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Best Personal Loan Rates for 2021
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 2021, we compared every major lender’s interest rates, loan terms, customer satisfaction, customer support and fees using our proprietary SimpleScore, 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.
Why trust The Simple Dollar?
Research methodology
The SimpleScore makes it easy to compare current mortgage rate products and services featured here on The Simple Dollar in a transparent, open and honest way. We rate these products and services using five factors and average them to come up with a single SimpleScore For Personal Loans, we compare: perks, credit impact to check rates, customer satisfaction, product variety and fees.
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What are current personal loans rates?
As of August 2020, the average rate on a 24-month personal loan is 9.34%. This is a slight drop from recent years, in which the average rate was 10.13%–10.32% in 2017 to 2019.
Here’s what you can expect your personal loan rate to be based on your credit score.
| Credit Score | *Expected Personal Loan Rate |
| Excellent (720 and over) | Under 9% |
| Good (660–719) | 9%–14.99% |
| Fair (600–659) | 15%–35.99% |
| Poor (599 and below) | Over 36% |
* These rates are based on lenders’ advertised rates, advertised credit score requirements and borrower eligibility requirements. Your personal loan rate may be higher or lower based on your income, employment history and current debts.
Latest news on personal loans
Self-employed or independent contractor eligible for PPP funding
Believe it or not, PPP loans aren’t just for small businesses. Self-employed workers or independent contractors are also eligible for these loans during the COVID-19 pandemic. The CARES Act included funding for PPP loans for both rounds of stimulus packages. This was done in an effort to help stabilize the economy along with the multi-billion dollar stimulus payments made to families and businesses.
Whether you’re self-employed or work as a contractor, there’s a lot to understand when it comes to PPP funding. Self-employed people may qualify for a PPP loan of up to 10 weeks of their pay over a 24-week period. The loan is based on the employee’s net income from their 2019 tax return.
Keep in mind that the maximum loan amount for self-employed individuals can be up to $20,833, provided that they’re owners of multiple businesses. If you’re an independent contractor, you may be eligible for a PPP loan for up to eight weeks of your salary.
What is PPP funding?
Businesses, people who are self-employed or independent contractors can apply for a personal loan, called a PPP loan, to help keep their business afloat during the pandemic-related downturn. This type of personal loan can help cover expenses and business necessities during the COVID-19 pandemic.
According to the Small Business Association (SBA), you or your organization may qualify for this type of funding if there are no more than 300 employees in your business and your business has had at least a 25% reduction in gross income over a certain period of time.
That 300-employee maximum means that self-employed individuals and independent contractors fall into the businesses covered by this type of loan. PPP funding is also available to non-profits and veteran organizations, provided that they meet the other loan requirements.
How to apply for PPP funding
You can apply for a PPP loan with an SBA lender. You’ll need your 2019 tax returns and information on your net income. If you didn’t receive a loan in April, you may be eligible for the earlier funds as well as the December 2020 payout.
You may also qualify for loan forgiveness with supporting documents. In order to qualify for PPP loan forgiveness, you must rent an office space and have expenses for business utilities. You must have a business property mortgage prior to the COVID-19 pandemic. Plus, you must also have services for the product or service you’re offering.
You can apply for a Second-Draw PPP loan from Jan. 13 until March 31, 2021.
How COVID-19 affects personal loans
As a result of the COVID-19 pandemic, many people are having a hard time making payments on personal loans 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.
What are coronavirus hardship loans?
Millions of Americans need financial assistance. Banks and lending institutions have stepped up, and many are now offering coronavirus hardship loans. These loans are smaller in value but offer a flexible payback schedule. Other financial options are available to people needing some help paying their bills, including refinancing, deferments or withdrawing from a 401(k).
