to make ends meet given coronavirus?

Make sure you are getting the lowest interest rate possible and a term that you feel comfortable with. Personal loans can have lower interest rates than credit cards, but that’s not always the case.

In addition to talking to your bank, make sure you also get free personal loan quotes online so that you can see what the best rate you can get is.

If you recently lost a job, check to see if you qualify for unemployment or other benefits. If you still need the loan to bridge the gap until you receive your benefits or stimulus check, ask about a prepayment penalty in case you decide to repay the loan before its maturity date.

If you are still working but are facing a reduction in work, ask your company if they have received or plan to obtain a PPP loan to get your typical income back. You should also be aware of the Families First Coronavirus Response Act (FFCRA), which expands paid time off requirements.

Lastly, if you have existing credit card debt or other debts, you should see if you can get a large loan to consolidate all of it at a better interest rate. The Federal Reserve cut interest rates to a low of 0.00 to 0.25%, which means you may be able to save money on your existing debt.

If a person is worried about making payments, what alternatives would you recommend to help them financially?

You will need to lower your expenses, make more income, or do both. When it comes to reducing your expenses, focus on the big-ticket items first. Call your landlord or mortgage lender and tell them you are going through economic hardship. Some jurisdictions have paused evictions, so landlords may be willing to create a payment plan to give you more breathing room. You aren’t the only person struggling, so some lenders have instituted mortgage relief programs.

What are some questions people should ask a bank/lender to ensure they are receiving the best deal?

First, make sure you understand how much the loan will cost in terms of fees and interest rates. Is the interest rate fixed or variable? If it’s variable, you need to ask if there is a cap and how the rate is derived.

Secondly, how quickly will the loan be funded? If you need to make a payment immediately, are they ready to fund you? Lastly, under what conditions can the loan be repaid early? Is there a prepayment fee or penalty?

Lastly, ask how your credit report affects the terms you received. Are you close to qualifying for a better tier? If a loved one is willing to co-sign, would that lower your rate?

Being able to answer these questions will not only help you find the best deal but also help you understand and repay the loan.

Andrew Latham, Personal Finance Counselor, Supermoney.com

If a person is worried about making payments, what alternatives would you recommend to help them financially?

If you own a home but don’t qualify for a regular home equity loan or line of credit, you may want to consider a shared equity agreement. A shared equity agreement, also known as a home equity investment, is a relatively new product that allows homeowners to cash out on their equity without falling in debt. This option is also available to borrowers with a high debt-to-income ratio, who are usually not considered for traditional home equity financing products.

It works like this. Investors give homeowners a lump sum in exchange for a share in the future value of their homes. When the homes are sold (or when the contract term ends), the investors receive their share from the sale. If the value of the house increases, so does the amount the investor gets. If the house drops in the value, the investor also shares in the loss. The main advantage that shared equity agreements offer is that there are no monthly payments, no interest, and no debt.

How does a personal loan compare to a line of credit? What makes a personal loan a better option?

Personal loans are ideal for one-time expenses such as home improvements or emergency car repairs. Personal loans can also be used to consolidate credit card bills into a single payment with lower interest rates.

These loans usually have fixed interest rates and monthly payments, which help with budgeting because you know exactly how much you have to pay each month, and there is a path to paying off the loan and getting out of debt. With lines of credit, it can be tempting to pay the minimum and extend the interest payments for more extended periods.

How has COVID-19 affected the behaviors of banks and lenders?

Many lenders have stopped offering loans until they are confident they have a good handle on the new credit landscape. There are two main reasons:

First, lenders are concerned about the spike in unemployment. They are also backlogged by the surge in applications.

Second, American households were already dealing with high levels of debt. Many are overextended, and their debt-to-income ratio won’t qualify them for a new loan despite having equity. The latest data by the Federal Reserve shows the steepest increase in household debt since the Great Recession.

Overall household debt hit $14.5 trillion. That is $1.5 trillion more than the previous peak in 2008, and 27% more than our last “debt trough” in 2013. Not surprisingly, lenders are not in a hurry to grant loans when they aren’t sure borrowers can afford them.

Todd Christensen, Financial Counselor, Moneyfit.org

What advice would you give people who are taking out loans to make ends meet given coronavirus?

Don’t take out a personal loan until you have explored ways to earn additional income or cut as many lifestyle expenses as possible (e.g., cable/satellite TV, dining out, multiple cell phone payments, etc.)

Financing your current lifestyle will definitely come at a cost to your future lifestyle.

If you take out a personal loan to maintain your current lifestyle choices, you aren’t shooting yourself in the foot. You’re shooting your future self in the gut.

If a person is worried about making payments, what alternatives would you recommend to help them financially?

You only have three options. First, figure out how to bring in more income. Second, cut out expenses. Third, do a combination of one and two.

