Personal loans are loans that are often sought after due to their versatility. Funds acquired through personal loans can be used for whatever the borrower needs.
Often these funds are used for consolidating debts into one payment, planning for future needs, and an almost endless number of other things.
These loans are often unsecured loans which means their interest rates and other terms and conditions vary from case to case. The most significant factor in the variations is your credit score. The biggest problem is which loans are worth looking into.
Just like the list of how funds can be used, the list of personal loan lenders is long. Now, you must figure out which one is trustworthy and will help you, not hurt you. This is actually why we are here.
We have gathered information on the best personal loans so that you can shorten your time hunting for the perfect loan that fits your needs.
Here are The Smart Investor Select’s picks for the best personal loans in 2023:
Things to do Before Applying for a Personal Loan
There are five things you need to do before you apply for a personal loan. They are:
- Check on your credit score
- Gather proof of income
- Calculate debt payments
- Know your net worth
- Have your employer’s contact information
1. Check Your Credit
Before taking out the loan, make sure you know your credit score and history. The better your credit, the more likely the lender trusts you to pay the loan back on time. Plus, you will get the best options that way.
If your credit is not good, you may want to wait to take out the loan.
2. Proof of Income
Next, you will need your proof of income. This can be w-2 forms, pay stubs, 1099s, or your tax returns. Be sure you contact the lender and ask what they prefer to see. For yourself, you will want to know how much income you receive each month to compare it with the loan payments.
3. Calculate the Payments
You must be aware of the payment amounts before signing the loan. That way, you know you can pay. For instance, if you make $4,000 a month but already pay $3,500 for other debts- adding more to the mix would be a bad idea.
Loan applications will ask for your financial obligations, so you will be denied if the lender does not believe you can pay them back.
4. Net Worth
Next, know your net worth. Lenders might ask for your assets, which are objects you own that have value. It might include properties or your car. Then, they compare it with liabilities, such as other loans and mortgages. This is known as your debt-to-income ratio.
5. Employer’s Contact Information
Finally, lenders may ask for your employer’s contact information, whether they are past or present employers.
LightStream
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LightStream is an online lender that offers very high loan amounts yet at low interest rates. LightStream is part of the Truist Bank group, formerly the SunTrust Bank. You can use the loan for any purpose, including home improvements, debt consolidation, etc.
LightStream does not charge fees. So, there are no late payment fees, processing fees, or pre payment fees. Most of the loans have a term of two to seven years, but this may be extended to 12 years for solar financing, home improvement loans, or swimming pool loans.
- No Fees
- Flexible Term Options
- Competitive Rates
- Many Loan Uses
- Joint Applicants
- High Maximum Amount
- Not For Bad Credit Borrowers
- No Soft Pull
- Restrictions for Business Use
- Stipulations
Is there a penalty if I pay off my loan early?
LightStream does not impose penalties for paying off your loan in full or in part. You can make additional payments to your account at any time by logging in.
Is a vehicle loan available from LightStream? Are there any restrictions on the type of vehicle that can be used?
Anyone can sell you a vehicle (new or used) (dealer or individual). Your interest rate will be determined by the loan purpose, loan term, loan amount, credit profile, and payment method you choose.
LightStream does not impose any restrictions on the vehicle's year, make, model, or mileage, whether you are purchasing or refinancing.
Is GAP insurance provided by LightStream?
No, LightStream does not provide Guaranteed Auto Protection (GAP) insurance for any of our loans (optional coverage for newer cars that can be added to your collision insurance policy). If you refinance an existing loan with GAP coverage, the coverage will not be transferred.
Which credit bureau does LightStream use to calculate my credit score?
LightStream conducts a hard inquiry with TransUnion or Equifax. Credit scores frequently differ depending on the agency and scoring model used. You can contact either of the credit bureaus directly for more information on how your credit score was calculated.
It should be reiterated that each individual profile is unique, and our credit decisions are based on the specific facts of that profile.
LightStream Terms & Conditions
Rates quoted are with AutoPay. Your loan terms are not guaranteed and may vary based on loan purpose, length of loan, loan amount, credit history and payment method (AutoPay or Invoice. AutoPay discount is only available when selected prior to loan funding. Rates without AutoPay are 0.50% points higher. To obtain a loan, you must complete an application on LightStream.com which may affect your credit score. You may be required to verify income, identity and other stated application information. Payment example: Monthly payments for a $25,000 loan at 4.98% APR with a term of 20 years would result in 240 monthly payments of $164.71. Some additional conditions and limitations apply. Advertised rates and terms are subject to change without notice. Truist Bank is an Equal Housing Lender. © 2022 Truist Financial Corporation. Truist, LightStream, and the LightStream logo are service marks of Truist Financial Corporation. All other trademarks are the property of their respective owners. Lending services provided by Truist Bank.
SoFi
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The original idea of SoFi was to have school alumni invest funds in refinancing recently-graduated students’ debt. SoFi has moved away from that business model and moved to a “non-traditional underwriting approach" focused on lending to financially responsible individuals. SoFi uses an underwriting model that examines free cash flow, professional history and education in addition to a history of responsible bill payment to evaluate its borrowers.