[ Read: Where to Find Financial Relief During the COVID-19 Pandemic ]
Best personal loan companies of 2021
- LightStream – Best overall personal loan
- Marcus by Goldman Sachs – Best personal loan for customer satisfaction
- SoFi – Best personal loan for good credit
- Payoff – Best personal loan for credit card debt consolidation
- Discover – Best personal loan for improving your credit score
- Upgrade – Best personal loan for financial support
- Upstart – Best personal loan for no credit history
- Lending Club – Best personal loan for peer-to-peer lending
- Prosper – Best personal loan for fair-credit joint loans
- NetCredit – Best personal loan for bad credit
- LendingPoint – Best personal loan for same-day approvals
Best personal loan rates in January 2021
| Lender | APR range | Loan term | Min. loan | Max loan | SimpleScore |
|---|---|---|---|---|---|
| LightStream | 2.99%–20.49% w/out Autopay | 24 to 84 months | $5,000 | $100,000 | 4.8/5 |
| Marcus by Goldman Sachs | 6.99%–19.99% | 36 to 72 months | $3,500 | $40,000 | 5/5 |
| SoFi | 5.99%–20.69% w/AutoPay | 24 to 84 months | $5,000 | $100,000 | 4.6/5 |
| Payoff | 5.99%–24.99% | 24 to 60 months | $5,000 | $40,000 | 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 | 8.41%–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 | varies | 36 to 60 months | $2,000 | $40,000 | 3.2/5 |
| NetCredit | 34%–155% | 6 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
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.
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.
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
Just like the esteemed Cornell that Andy Bernard attended, Marcus by Goldman Sachs has the reputation and benefits you’ll want to show off.
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.
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
With the lowest median APR in the industry, SoFi is the club everyone wants to be in.
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.
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
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.
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%.
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, Member FDIC
Discover’s web and mobile access makes keeping track of your loan and credit score simple.
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.
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
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.
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.
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
Looking at more than just your credit score, Upstart is a great option for people with little to no credit history.
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.
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 is the grandmother of personal loans. It will get you what you need, but it won’t move as quickly as other lenders.
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.
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 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 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.
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
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 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.
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
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.
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.
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.
Guide to understand how personal loans work
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 it comes with fixed terms 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 personal loans work
When a borrower takes out a personal loan, they receive a lump sum of money from the lender. Then, over an agreed-upon period of time, the borrower is responsible for paying back that amount — plus interest and fees — in monthly installments.
However, not every personal loan applicant is eligible for a personal loan with a lender. Personal loan lenders typically have eligibility requirements like minimum credit scores, minimum yearly income and debt-to-income ratio that the borrower must meet in order to get a personal loan. Lenders typically accept borrowers with good credit and low debt-to-income because it’s more likely the borrower will be able to pay back the loan.
Here are some important personal loan terms to consider:
1. 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: Interest rate for your loan will stay the same for the duration of the loan
- Variable APR: A variable APR will vary depending on the prime lending rate, which is the lowest rate a bank will charge to borrow money
2. 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.
3. 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 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.
Do you need good credit to get a personal loan?
You might be wondering if you need good credit to get a personal loan. In short, no, you don’t need good credit to get a personal loan, but you can save a lot of money if you do have good credit. As we’ve already mentioned, your credit score determines your interest rate.
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.
You might hear that it isn’t possible to raise your credit score over a short period of time, but a small change is possible. While a significant increase may require more time, if you just need two or three points, you can improve your credit score by doing a few different things, including disputing errors, paying bills on time, and avoiding closing accounts.
How secured vs. unsecured loans work
Secured loan: A secured personal loan is backed up by an asset — such as your car or your home — that the bank can seize if you don’t repay. 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.
Types of personal loans
There are a few different types of personal loans, and they differ usually based on funding process and use of the loan. For example, installment loans are the most common type of personal loan and encompass all forms of standard loan funding. On the other hand, payday loans and home equity personal loans are less common and have different fees and terms attached than standard 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.
Applying for a personal loan
When shopping around for the best personal loans, you may finally land on a lender you’re interested in borrowing from. Here’s how to apply for the best personal loan for you:
- Check your credit score. Right before you apply, you should check your credit score to make sure you meet the lender’s requirements and that there are no discrepancies or inaccuracies on your report. You can check your credit report at AnnualCreditReport.com.
- Head to the lender website or branch. If you’re applying online, head to the lender website. Usually you will start the process by either clicking the “Apply Now” button or checking your rates before starting the official process. If you’re applying in person at a lender branch, make sure that you bring all the required documents to the appointment.
- Gather your personal documents. To apply online or in person, you will likely need your driver’s license, home address, Social Security number, pay stubs, previous tax returns and latest bank statements.
- Fill out the application. When you fill out your personal loan application, you will indicate how much you need to borrow, how long you’d like to repay it and the purpose for the loan, such as debt consolidation, medical bill payments, emergency financing or other reasons.