Finding addition income can involve getting a better paying job (unlikely during a recession with high unemployment), asking for a raise at work, taking on a second job, going with a side hustle or getting charitable or government support

Cutting expenses should involve eliminating all trivial purchases, considering the elimination of lifestyle purchases (daily coffees, dining out or delivery, clothing shopping/retail therapy, etc.), and a review of your major monthly expenses to see if you can downsize or refinance them (home, vehicle, business equipment, etc.)

How does a personal loan compare to a line of credit? What makes a personal loan a better option?

A personal loan comes with an established pay off date and set monthly payments. However, a line of credit has no pay off date and allows the borrower to make a minimum payment each month only. Credit cards are lines of credit tied to a card. A home equity line of credit (HELOC) is another example. Personal loans may require a larger monthly payment, but the set repayment schedule causes fewer long-term debt problems than a line of credit does. Ultimately, a line of credit leads to the feeling of always being in debt.

Michael Sullivan, Personal Financial Consultant, Take Charge America

If a person is worried about making payments, what alternatives would you recommend to help them financially?

Always engage your lender if you are having problems repaying loans. That is not a successful strategy at all times, but right now many consumers are having problems, and lenders can only choose between being flexible or assuming huge losses. Ask for forbearance. Ask for a hardship plan. Ask to have interest rates lowered and penalties waived. Ask for every concession you can think of, and if you aren’t comfortable doing all that, call a credit counseling agency and ask for help.

What are some questions people should ask a bank/lender to ensure they are receiving the best deal?

Consumers need to approach a lender with a deal that has been announced and politely request “that signature loan for 6.5% for 12 months” or “that credit card with a 13.9% APR and 1% cash back.” Do not assume that you will get the advertised deal. They are seldom available, but it provides a negotiating point. You can always call your regular lender and ask them to match the advertised deal. The goal is to get close to the best-advertised deal by contacting at least three lenders for a quote and taking the best deal. And read the agreement carefully. Lenders often put in terms that were not disclosed in discussions.

How does a personal loan compare to a line of credit? What makes a personal loan a better option?

A line of credit is a personal loan that has been approved but not used. With a personal loan, you get the money. With a line of credit, you get assurance that you can borrow whenever you need the money. A line of credit can be canceled, so it is not the best option for most consumers with a real need. It is a good option for businesses that need to address cash flow issues.

How has COVID-19 affected the behaviors of banks and lenders?

The COVID-19 pandemic, like every major crisis, has exposed banks and lenders to FUD — fear, uncertainty and doubt. When faced with the unknown, banks and lenders tend to freeze. Loan applications take longer. Due diligence on loan applications becomes much more involved as lenders try to avoid losses. They cannot adequately predict changes in home values or auto values, and they cannot be sure about a borrower’s job future or even survival.

Because of FUD, lenders are keeping interest rates — which are still low in real terms — artificially high as insurance against loss. They are looking for larger down payments on major purchases to limit risk. The government has stepped in to require and enable a certain amount of lending, but the lenders are concerned and acting slowly and carefully.

Too long, didn’t read?

For many people, a personal loan is the only way out of a tight financial spot. Whether it be for consolidating debt or covering unexpected expenses, personal loans can come in handy. It’s easy to take advantage of a big loan to plan for the future, but you should only take out what you presently need to avoid hardships down the line. Planning for repayment and being realistic about your budget is setting yourself up for financial success.

Methodology

The SimpleScore is our proprietary scoring metric to compare products and services at The Simple Dollar in a transparent, evidence-based way. Our editorial team identifies five quantifiable aspects to compare for every brand, determines the rating criteria for each aspect score, then averages the five aspect scores to produce a single SimpleScore. For personal loans, we compared interest rates, loan sizes, customer satisfaction, support and fees for every major lender. Our ratings are meant to be a directional tool to help you in the process of choosing a personal loan provider. Be sure to continue your research and shop around for the best personal loan that fits your specific needs. Learn more about our methodology.

Keep reading

Last updated July 31, 2020 to address how personal loans have changed during the first summer of the COVID-19 pandemic.

We welcome your feedback on this article and would love to hear about your experience with the personal loans we recommend. Contact us at inquiries@thesimpledollar.com with comments or questions.

Advertiser Disclosure
COVID mask

The impact of COVID-19 on personal loans.

The coronavirus pandemic has forced lenders and borrowers alike to reconsider how to use personal loans. As government assistance programs like the CARES Act expire, more Americans may turn to personal loans as a way to cover short-term expenses. The good news is that many banks, credit unions and online lenders are offering coronavirus hardship loans, which come with lower interest rates and favorable terms. Though not everyone qualifies for this type of loan, it’s designed for those who’ve suffered a loss or reduction of income.

Lenders are also waiving fees and deferring payments to help borrowers make ends meet during the COVID-19 pandemic. For example, HSBC Bank is deferring personal loan payments and waiving late fees for 120 days from the time you enroll in HSBC’s hardship program.

More resources

Check Your Personal Loan Rates

Answer a few questions to see which personal loans you pre-qualify for. The process is quick and easy, and it will not impact your credit score.