It takes money to make money, as the saying goes. So, what can you do when you are starting from scratch? The best personal loan companies can give you the necessary boost you need.
If you want to consolidate debt, start a small business, put a down payment on a car or a property, personal loans are growing in popularity. I've reviewed the top lenders and listed the best companies below.
The Best Personal Loans: What to Consider
The Best Personal Loans
- SoFi – 4.91-14.49% interest rates, $5,000-100,000 loan amounts, 700 min credit score
- Lending Club – 5.99-35.89% interest rates, $1,000-40,000 loan amounts, 600 min credit score
- Personalloans.com – 5.99-35.99% interest rates, $1,000-35,000 loan amounts, 580 min credit score
- Lightstream – 2.19-17.49% interest rates, $5,000-100,000 loan amounts, 720 min credit score
Before you get started, it is important to go through the three following basic steps when you are thinking about taking out a personal loan:
- Make sure it is absolutely necessary
- Make sure you have a plan to pay it back
- Find a lender that is trustworthy
Personal loans offer generally lower interest rates than credit cards, which have risen to 15.07% on average. Because of this, the source you are borrowing from is incredibly important.
Be sure that you have considered all options before taking out a loan and if you do choose a loan make sure it's the best personal loan available to you. When you've decided that you need a loan (and after you have come up with a realistic plan to pay it back), it's important to make sure you know how to tell the difference between a good deal from a bad one.
The loans that are available to you depend on a variety of factors, but knowing the industry standards for someone in your financial position can help you find the best deal. I considered the following things when reviewing the top companies and you should also keep them in mind when you are shopping for a lender:
Find the Best Personal Loan Interest Rates
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Part of the reason that personal loans have been growing in popularity is that they have become more attractive than credit cards as a means to fund big expenses. Why?
Personal loans offer generally lower interest rates than credit cards, which have risen to 15.07% on average.
The reason for this is that credit cards are generally marketed and seen a way to make payments easier, not a way to borrow money. You can also use many credit cards without spending any money in interest (as long as you pay the statement balance every month). The end result: people don't pay attention to credit card interest rates, so card companies have hiked them up.
Personal loans, on the other hand, are generally scrutinized for their interest rates. If you are thinking of taking out a personal loan, this should be one of the first things you look at. Consider the current national average for personal loan interest rates. You can see below that they are on a general decline.
When you are looking at interest rates, make sure the companies you are interested in have rates that are competitive with the average.
The Best Place to Get a Personal Loan
When you are considering the best place to get a personal loan, there are several things to consider. Reputable banks, highly rated peer-to-peer investing platforms and credit unions are usually the best place to find a scrupulous lender.
However, today, even the best bank for personal loans needs to have an online lending presence to compete new, exclusively online lenders.
Online lending platforms are growing as a viable option. The best online personal loans are available to people with good credit; however, online lenders are also creating more intuitive application processes that look at more than just your credit score. Good lending sites can be a great alternative when banks won't offer you a loan.
Top Reasons to Apply for an Online Personal Loan
There's an appeal to personal loans because they come with a fixed interest rate meaning you'll pay the same amount each month and you only borrow what you need. However, the benefits with personal loans don't stop there, as here are some excellent uses for a personal loan they can help you:
- Pay off credit cards and, instead, make payments on a lower interest loan.
- Pay for expensive home improvements.
- Purchase a vehicle like cars, boats RVs and other items that you don't have enough money to pay for in full.
- Expensive events like weddings or dream vacations.
- Unexpected medical bills that would otherwise break the bank.
One of the most common uses for a personal loan is to consolidate credit card debt. By doing this, you can avoid high credit card interest rates that accrue more and more debt. Plus, personal loans have shorter terms than if you would just pay the minimum payment on a credit card.
By consolidating and sticking to payments you can pay off your debts in a few years rather than 30 or more. Also, if you use a personal loan to pay off your credit card debt and then you faithfully pay off your personal loan you can start to build up good credit.