SoFi offers plenty of benefits for those who qualify for a personal loan. They also have some of the highest credit and cash flow standards. Also, SoFi offers professionals many benefits and tools that can help them become more financially independent.
- Joint Borrowers
- Soft Pull Inquiry
- Competitive Rates
- Unemployment Protection
- No Fees
- Autopay Discount
- Slower Turnaround Times
- High Requirements
- Limited Uses
- Not Available in All States
- Higher Minimum Amount
Is SoFi good for debt consolidation?
SoFi is a decent choice for debt consolidation. In addition to offering loans of up to $100k with competitive rates, SoFi also offers direct payment to your creditors if you obtain a debt consolidation loan.
This eliminates the delay where you need the funds to reach your bank account and the funds then need to be redirected to your creditor’s account. This not only saves stress, but could save you several days of interest payments.
Can I get a SoFi loan with a 600 credit score?
SoFi does offer the best rates for those with a good or excellent credit score. With a 600 or fair score, you may still be able to qualify for a SoFi loan, but you won’t be able to secure the best rates.
This means that you may be able to obtain a better rate with another provider.
Can I negotiate with SoFi?
It may be possible to negotiate your loan repayment with SoFi if you are struggling to make your regular payments.
This bank does have some temporary reduced payment options, but you need to be confident that you can adhere to these new arrangements. If you fail to stick to the payment options, SoFi is unlikely to allow you to renegotiate.
Can I pay off my SoFi loan early? Is there a penalty?
One of the attractive features of SoFi personal loans is that there are no late, origination or prepayment fees.
This means that you are free to repay your loan early if your financial circumstances change without needing to factor in additional costs or charges.
SoFi Terms & Conditions
Fixed rates from 8.99% APR to 23.43% APR reflect the 0.25% autopay interest rate discount and a 0.25% direct deposit interest rate discount. SoFi rate ranges are current as of 03/06/23 and are subject to change without notice. Not all applicants qualify for the lowest rate. Lowest rates reserved for the most creditworthy borrowers. Your actual rate will be within the range of rates listed and will depend on the term you select, evaluation of your creditworthiness, income, and a variety of other factors.Loan amounts range from $5,000– $100,000. The APR is the cost of credit as a yearly rate and reflects both your interest rate and an origination fee of 0%-6%, which will be deducted from any loan proceeds you receive.Autopay: The SoFi 0.25% autopay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. Autopay is not required to receive a loan from SoFi.Direct Deposit Discount: To be eligible to potentially receive an additional (0.25%) interest rate reduction for setting up direct deposit with a SoFi Checking and Savings account offered by SoFi Bank, N.A. or eligible cash management account offered by SoFi Securities, LLC (“Direct Deposit Account”), you must have an open Direct Deposit Account within 30 days of the funding of your Loan. Once eligible, you will receive this discount during periods in which you have enabled payroll direct deposits of at least $1,000/month to a Direct Deposit Account in accordance with SoFi’s reasonable procedures and requirements to be determined at SoFi’s sole discretion. This discount will be lost during periods in which SoFi determines you have turned off direct deposits to your Direct Deposit Account. You are not required to enroll in direct deposits to receive a Loan.
Marcus by Goldman Sachs
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Marcus is an online only product suite offered by Goldman Sachs. It offers personal loans with no fees including late fees, prepayment fees or sign up fees. Since you’re only required to pay the principal loan sum and interest, the interest rates are a little higher than the competition. However, this can be a good option for those with a good credit score who want to avoid annoying fees.
Where Marcus personal loans are a little different is that there is the option of prequalification. If you’re not sure if you will be eligible for a loan, you can complete a basic, short form. This only involves a soft check, so you can avoid triggering a hard credit check and potentially compromising your credit score. Prequalification will allow you to check and compare your Marcus loan options.
- No Fees
- Competitive Rates
- One Time Payment Deferment
- Simple Application Process
- Soft Pull Inquiry
- Multiple Loan Options
- High Requirements
- Not for Limited Credit
- Pre-Approval Does Not Mean Approval
- Limits on Loan Amount for Loan Use
- No Joint Applicants
Can I negotiate with Marcus?
Marcus does not categorically state that it will negotiate settlement figures if you want to clear your loan.
However, this does not mean that it is not worth trying to negotiate. Many lenders are receptive to settlement negotiations, particularly if you have already established a relationship with the bank.
Can I pay off a Marcus loan early?
One of the attractive features of a Marcus personal loan is that this financial institution does not charge early repayment fees.
This means that you can pay off your Marcus loan at any time without needing to plan for an additional charge or penalty should your financial circumstances change before the end of your loan term.
Does Marcus offer more financial products besides personal loan?
Marcus is a part of the Goldman Sachs group, so its product line does reflect this investment pedigree.
In addition to personal loans, the Marcus product line includes high yield savings accounts, CDs, home improvement loans, and investment products. However, there is no checking account or credit card option.
Does Marcus personal loans offer prequalification? (soft credit check)
Marcus has a three step application process for its personal loans and one of these steps is prequalification.