- Wait for the decision. If applying online, you may only wait a few minutes for the decision to come back. However, if you apply in person at a branch, you may wait one to three business days or longer. If you are denied a personal loan, the lender is required to send you a letter in the mail detailing exactly why you were denied.
- If approved, review and sign documents. When your personal loan application is approved, you will receive a few documents that detail the terms and conditions attached to the personal loan. Review these carefully — these documents will specify your personal loan APR, fees, repayment terms and the amount you should expect to pay in interest over the life of the loan. When everything is reviewed, you can sign the loan documents and expect funding in 24 hours to five business days.
Regulation Z and personal loans
Also known as the Truth in Lending Act, Regulation Z is part of federal regulation in lending designed to protect consumers from predatory practices in mortgages, installment loans, credit cards, lines of credit, reverse mortgages and other types of lending.
Regulation Z requires personal loan providers to give clear and concise information on loan interest rates, APRs, fees and any other costs of borrowing. This is meant to make it easier for borrowers to fully understand how much their personal loan will cost.
From the updated Regulation Z that will take effect December 28, 2020, “the terms ‘finance charge’ and ‘annual percentage rate,’ when required to be disclosed … together with a corresponding amount or percentage rate, shall be more conspicuous than any other disclosure …” This means that lenders are federally obligated to be clear in the financing terms on personal loans.
Pros and cons of a personal loan
| Pros of a personal loan | Cons of a personal loan |
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[ Read: Is a Personal Loan My Best Option? ]
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 an online 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.
How to get the best interest rate on a personal loan
One of the downsides of personal loans is that they often come with higher interest rates than other types of loans. Luckily, there are some things you can do to reduce your rate, saving you money over the life of the loan.
- Shop around: Interest rates can vary widely from one lender to the next. Do your homework before selecting a personal loan lender, and make sure you’re going with the one that can offer you the best rate.
- Increase your credit score: Your credit score is one of the most important factors in determining your loan interest rate. The higher your score, the better the rate you’ll be eligible for. If you don’t need the money immediately, it may be worth spending a few months boosting your score before applying for a personal loan.
- Put up collateral: One reason that personal loans tend to come with higher interest rates is that they’re often not secured by any form of collateral. In other words, the lender is taking on more risk. Putting up collateral, such as home equity, a vehicle, a bank account or investment account may reduce your rate. Just don’t do this unless you’re 100% confident you’ll be able to pay it off.
- Reduce your loan term: Lenders often reserve their best interest rates for the lowest loan terms. If you can afford the higher monthly payment, taking a shorter loan term can be an easy way to lower your interest rate.
Alternatives to personal loans
Payday Loan: A payday loan allows you to borrow money and repay the loan on your next payday or in installments. Medical bills, rent, utilities and other smaller expenses can be taken care of using a payday loan, but it can be costly if you don’t repay it in that short amount of time you are given.
Home equity loan: Homeowners have the option to borrow against the value of the home using a home equity loan. Not repaying this loan could mean you lose your home, but since you can get up to 85% of the equity in your home, it could be perfect for larger expenses.
Credit card: A credit card could work for a variety of situations depending on the limit. Of course, you want to be mindful of interest and how you can be affected in the long term if you don’t pay the full balance by the due date.
Asking a friend or family member for a loan: Perhaps a friend or family member would be willing to help you out by loaning you the case you need. There won’t be any restrictions on what you can use the loan for, and you can work together to hash out the repayment details.
Paying off your personal loan
Lenders calculate your monthly loan payment using the loan amount, interest rate, and loan term, and you are expected to repay your loan in full by the end of the term. Throughout the life of your loan, it may be necessary to budget and be more mindful of your spending, especially if you are concerned about your ability to make on-time payments.
It is important to avoid being charged additional fees by your lender, so consider setting up autopay to avoid incurring a late fee. And make sure the funds are always available in your account to avoid getting charged for insufficient funds.
If you have the cash and consider making additional payments to get your loan paid off quicker, check with your lender to confirm if they charge a prepayment fee, which is a fee charged to borrowers when they repay their personal loan before the loan term lapses.
Online personal loans
You may have noticed that the lenders we suggested for personal loans are online lenders rather than traditional banks and credit unions. Online companies have become some of the most prevalent lenders of personal loans.