The drawback is, of course, if you use a personal loan to consolidate your credit cards and then continue to use those cards. In that case, you would have both new credit card debt and a personal loan to pay off. Plus, if you fail to make personal loan payments, you can incur late fees and penalties.
Using the best loan companies to consolidate credit cards is also best for people who have been making credit card payments but you'd like to cut down on interest. If you've been struggling with your payments, you may have done some damage to your credit score.
The Best Unsecured Loans Can Improve Your Credit
Credit scores can be confusing and many people probably aren't clear on how their scores are determined. A main component in your credit score is your credit utilization ratio. In simplest terms, it measures how reliant you are on your available credit. As an illustration, say you have a credit card with a limit of $1,000 and you charged $600.
This means you used 60% of your available credit, which is high. A good rule for you to abide by is to use no more than 30% of your available credit. When you do this, you'll maintain a good score because you are showing responsible behaviors.
1. Building Credit From Scratch
If you are looking to establish credit, a personal loan is an excellent option to consider. Unlike credit cards, a personal loan is a closed-end form of credit meaning you'll receive a flat amount that you will pay back in monthly payments.
What's nice about this is it's a great way to build responsible financial behaviors by borrowing the minimum amount you need and then making punctual payments. By doing this over time, you build a satisfactory history on your credit reports thus establishing a good score.
2. Rebuilding Your Credit
To help you rebuild your score, consider doing a secured personal loan. How these work is you put down an amount that becomes your collateral and your credit limit.
Once the bank or credit union approves the loan, that amount is what you can borrow and pay back in monthly increments. This helps you in that as you make timely payments it shows prospective lenders that you have recovered from the past and are a responsible borrower now.
Now if you have overcharged a card, a personal loan can help you with this. An installment loan is a closed-end form of credit meaning you cannot continually borrow from it like you would a credit card. The amount you borrow on a loan doesn't count in your ratio.
This means if you have charged more than 30% of your available credit on a card, rolling that balance over to a personal loan can boost your credit score because it lowers your credit utilization ratio.
3. Building Diversity in Your Credit Portfolio
Lenders want to see you balance a healthy mix of revolving and installment accounts such as credit cards and personal loans. This means that to build a great credit score you should opt to have a low-interest credit card and a personal loan.
By having both and making payments on time, you show lenders you are a responsible borrower. In turn, this helps you build your credit score because you exhibit sound financial behaviors and you rely on multiple types of credit accounts to achieve this.
How to Get the Best Personal Loan Rates
Assuming you have good credit, it's up to you to lock in the lowest personal loan rates. Credit unions typically offer lower rates than traditional, for-profit banks. If you currently bank with a credit union, check with them first as they might also offer long-term customers lower rates. Other ways to find the lowest personal loan rates include:
- Shop around. Traditional banks, credit unions and online lenders, such as SoFi or Lending Club, all offer personal loans to shoppers. While your credit score will take a small hit due to multiple inquiries, it's worth it in order to lock in the lowest rate possible on your personal loan.
- Put up some form of collateral. If your personal loan is backed by collateral (known as a secured loan), such as your house, your car or your jewelry, you will typically receive a lower interest rate than if you have no collateral to put up. The reason is because if you were to default on the loan, the bank or lending institution can then take possession of your collateral, making it a much less risky deal.
- Take a look at your credit report. Before applying for a personal loan, look at your credit report to make sure there are no errors. If you do come across an error, dispute it and get it resolved before applying for the loan. Again, the better your credit score, the lower your rate and the better your chances are of qualifying for the loan.
You can also consider using collateral or a co-signer to get better rates. No matter what your credit history, make sure you aren't paying exorbitant interest by checking the average rates someone like you should be able to get.
The Best Unsecured Personal Loans vs. Secured Loans
The best installments are most often unsecured loans. Meaning, you offer no collateral. Though, you may be able to find some secured personal loans. Unsecured loans aren't as risky for the borrower in that you won't lose your property if you can't make a payment. However, unsecured loans typically carry higher interest rates because they are bigger risks for investors. They are the best option if you have a strong credit report, like a 680 and above.