Before you submit your formal application, you can use the online eligibility tool to select how much you would like to borrow and your preferred monthly payment to determine if you qualify. This step only uses a soft credit inquiry and Marcus will only run a hard credit check if you decide
Marcus Terms & Conditions
Your loan terms are not guaranteed and are subject to our verification of your identity and credit information. To obtain a loan, you must submit additional documentation including an application that may affect your credit score. The availability of a loan offer and the terms of your actual offer will vary due to a number of factors, including your loan purpose, our evaluation of your creditworthiness, your credit history, if we have recently declined your loan application and the number of loans you already have with us. To obtain a loan, you must submit additional documentation including an application that may affect your credit score. Rates will vary based on many factors, such as your creditworthiness (for example, credit score and credit history) and the length of your loan (for example, rates for 36 month loans are generally lower than rates for 72 month loans). Your maximum loan amount may vary depending on your loan purpose, income and creditworthiness. Your verifiable income must support your ability to repay your loan. Marcus by Goldman Sachs is a brand of Goldman Sachs Bank USA and all loans are issued by Goldman Sachs Bank USA, Salt Lake City Branch. Applications are subject to additional terms and conditions. You may be required to have some of your funds sent directly to creditors to pay down certain types of unsecured debt. Receive a 0.25% APR reduction when you enroll in AutoPay. This reduction will not be applied if AutoPay is not in effect. When enrolled, a larger portion of your monthly payment will be applied to your principal loan amount and less interest will accrue on your loan, which may result in a smaller final payment. See loan agreement for details.
Credible
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Credible is a personal loan marketplace. They have a few different lending options and a variety of different personal loans that range from a standard personal loan to home improvements to debt consolidation.
Once you get through their simple questionnaire process, you will get results of pre-qualified rates. You can shop your rate options there and compare lender options that are produced for you. They have a client success team on standby in case you need any help in the process.
- Best Rate Guarantee (*)
- Soft Pull Inquiry
- Competitive Rates
- Rate Comparison Tool
- Top-Notch Service
- Information on Repeat
- Unexpected Fees
- Requires Free Cash Flow
- Fewer Choices
- How many lenders are available via Credible?
Credible is a lending platform that can connect you to personal loan offers. When you submit an application, you can access loan deals from up to 17 lenders who partner with the platform.
While Credible does not have a full list of its partners on the website, it does have a large network that has helped over 55,000 people save money on a loan in 2021 alone.
- Can I get a Credible loan with a 600 credit score?
Since Credible is acting as an intermediary, they should still be able to connect you with lenders that offer loans for those with fair credit.
Once your 600 credit score is established, Credible will only show you lenders and loan deals that you will qualify for. This means that you won’t waste your time looking at lenders who only offer loans to those with excellent credit.
- Can I add a cosigner to a Credible personal loan?
This will depend on the specific lender. While the initial Credible inquiry form does not have a section for adding a co-signer, some lenders may allow you to add one to reduce your rate or increase your potential loan amount.
All the loan deals Credible presents will be based on your credit profile, but may be subject to change if adding a cosigner is permissible.
Prosper
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Prosper is the first peer-to-peer lending marketplace, established in 2006 in San Francisco with $13 billion in loans. Peer-to-peer lending is a platform that matches lenders with borrowers.
Prosper marketplace is a great place to start in your personal loan search. Prosper focuses on the mass market of borrowers and their personal loans can be used for a wide range of reasons. They also have a lending arm for medical costs, Prosper Healthcare Lending. They offer personal loans for a wide variety of purposes and to a large market of borrowers.
They do have a high origination fee while other providers do not have one. The process will take longer than with other platforms, so if you need funds quickly Prosper may not be the right place to start your search.
- Competitive Rates
- Soft Pull Inquiry
- Peer to Peer
- Wide Range of Borrowers
- Business Loan
- More than One Loan
- Potentially Long Turn Around times
- No Joint Borrowers
- Origination Fee
- Potential to Go Unfunded
- Not Available in All States
- Can I get a Prosper loan with a 600 credit score?
Prosper does offer loans for those with less than ideal credit.
The website has a rate estimate tool, which allows you to select a 600 credit score, which confirms that it is possible to obtain a loan with this score. However, you should be aware that you will not be able to secure the best rates.
- Can I negotiate with Prosper?
If you are having financial difficulties or your financial circumstances have changed, it is worth trying to negotiate with Prosper.
However, there are no guarantees that Prosper will negotiate with you over the settlement figure.
- Can I pay off a Prosper loan early?
Yes, Prosper does not charge any prepayment penalties if you want to pay off your loan before the end of the loan term.
You can use the online account dashboard to access your loan payout quote at any time, so you can have an up to date figure to make an informed financial decision.
- Does Prosper offer more financial products besides personal loan?
Prosper specializes in loans, so it primarily offers personal loans, home improvement loans and home equity solutions. However, there are also investment products.
You can build a custom investment portfolio with individual loans or using the Auto Invest tool. This means that you can help other customers obtain the loan they need and enjoy healthy returns.
