How To Choose The Best Personal Loan Lender

There’s a lot to consider when you’re comparing personal loans. To find the best personal loan lenders, start by learning about the terms, interest rates, fees and loan amounts on offer.

Then make sure the lender is a good match for the reason you want to borrow. A personal loan lender that specializes in large home improvement loans may not be a good match if you need emergency funds to replace a water heater today.

Knowing how to compare personal loans can help you pick the right one to meet your borrowing needs.

In many cases, you can borrow $1,000 to $50,000 with a repayment period of up to seven years. Typically, APRs (annual percentage rates) range from 6.5 to 36 percent, depending on your credit score and other factors.

What to consider when comparing personal loans

Personal loans offer a lot of flexibility compared to other types of loans. Because they’re unsecured, they can often be funded the same day you apply. You don’t have to tie up equity in your home or car, and can typically find a lender even if you have bad credit.

Not all lenders offer the same flexibility, however, and some charge high fees and others specialize in low-credit-score borrowers. Before applying for a loan, compare at least three lenders online or by getting offers on a marketplace like Bankrate offers.

Consider the criteria listed below to determine which can provide the best loan for your funding needs.

Approval requirements

Most lenders require at least a credit score of 580 and proof of stable employment and a steady income history to qualify. If your credit is shaky, some lenders use your education or career field as the basis for approval.

Interest rates

Personal loans currently have an average interest rate of 12.64 percent. However, rates fluctuate from roughly 6.5 percent to 36 percent. The interest rate you’ll get will be based on your credit score and loan term.

The lowest personal loan rates are typically reserved for customers with excellent credit — generally 800 or higher — and short terms of three years or less. A good credit score could also give you competitive rates, but likely somewhere in the low double-digits.

Fees

Make sure you take a look at any fees, such as application fees, prepayment penalties or origination fees, since they will be deducted from the loan funds you receive.

Loans for borrowers with bad credit are more likely to have origination fees. Some lenders charge up to 12 percent of the loan amount, although it varies widely.

Loan amounts

Lenders often offer personal loan amounts from $1,000 to $50,000 — although some lenders set limits as high as $100,000. Watch for special requirements on higher loan amounts — you may be limited to using a high-dollar amount for home improvements or a major purchase like a boat or RV.

Watch for high minimum loan amounts as well. Many lenders set their minimum at $2,000 or higher, which may be more than you need for an unexpected car or home repair emergency.

Cosigners

If you have less-than-perfect credit, search for lenders that allow you to apply using a co-borrower or a cosigner. You could improve your approval odds and the interest rate you’ll get. Not all lenders offer this option, so you’ll need to do some research before applying.

Repayment options

Most personal loan lenders offer terms between two and five years. Some, however, may offer shorter terms of one year or less, while others offer up to seven years. For large purchases like RVs or expensive boats, you might even find 20-year term options.

The term affects your monthly payment and the total amount of interest you’ll pay for the life of the loan. One way to see the effect your loan term has is to use a personal loan calculator.

A shorter loan can save you hundreds or thousands in total interest, but the payment will be higher than a longer-term loan. A long term may be much more affordable monthly, but it costs you significantly more over the life of the loan.

Special offers

Lenders may offer perks to sweeten a personal loan offer. The most common are autopay discounts which can lower your payment and total interest charges.

Other lenders may offer free credit score monitoring to help you keep tabs on your credit health. Others offer online privacy protection services to help keep your information secure and out of the hands of cyber-thieves.

Customer service and experience

Most lenders have downloadable apps you can use to track and make payments, chat with customer service or review your balance. Most have phone access during the week, with some even offering seven-day-a-week phone support.

If you are looking for a personal loan from a bank or credit union, you may also be able to get in-person attention at a branch. You can check out our expert-vetted personal loan lender reviews to get an unbiased look at lenders featured on Bankrate best lists, or check out consumer review websites, like Trustpilot and the Better Business Bureau (BBB), to determine whether it’s a good idea to do business with them.

Types of loans offered

Personal loans are either secured or unsecured with variable or fixed rates. Many types of personal loans are marketed for a specific purpose.

• Bad credit loans are offered by lenders to customers who may have past credit challenges. These types of loans are typically designed for applicants with a credit score of less than 580.
• Debt consolidation loans let you pay off multiple debts with a new loan, typically with a lower interest rate, and streamline the repayment process by making a single monthly payment. This could give your credit score a big boost since it reduces your credit utilization ratio, which has a major impact on your scores.
• Emergency loans are designed to cover unexpected expenses and last-minute financial emergencies. Some lenders even offer same-day funding if you apply early enough on a business day.
• Home improvement loans are used to make costly upgrades to your home without tapping into the equity you’ve built up.

How to get a personal loan

There is no one-size-fits-all approach to personal loans. The best personal loan for you will depend entirely on your finances and the type of loan you qualify for.

1. Do your homework based on your borrowing needs. Check the closer look sections of Bankrate’s top personal loan lists or the pages of several lenders’ websites to make sure they offer the best loan amount, repayment terms and APRs for your credit score and loan purpose.
2. Have your income docs ready. You’ll probably need a pay stub and some employer information since personal loans are approved primarily on your earnings and credit score. Some lenders may even require banking information to track your direct deposits.
3. Pick lenders that offer prequalification and get prequalified. A prequalification is based on your best credit score guess, which means it doesn’t impact your credit scores. Not all lenders offer prequalification, and multiple hard inquiries could damage your credit score.
4. Review loan terms. Carefully read the lender’s terms. One lender may beat another as far as interest rates go, but it could have a prepayment penalty that makes it harder to repay your loan ahead of schedule.
5. Submit application. Complete a full application to confirm that you qualify. If you do, the lender will have you sign the final paperwork before disbursing the loan.

Bottom line

Ultimately, comparing personal loans comes down to knowing how much you want to borrow, why you want to borrow it and matching that up with lenders that fit your credit score, income, budget and speed-of-funding needs. Always review your final offer to make sure it matches up to your quote, and don’t hesitate to cancel a loan that doesn’t measure up when you review the final details.