However, if you have a credit score that is on the average to low-end of the spectrum, a secured loan option might be a viable way to get a loan without paying too much interest.
Fees to Avoid When Shopping for the Best Online Personal Loans
Fees are a common part of many types of loans, and a few affordable fees shouldn't be too alarming. However, some of the best lenders are working on ways to cut out some of the fees that have become commonplace in the industry. Here are some fees to avoid, if possible:
- Origination fees. Fees for opening a loan or an account with a lender, are typical and they tend to add some serious expense to what you pay for your loan. However, there are many lenders that offer loans without costly origination fees.
- Prepayment fees. Some lenders charge large fees even for paying off your loan early, which is called an early repayment (or prepayment fee). When you pay a loan early you end up cutting out any interest you would have accrued throughout the rest of that loan from your total payment.
- Late fees. Late fees and fees for missing payments are probably the most common. However, you should look at a lender's policy to see when these are incurred. Some lenders offer grace periods after a due date when you won't immediately incur fees. Also, look at their policy for missing payments or losing your job. Many lenders have programs designed to help people who become unable to make payments as long as you notify them before defaulting.
There are enough companies that have fair and affordable fee policies that you shouldn't take heavy fees as a given.
Variable vs. Fixed Interest
Most personal loans come with fixed interest rates. That means there is one interest rate that stays the same throughout the life of your loan. This is generally preferable to variable interest which can fluctuate as your term goes on. With a fixed rate, you can plan your repayment more accurately.
Variable rates may start off lower but they often grow to a much larger rate before your loan is repaid. If interest is variable, ask how high and low it can possibly go.
Credit Union Option
Credit Unions are an excellent option if you can qualify, and they have a unique set of pros and cons. They tend to have excellent service aimed at providing an affordable financial option (rather being than focused drawing the most profit out of customers). Credit unions, particularly, can offer lower interest rates because they are typically a not-for-profit service. Accounts with a credit union will, also, tend to have fewer fees attached to their loans.
However, not everyone is eligible to become a member of a credit union and get a loan. Most people can usually become a member but it depends on your local credit union's specific policies.
The Best Loan Companies
With the growth of online lending, there is an abundance of excellent personal loan options available online. Here are some of the top providers:
- Interest Rates: 4.91-14.49%
- Loan Amounts: $5,000-100,000
- Min Credit Score: 700
SoFi Loans Review
- Transparent business practices
- $100,000 max loan
- No origination fee
- No hidden fees
- No prepayment fees
- Strict approval criteria
SoFi is a premier online lender in the online market that offers personal, student and refinancing loans. Their services are focused at, "early stage professionals" and tend to gravitate towards individuals with good credit. However, if you manage to qualify, they offer a host of unique qualities and helpful features including transparent business practices and no hidden fees.
- Interest Rates: 5.99-35.89%
- Loan Amounts: $1,000-40,000
- Min Credit Score: 600
Lending Club Loans Review
- Highly reputable company
- User friendly site, easy process
- Soft inquiry doesn’t hurt your score
- Fewer fees than banks
- Fewer fees than other peer-to-peer lenders
- Loan approvals aren’t as fast as similar services
Lending Club is one of the largest online lending marketplaces. Lending Club is a peer-to-peer lender, which means the facilitate loans between you and third-party lenders. They claim that borrowers can access lower business rates and fast online and mobile tools.
- Interest Rates: 5.99-35.99%
- Loan Amounts: $1,000-35,000
- Min Credit Score: 580
- User-friendly website
- Simple application process
- Excellent credit is not required
- Borrow up to $35,000
- Potential for hard credit checks
- Not available in every state
PersonalLoans.com is another online marketplace that matches borrowers with partnering lenders. Their network of lenders has a wide scope, including peer-to-peer lenders, banks and Personal installment loans.