Discover
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Discover offers a variety of products including personal loans with competitive rates and no origination fees.
You can use a Discover personal loan for various reasons, from financing a large purpose, such as home repairs or a wedding to debt consolidation. You can also use your personal loan to cover unexpected expenses, remodeling your home or purchasing a new vehicle.
If you want to use a Discover loan for debt consolidation, Discover will send funds directly to your creditors. You will need to use at least 70% of your loan for your existing creditors, or your final APR may be impacted.
- Soft Pull Inquiry
- No Origination Fee
- Direct Payment to Creditors
- Competitive Interest Rates
- Available in All States
- Longer Application Process
- Smaller Max Amount
- No Joint Borrowers
- Large Late Payment Fee
- Can I pay off the Discover loan early?
Discover makes it easy to repay your personal loan early if you decide this is the best option for you. Whether you want to pay off the entire loan early or make extra payments, this is possible and you’ll incur no prepayment penalties or fees.
- Does Discover offer more financial products besides personal loan?
Although Discover may be primarily known for its lending products including credit cards, this bank does have a good variety of financial products.
In addition to a variety of loans and credit card options, Discover has a checking account, savings accounts and investment options with minimal fees and attractive rates.
- Is Discover good for debt consolidation?
Discover offers personal loans for a variety of reasons including debt consolidation. You can borrow up to $35,000 with a personal loan or up to $300,000 if you use a Discover home loan.
Discover also offers student consolidation loans, allowing you to combine private and federal student loans into one new loan.
- Can I add a cosigner to Discover personal loan?
Unfortunately, Discover only offers unsecured sole personal loans. This means that it is not possible to add a co-signer to your loan or add an additional borrower. So, if you have a less than ideal credit score or other circumstances that may increase your rate, you cannot use a co-signer to negate these implications.
How to Get the Best Personal Loan
What is a Personal Loan?
In short, a personal loan is a money that you borrow from a lender. They will usually have you pay them back in monthly installments until the amount is paid back. You can take out a personal loan from a credit union, online lender, or bank.
Often, personal loans will not be secured, which means they do not have collateral. That is why lenders will choose who to give loans to based on credit scores and credit history, as well as debts. They use this financial information to determine whether or not it would be risky to lend money.
When choosing a personal loan, you will want to look at the loan’s APR first, or Annual Percentage Rate. The APR will include the interest and any other fees associated with your loan. Lender rates have a wide APR range, usually falling between 5% and 35% APR- you will want to do some research before you settle with one.
What Can I Use a Personal Loan For?
A personal loan can be used for just about any purpose. The most popular reasons people take out these types of loans are for debt consolidation, medical bills and expenses, weddings, vacations, home improvement projects, and even refinancing an already existing loan.
The best way to use them would be to reach your financial goals, instead of impulsively. A personal loan should only be used when it makes your goals easier to reach. For instance, home improvement projects make your house worth more.
Additionally, consolidating your debt under a lower interest rate would help you pay it off faster. No matter what you choose, you will want to use it well. The best options for excellent credit include large expenses, whether they be planned or a surprise. You will need to be certainly taking out the loan will not harm you financially in the future.
How to Get a Personal Loan?
Before you take out a personal loan, be sure you are able to follow these steps:
- Determine how much you need to borrow
- Review your credit score
- Find a good lender
- Check your eligibility and get prequalified
- Review the loan details
1. Determine How Much You Need
Remember, when taking out a loan, you will need to pay back more. You are going to be paying interest and possibly a fee to get the money. You do not want to pay on funds you do not need, so only take out what is absolutely necessary.
Additionally, you will want to know you can afford the payments that come later. There is no reason to put yourself into debt if you can help it.
2. Review Your Credit Score
There are some websites that offer a free credit score report. You can get one a year from the biggest brands such as TransUnion, Experian, Credit Karma, and Equifax. Some student loan sources report your credit score a few times a year as well, such as Sallie Mae.
The higher your score, the better APR and loan amount you will receive. If your score is 760 or more, you will have the best options.
In this chart compiled with LendingTree customer data, you can see that those with a 720+ credit score pay an average of 7.63%. At the other end of the scale, for those with a poor credit rating of less than 560, the rate shoots up to an eye-watering 113%.
3. Find a Reliable Lender
Credit Unions and banks are the best places to go for a personal loan. If they have a banking license and operate under the FDIC, you can be sure they are reliable.
You will want to go to those options first and stay away from Payday loans.
4. Check Eligibility and Get Prequalified
You can call or visit potential lenders to find out if you are eligible for a loan with them. If you are, you can be pre-approved. It does not mean you will get the funds for sure, but it helps. You will be asked to fill out a form with your information.
5. Review Loan Details
Finally, go over the details in the loan. You will want to be familiar with the APR, monthly payments, the loan term, and if there are fees or penalties for late payments. Lenders must legally give you this information.
When You Shouldn’t Get a Personal Loan?
First of all, if you do not need the funds for a good reason, it is usually not advisable to get a personal loan.