Online lenders come with plenty of benefits. First, personal loans from online companies are often easier to qualify for. They also have a quick turnaround, with many lenders making funds available the same day you apply for the loan.
[ Read: Best Online Lenders ]
How to detect personal loan scams
Financial scams of all kinds are more prevalent than ever, with one in three adults falling victim to some type of scam. Let’s talk about a few ways to avoid scams when it comes to personal loans.
Avoid lenders who guarantee approval: A legitimate lender is going to be interested in your financial situation, including your credit score, income and debt-to-income ratio. If a lender guarantees loan approval and doesn’t care about your financial situation, it could be a scam.
Avoid lenders who aren’t transparent about fees: You’ll notice that many of the lenders we recommended have information about fees readily available on their websites. Even those that don’t should provide you a full rundown of the fees in the loan contract. If a lender won’t tell you what fees you’ll pay, or charges fees that you don’t know what they are, it could be a scam.
Avoid lenders that aren’t registered in your state: The federal government requires lenders to register in any state where they do business. You can check a financial institution’s website to see where it’s registered to do business. If your state isn’t on the list, don’t get a personal loan through that company.
Avoid lenders who demand prepaid debit cards: It’s not uncommon for scammers to require borrowers to provide a prepaid debit card. A legitimate lender won’t collect fees this way. If a lender asks for a prepaid debit card, take your business elsewhere.
[ Read: How to Protect Yourself From COVID-19 Financial Scams ]
Personal loans FAQ
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.
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.
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.
Ask the Experts
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Sam Hawrylack
Co-Founder
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Camilo Maldonado
Co-Founder
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Andrew Latham
Personal Finance Counselor
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Todd Christensen
Financial Counselor
Michael Sullivan
Personal Finance Consultant
Sam Hawrylack
Co-Founder, Howtofire.com
Camilo Maldonado
Co-Founder, TheFinanceTwins.com
Andrew Latham
Personal Finance Counselor, Supermoney.com
Todd Christensen
Financial Counselor, Moneyfit.org
Michael Sullivan
Personal Finance Consultant, Take Charge America
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.
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.
The impact of COVID-19 on your 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 deferring personal loan payments and waiving late fees for 120 days from the time you enroll in HSBC’s hardship program.
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.
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Methodology
The SimpleScore is a proprietary scoring metric we use to objectively compare products and services at The Simple Dollar.
For every review, our editorial team:
- Identifies five measurable aspects to compare across each brand
- Determines the rating criteria for each aspect score
- Averages the five aspect scores to produce a single SimpleScore
Here’s a breakdown of the five aspect scores and their rating criteria for our review of the best personal loans of 2020.
Why do some brands have different SimpleScores on different pages?
To ensure the SimpleScore is as helpful and accurate as possible, we developed unique criteria for every category we compare at The Simple Dollar. Since most brands offer a variety of financial solutions, their products and services will score differently depending on what we’re scoring on a given page.
However, it’s also possible for the same product from the same brand to have multiple SimpleScores. For instance, if we compare NetCredit’s personal loans according to our criteria for the best personal loans, it scores a 2.3 out of 5. But when we compare NetCredit according to the criteria for the best bad credit personal loans, it scores considerably higher, since the criteria for the latter review are more lenient (lenders who serve borrowers with bad credit will always offer higher rates, so we needed to adjust our category methodology to account for different industry standards).
Questions about our methodology?
Email Hayley Armstrong at hayley@thesimpledollar.com.
Rates
We looked at the maximum APR for each lender — the lower their maximum rate, the higher their score.
Loan Size
We awarded higher scores to lenders with more generous loan sizes.
Customer Satisfaction
We leveraged the J.D. Power 2019 Personal Loan Satisfaction Study℠ to see how customers rated their experience with each lender. (If a lender wasn’t included in J.D. Power’s study, we skipped this aspect and averaged the four remaining aspect scores.)
Support
We awarded higher scores to lenders with the most channels for customer support.
Fees
We looked at the three most common fees — origination, late payment, and pre-payment — and penalized lenders for each fee charged.
Reviewed by
Courtney Mihocik
Loans EditorCourtney Mihocik is an editor at The Simple Dollar who specializes in personal loans, student loans, auto loans, and debt consolidation loans. She is a former writer and contributing editor to Interest.com, PersonalLoans.org, and elsewhere.