- Interest Rates: 2.19-17.49%
- Loan Amounts: $5,000-100,000
- Min Credit Score: 720
Lightstream Loans Review
- No late or missed payment fees
- No origination fees
- Very competitive APRs
- Simple application process
- Need excellent credit to qualify
Lightstream is another online lender backed by a big bank. In this case, SunTrust offers loans to online borrowers through Lightstream. Through this web portal, they offer a simple online application process and competitive APRs. Because they are an online lender with a big back baking, they are able to offer the stability and trustworthiness of a large bank alongside the convenience of an online lender.
Discover Personal Loans
- Flexible loan amounts and repayment terms
- Easy and secure application process
- 30-day trial for personal loans
- The option to pay creditors directly
- No closing costs or origination fees
- Customer service isn’t available 24/7
Discover is a name in finances that dwarfs some of the newer online lending platforms, at least in terms of recognition. They have a good reputation for customer service as well as the strong financial backing you might find with a typical big bank. Their online personal loan borrowing platforms offer competitive rates and a range of options.
Advice for Choosing the Best Personal Loans
Before you make your final personal loan decision, be sure to explore our advice guides to learn more about personal loans. Get answers to a variety of questions and take a look at different options before you choose a personal lender. Here are a few examples:
- What are the advantages and disadvantages of a personal loan? There are plenty of good loan options out there but there are also some bad ones. Knowing the pitfalls of borrowing can help you avoid bad loans while shopping.
- Are personal loans a good way to pay off credit cards? Credit card debt is a significant problem for many people, but is a personal loan a good way to eliminate it?
- What is APR and how should it affect which lender you choose? Annual Percentage Rates are an important determining factor when choosing a loan. You'll want to get the lowest possible APR, but there are a variety of factors that go into how a lender will determine your rate. While you're shopping, consider these ways you can find the best possible APR.
- How should you apply for a loan? Applying for a loan doesn't just determine whether or not you get the loan, it may also determine the rates and perks they offer you. Therefore, it's good to know what you will need to apply and what the ideal loan application should look like in order to give you the best chance at securing the best possible loan.
- What type of personal loan do you need? Before you look for a personal loan, you should figure out the specific type of loan that is best for you. Secured, unsecured, short term, long term. Each has their advantages and disadvantages and different needs call for different types. Read this guide for more on each type of personal loan.
- The two basic types of loans are secured and unsecured, but which one is best for you. Secured loans typically come with lower interest rates but require some form of collateral. Unsecured loans are a safer option but you may pay more in interest. Know all the options for both by reading this comparison of secured and unsecured personal loans.
Customer service, legitimacy, and company reputation are three important factors to consider when doing business with any of the companies reviewed in this article. Head over to the American Customer Satisfaction Index for a numerical analysis of customer satisfaction within the personal loans industry.
Personal Loan Calculator
There is a wide variety of financial tools available that can help you make financial decisions such as determining if you can afford a personal loan. Here is a look at how to use these calculators effectively.
Before applying for a personal loan, it's imperative that you study your budget to ensure it's viable. You can use a personal loan calculator to assist you in this because it can give you a ballpark amount of what your monthly payment will be.
With this, you enter in the estimated amounts of how much you want to borrow, the interest rate you'll think you'll receive and the term, which is how long you want to repay the loan. Using this information, the calculator will determine a monthly payment.
After all my research, my tips are to check all of your options and explore all your options with personal loans. You should also know the market well enough to be able to spot poor interest rates for someone in your position. Don't rush into any decision that involves your money. Don't let lenders talk you into an unfair deal, because it does happen.
If you do have less than stellar credit, you still have a few options to get lower interest rates. The best thing to do is to build credit before applying for a loan. If you can wait, establish a better credit history to get more affordable rates. Some online lenders have credit building course and information to help you improve before applying.
Other companies lend to people who don't have excellent credit scores. Take a look at our review of the best bad credit loan companies.
If you want to use a loan for a specific purpose like buying a car, there may be other options to explore like best auto loans that are specifically tailored for they type of purchase. For the same reason, if you're looking for a loan for a business, our review of the best business loans may provide more options.
Know the industry, know your options. Explore the personal loan section of Money Saving Pro to get a complete picture of what your ideal loan should look like.