It is usually not a good idea to get a personal loan to pay for a vacation or a luxury purchase. It should only be used for important reasons like paying medical expenses or buying a car.
If you do not have good credit it can often be a bad idea to get a personal loan. This is because you already don’t have a good record of dealing with credit and you may end up worsening your score even more.
Personal loans offer a flexible form of finance, as they can be used for practically any purpose. In this chart compiled from LendingTree consumer data, you can see that debt consolidation is the most common reason for taking out a personal loan. The least common reason is for home improvement. This is likely due to more advantageous products that can be used for home improvements such as home equity lines of credit.
You will also be paying much higher interest on your borrowed use when you have a poorer credit history. Therefore, it may make more sense to use a different form of credit than a personal loan if this is the case.
How Much Do Personal Loans Cost?
Keep in mind that when you are getting a loan, that amount is not all that you have to pay back. Many lenders will charge an origination fee, which can be a certain percentage of the loan. The fee is for processing and disbursing the funds to your account.
The origination fee can be calculated in different ways. It can be impacted by the data on your loan application and many other factors.
Plus, you will also be dealing with APR.
How to Compare Personal Loans
If you have decided to get out a personal loan, you will need to take the next steps to determine which one is right for you. You will need to start by comparing rates from various lenders.
These are the factors in a personal loan you will want to compare:
- APR
- Loan Term
- Monthly payments
Overall, the loan with the lowest APR is going to cost the least in the long run – making it the better option most of the time.
- APR
APR is the interest you will need to pay back on the loan. That interest amount will be added to your monthly payments to the lender.
They will use a formula to figure out how much interest you owe on your loan, which is the APR divided by 365 (the amount of days in a year) to find your daily periodic rate (DPR).
Then the DPR is multiplied by the days in a billing period and again multiplied with your current loan balance. The final result is the interest charged.
Because of this, every loan that is taken out will cost a different amount to pay back. Plus, the faster you pay it back, the less interest charged to you in the long run.
- Loan Terms
The loan term is the amount of time you will be making the payments. When it comes down to it, a longer term means lower monthly payments, but also causes you to pay more back in interest. You will want to consider how the monthly payments fit into your budget and what is possible for you to spend.
Additionally, the loan term can be impacted by the repayment method. For example, signing up for automatic payments with your lender may give you a reduced interest rate or term as a reward. You will want to ask your lender about any benefits they might be able to offer you.
- Monthly Payments
When comparing personal loan options, make sure you are comparing the monthly payments. That way, you can determine which option will fit into your budget later. You do not want to cause yourself financial hardships, so be sure to carefully examine the monthly payments from each potential lender.
Some lenders can even offer you a flexible payment plan, which allows you to alter the payment due dates. They may have more features available.
Your lender will be required to give you a lot of this information, including APR. From there, you should be able to determine what your payments are going to look like. Figure out the amount for each lender you are looking at.
The Potential Risks of a Personal Loan
However, there are some risks of personal loans that you will need to be aware of. It can be nice to make a large purchase right away, but you will need to pay back that amount. When you can not, you might ruin your credit score, among other things.
- Hurting Your Credit
If you miss your payments often, your credit score could be impacted. Even one late payment can cause your score to lose 100 points- taking a “very good” score to “fair” overnight. If you wait longer to make the payment, your score is going to be damaged even further.
It can take a very long time to rebuild your credit score, so you will want to be sure you can make the payments on time.
- Fees
Some loans come with many fees. For instance, the origination fees we mentioned above. They typically will make up 1 to 8 percent of your total loan amount- which can be a lot depending on circumstance.
However, while rare, you will also want to keep an eye out for prepayment fees. These are fees that are charged when you pay off your loan too early. If you are unaware of this fee, it can be a major surprise to be charged extra money for doing something good.
Some loans come with many fees. For instance, the origination fees we mentioned above. They typically will make up 1 to 8 percent of your total loan amount- which can be a lot depending on circumstance.
However, while rare, you will also want to keep an eye out for prepayment fees. These are fees that are charged when you pay off your loan too early. If you are unaware of this fee, it can be a major surprise to be charged extra money for doing something good.
Can I Get a Personal Loan With Bad Credit?
Even if your credit score is not the best, you can still take out personal loans. However, you will need to be aware that your APR is likely to be on the higher side as a result. As long as you pay attention to the loan details and do your research, you should be able to find something that fits your budget.
Bad Credit Loans
Bad credit loans are designed for people who have a low score or a short credit history. These loans are an option, but their fees, interest rates, and terms can vary depending on the lender.
You can find bad credit loans at plenty of banks, online lenders, and credit unions, although their threshold for low credit scores will also vary. Plus, some lenders might be stricter, so you will want to check out the details thoroughly.
What is a Bad Credit Score?
According to the FICO scoring system, bad credit would be within these ranges:
- Fair Credit Score: 580 – 669
- Poor Credit Score: 300 – 579
The lower your score, the harder it will be to find a good loan with a decent APR. Plus, poor credit can even impact your ability to rent or buy a home. Bad credit loans tend to have a much higher interest rate, so you will want to raise your score if possible before taking out a loan.
Personal Loan Mistakes You Should Avoid
There are many potential mistakes that you might make if you are borrowing for the first time. These are the mistakes you will need to avoid.
- Not knowing your credit score – It is crucial that you know your credit score before you apply for a personal loan. You want to get the best terms, but can not unless you know it is good.
- Not comparing options – You will always want to compare your options- something better you might be out there. You can find loans with lower APRs and different lending terms. When you go with the first loan you can find, it is not likely to be a good one.
- Making late payments – On-time payments improve your credit, but late payments can greatly harm your score. Plus, you might also be required to pay late fees. You can avoid this by going with automatic payments or setting reminders for each month in your phone for a few days before it is due.
- Not reading details in the contract – People have a habit of signing things they have not read- never do this with a loan. You might be agreeing to impossible terms. Your lender is required to disclose all information about the terms of the loan, so you will want to ask if you are not understanding something.
- Not considering APR and your term – The APR includes your interest rate, fees, and other charges which add into the cost of the loan. Additionally, your loan term will impact your monthly payment and how long it takes to pay back the debt.
Alternatives to Personal Loans
There are more financial options out there. If you have good credit, you can seek out better loans. Of course, if you think you can save for the large expense, then you will want to do that instead of getting a loan.
Credit Cards
You are likely familiar with these. They allow you to make purchases, then pay back what you owe over time. You can avoid interest if you pay back the amount within a month. They can also be used to build back up credit scores.
Peer to Peer
Also known as P2P, these loans are provided by individuals, instead of banks or credit unions. The P2P determines your eligibility, then allows investors to review your application. If you can not qualify with traditional loans, then this is another great option.
Home Equity Loan
This loan is like a second mortgage that allows you to receive a lump-sum of money that you can repay on a schedule. It is based on the equity within your home and can have terms of just a few years, all the way up to 15.
Small Business Loan
These loans are better for business owners. They cover the cost of a company, although the application process is more extensive and takes longer. Still, you will find better rates for your business than you would with a personal option.
How Does My Credit Score Affect My Offer?
Credit scores can greatly impact the offer you receive from a lender. This is what you need to know.
How Lenders See Credit Scores?
Credit scores can be anywhere between 300 and 850. When lenders check your credit score, they want to see a higher number, as it means you are less of a risk to them. If you have a higher number, then you can expect to receive better offers.
Some lenders might view 670 or above as safe options, although it can vary between lenders.
A higher credit score can save you thousands of dollars, since you will be paying back a lower interest. For example, there is a huge difference between 2% and 4% APR. Depending on the monthly payment, you could be saving a ton of money over the term of your loan.
Can I Pre-Qualify For a Loan?
Yes, the process is usually fast as well. You will start by filling out the pre-qualification form, which asks you for information. It varies between lenders, but your income, job, and debts are all common questions to be asked.
The lender will do a soft credit check, which allows them to view your credit score and credit history. That way, they can determine if you are a risk to them. From there, the lender will either approve or deny your application.
At this point, you receive an offer. You will want to review it, then decide whether you want to apply for the loan offer.
What is a Loan Term?
In short, a loan term is the amount of time it takes to pay off the loan when you are making regular payments. It can be either a long or short amount of time.
The term is usually easy to identify. For instance, a 30-year mortgage has a term of 30 years. However, loan terms would refer to the aspects of a personal loan that you agree to, instead of the amount of time it takes to pay it off.
Your lender will set the term, which then impacts the interest and the monthly payment amount you owe.
When you have shorter loan terms, you are going to receive less of an interest cost over time. That is why they are crucial to consider when researching loans.
What is an APR?
We mentioned APR above, but it would be worth discussing this item in more detail. APR stands for Annual Percentage Rate.
Why Is It Important?
APR is important because it shows how much it is going to cost you to borrow the money from the loan. You should try to stay away from options with high APRs because they could end up including an amount of interest that is hard to handle.
Fixed APR
This means the APR is not going to change depending on other situations- it should stay the same for the entire life of the loan. They are a more predictable option and better for financial planning.
Your personal loan will come with fixed APR, so you will want to ensure that it is an amount you can handle.
Overall, the lender is going to be the one to determine your APR and interest rate. Having a higher credit score will help you accumulate less debt in the long run.
Will a Personal Loan Hurt My Credit Score?
A personal loan can actually hurt or make your credit better– it can go both ways. It can help your score since it is helping you to build a longer payment history, reducing your credit ratio, and making a stronger credit mix.
However, if you do not make payments, it is going to hurt your score.
How Loans Hurt Credit
Your personal loan can hurt your score in a few different ways. First, it is creating an inquiry on your credit report. That means that lenders are going to have to complete a check on you. That can cause a hard inquiry on your report.
What does that mean? Well, a hard inquiry negatively impacts your credit score. You will want to only apply for loans within the span of a few weeks to minimize the damages, since reports will only see this as shopping around for loans.
Additionally, you might find yourself in more debt. If you can not pay, you will be charged fees and your credit score is going to suffer. You will need to be certain you can afford the payments on the loan.
Is a Personal Loan Worth It?
It depends. They are best used for paying off medical bills, home improvement projects, and major life events. You will not want to splurge on a loan for something that is not going to be worth it for you in the long run.
When to Not Take Out a Personal Loan
Many people take out these loans for vacations and weddings- although they should not. They are short term purchases that cause you to go into a lot of debt. You need to pay these off, and you will probably not want to still be paying on a vacation 7 years from now.
When to Use a Personal Loan
However, there are still cases where a personal loan is worth it. For example, if you are looking to reduce or consolidate your credit card debts. You can use a personal loan to do this, making your financial situation much better.
Paying off medical bills is another good use of a personal loan, if you do not have health insurance. And finally, making improvements to your home will make the value of it increase- making it a good option.
Overall, short term purchases are not worth going into debt for many people. Consider long term purchases instead.
In this chart using TransUnion data, we can see that the number of individual personal loan borrowers has steadily increased:
How Quickly Will I Receive My Funds?
For the most part, personal loans tend to have a fast application processing time- which means if you are going to be approved, it will happen a lot faster. If you decide to go with an online lender, the process could be completed in less than 24 hours.
This is because online lenders have a much more straightforward process than banks and credit unions do. It usually takes 15 minutes to apply and a day at least to be approved. Although, it could take anywhere between 3 days and a week at most.
Once you are approved, you can expect to receive the funds in your account between one to seven business days.
What is a Good Interest Rate on a Personal Loan?
A good interest rate on a personal loan is going to be dependent on your credit score. You will want to consider up to 32% for bad credit while good scores can consider 10% or even lower.
This is because the lender is going to offer different rates depending on your credit score. If your score is very low, you can not expect to get 10% APR, as the lenders will consider it too risky to offer it to you.
However, if you have a good score, you have the chance to shop around for good credit lenders. Some lenders will be able to offer you much lower rates than others, making them more worth your time and money to work with.
Overall, you will want to consider your credit score before you start thinking about what a good interest rate would be for you. The average interest rate on a personal loan is about 9.4% right now. However, 6% to 36% is the common range, depending on your credit score.
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Requirements for a Personal Loan
There are several common requirements for a personal loan. However, you will want to keep in mind that each lender is a little bit different. Most will still consider you based on the following factors.
- Credit scores – When looking at your credit score, the lender is going to determine how much of a risk they think you are. They will also look at your payment history and income level for the same reason.
Remember, lenders are not giving you money for fun- they expect it to be paid back before the term runs out. They will check all of these factors so they feel confident they are giving a personal loan to a responsible person.
- Payment history – Your payment history impacts your FICO score. If you miss payments, it will be recorded here- making it more difficult to get loans in the future. Lenders are going to give offers to people they believe will make their payments on time.
- Your income level – Lenders are also going to want to look at your income level. They do this to ensure that you will be able to successfully make all of the payments. Lenders do not want to give out money they will never see again, so they look at all of these factors to determine your eligibility
Can I Pay Off My Loan Early?
We understand how tempting it can be to pay off a loan early, especially if it is one you have been working down for many years. Before you pay off the loan, make sure you consider the following.
Prepayment Fees
First, does the loan come with any prepayment fees? These are charges applied to your loan when you pay it off too early.
If your loan does have this penalty, you will want to ensure that your remaining interest is worth more than the fee, to make paying it off early worth your money.
Don’t Ruin Your Monthly Budget
Additionally, if paying off the loan early means that you are not going to be able to buy necessities for the month or you have to skip out on a different payment- you will not want to do it.
You do not need to take on financial harm to get out of a loan a few payments early. It is worth considering the pros and cons deeply before moving forward with this.
What Happens if I Can’t Pay Back My Loan?
When you miss that payment, a few different things are going to start happening. First, missing a payment is going to hurt your credit- by a lot. It can immediately lower your score by 100 or so points.
Defaulting
When you miss a payment, you can default. When that happens, your account with the loan could be considered delinquent, after missing another payment.
When you default, your loan can be sent to a collection’s department or sold to another agency. Those groups will be able to garnish your wages or even withhold your tax refund as a payment.
Additionally, the lender could seek legal action in some cases. All of these things you will want to avoid, so be sure you only take out loans you know you can pay back.
How Defaulting Affects Credit
Any negative mark on your credit report will stay there between seven and ten years. A single late payment that is reported can greatly hurt your credit score, while multiple missed payments deeply worsen the impact.
Plus, lower credit scores make it harder to approve in the future. Whether that be for a mortgage, a job search, or another personal loan.
Common Personal Loan Terms You Should Know
Here are some basic terms that can help you during the process:
- Installment Loan – A loan that is paid back monthly through set payments.
- Term – The amount of time you have to pay off your personal loan.
- Fixed-Rate – An interest rate that is not going to change, it is common for personal loans. You may not want to consider one without it.
- APR – Or Annual Percentage Rate. It includes your interest rate, fees, and other charges that come with your personal loan.
- Principal – The loan amount that you have borrowed from the lender.
- Fixed Payments – Payment amounts that stay the same each month. They are common with personal loans and keep your payments the same until you have paid it off or adjust the amount yourself.
- Debt Consolidation – This is the process of combining all of your debts into one loan. It can include credit card bills, home bills, and more.
- Cosigner – A person who can sign a loan with you. If your credit score is not good enough or you have not had a long credit history, you may need to have a cosigner to receive a loan. They are required to pay the loan if you are not able to.
- Credit Score – A number given by FICO that lets lenders know how likely you are to repay the loan and make the payments by their due dates.
- Unsecured Loans – These loans are not backed by collateral, which can be a car, boat, home, etc. This means that your belongings can not be taken to pay back a loan when you miss payments.
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Loan Reviews Methodology
When it comes to choosing personal, student or car loans, we make sure that we evaluate all of the different products and services that are available for the lender we review.
The Smart Investor’s selection of loan providers for inclusion here was made based on key areas we evaluated: loan types and loan products offered, fees, and APR. We also considering customer satisfaction and reliable external ratings such as J.D power/Trustpilot.
Cutting fees is now table stakes in the personal and student loans market. In addition, the most valuable loan products tend to offer a deep bench of options that meet a wide array of customer needs. These include a diverse range of loan amounts and terms, as well as loan structures. We also make sure that you’re going to save money by cutting down on the APR that goes along with the loans offered.
Marcus Terms & Conditions
Your loan terms are not guaranteed and are subject to our verification of your identity and credit information. To obtain a loan, you must submit additional documentation including an application that may affect your credit score. The availability of a loan offer and the terms of your actual offer will vary due to a number of factors, including your loan purpose, our evaluation of your creditworthiness, your credit history, if we have recently declined your loan application and the number of loans you already have with us. To obtain a loan, you must submit additional documentation including an application that may affect your credit score. Rates will vary based on many factors, such as your creditworthiness (for example, credit score and credit history) and the length of your loan (for example, rates for 36 month loans are generally lower than rates for 72 month loans). Your maximum loan amount may vary depending on your loan purpose, income and creditworthiness. Your verifiable income must support your ability to repay your loan. Marcus by Goldman Sachs is a brand of Goldman Sachs Bank USA and all loans are issued by Goldman Sachs Bank USA, Salt Lake City Branch. Applications are subject to additional terms and conditions. You may be required to have some of your funds sent directly to creditors to pay down certain types of unsecured debt. Receive a 0.25% APR reduction when you enroll in AutoPay. This reduction will not be applied if AutoPay is not in effect. When enrolled, a larger portion of your monthly payment will be applied to your principal loan amount and less interest will accrue on your loan, which may result in a smaller final payment. See loan agreement for details.
LightStream Terms & Conditions
Rates quoted are with AutoPay. Your loan terms are not guaranteed and may vary based on loan purpose, length of loan, loan amount, credit history and payment method (AutoPay or Invoice. AutoPay discount is only available when selected prior to loan funding. Rates without AutoPay are 0.50% points higher. To obtain a loan, you must complete an application on LightStream.com which may affect your credit score. You may be required to verify income, identity and other stated application information. Payment example: Monthly payments for a $25,000 loan at 4.98% APR with a term of 20 years would result in 240 monthly payments of $164.71. Some additional conditions and limitations apply. Advertised rates and terms are subject to change without notice. Truist Bank is an Equal Housing Lender. © 2022 Truist Financial Corporation. Truist, LightStream, and the LightStream logo are service marks of Truist Financial Corporation. All other trademarks are the property of their respective owners. Lending services provided by Truist Bank.
SoFi Terms & Conditions
Fixed rates from 8.99% APR to 23.43% APR reflect the 0.25% autopay interest rate discount and a 0.25% direct deposit interest rate discount. SoFi rate ranges are current as of 03/06/23 and are subject to change without notice. Not all applicants qualify for the lowest rate. Lowest rates reserved for the most creditworthy borrowers. Your actual rate will be within the range of rates listed and will depend on the term you select, evaluation of your creditworthiness, income, and a variety of other factors.Loan amounts range from $5,000– $100,000. The APR is the cost of credit as a yearly rate and reflects both your interest rate and an origination fee of 0%-6%, which will be deducted from any loan proceeds you receive.Autopay: The SoFi 0.25% autopay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. Autopay is not required to receive a loan from SoFi.Direct Deposit Discount: To be eligible to potentially receive an additional (0.25%) interest rate reduction for setting up direct deposit with a SoFi Checking and Savings account offered by SoFi Bank, N.A. or eligible cash management account offered by SoFi Securities, LLC (“Direct Deposit Account”), you must have an open Direct Deposit Account within 30 days of the funding of your Loan. Once eligible, you will receive this discount during periods in which you have enabled payroll direct deposits of at least $1,000/month to a Direct Deposit Account in accordance with SoFi’s reasonable procedures and requirements to be determined at SoFi’s sole discretion. This discount will be lost during periods in which SoFi determines you have turned off direct deposits to your Direct Deposit Account. You are not required to enroll in direct deposits to receive a Loan.
