Personal loans are no longer subject to personal advice at your local bank branch.
With the increase in online loan startups over the past 15 years, getting a personal loan to help consolidate debt or pay for emergencies is easier than ever.
There are many companies competing for your business, which means you need to weigh your options extra carefully – and be sure that a personal loan is right for you. But it can also put you in a better bargaining position. The lower the interest rate, the less long-term you will have to spend, so it may be worth working upfront.
The top three places to get a personal loan are:
- Personal Loans
- Online lender
We have outlined the pros and cons of each place you can get a personal loan. Note that the loan offer you receive depends on your individual circumstances and your creditworthiness. We recommend comparing offers from several institutions and carefully examining the fine print.
Personal loan options from banks
Traditional brick and mortar
The marquee banks that can be found on every street corner in America are likely the first lenders that spring to mind when trying to get a loan. These key players often have stricter lending standards, but you can take a break if you are currently a responsible customer.
Examples: Chase, Wells Fargo, Bank of America
Personal service: Most major banks offer the option to apply for a loan online. However, if you want to answer questions in real time, there is no better alternative. And for people with complicated financial factors, a face-to-face interview with a banker can be a better option than trying to explain it in an online application.
Good for existing customers: If you already have a bank with a well-known name, your existing relationship with the institution could be of benefit to you. You may have limited credit on paper, but a bank may be willing to overlook loopholes or hiccups if you are a good customer.
Potentially higher interest rates: The downside is that the interest rates may be higher than a credit union, online bank, or online lender. More bank locations mean more overhead, which means cost savings are less likely to be passed on to you.
Higher minimum credit standards: Large banks tend to be stricter on loan approvals and may require a higher credit rating (670 and above) to get approval. If you have poor credit or no credit, you may need a co-signer or collateral – if you can even get approval.
Local and regional banks are the lifeblood of American banking. Customer service is one of the biggest selling points of community banking, some of which are staff-owned.
Examples: Texas National Bank, Valley National Bank, Heritage Bank
Customer service: Unlike online banks and lenders, you can go to your community bank in person for personalized service. You’ll also have less waiting time than going to the local Chase branch or calling a major bank’s customer service team.
Competitive prices: Community banks may be able to offer you lower personal loan rates because the organization is smaller and potentially less expensive.
Local expertise: A banker who knows the local economy may be more willing to offer a personal loan offer than an impersonal lender who may fail to see the value of a particular financial need or business idea.
With lower overheads than, say, a Bank of America, you’ll find that these online-only banks are willing to pass on the cost savings and offer you a more competitive interest rate.
Examples: Ally, Discover, Marcus from Goldman Sachs
Potentially lower prices: You may never see a bank representative in person, but deposit account and loan terms may be more favorable with an online bank. Without physical locations, online banks avoid some of the most expensive items namely rent, staff and maintenance costs in order to have physical locations, be a bank, and offer better interest rates to their customers.
Faster applications: As pure digital institutions, online banks are better equipped to process your online loan application than your average bank. Some banks can make you an offer within minutes of submitting the application.
Personal loan options from credit unions
Known for their personal touch, nonprofit credit unions offer their members access to financial products at lower interest rates than large banks.
Examples: Alliant Credit Union, Navy Federal Credit Union
Limited qualification: Credit unions typically limit their services to specific communities, locations, industries, jobs, beliefs, and affiliations. In order to open an account or borrow money from a credit union, you will likely need to meet their unique eligibility requirements and become a member.
Mild standards: Credit unions tend to be more understanding when lending to people with average or poor creditworthiness. As a nonprofit, they are more likely to work with your individual circumstances as they are not motivated by profit. Larger banks tend to have more stringent qualifications.
Personal service: Credit unions aren’t always the most savvy when it comes to technology, but the tradeoff is getting you personalized service with a local specialist. A smaller membership means a shorter waiting time for appointments.
Less tech savvy: As small nonprofits, credit unions are less likely to have their own mobile apps and less likely to have reliable online customer service, although there are exceptions to the rule.
Personal loan options from online lenders
A new generation of online-only loan providers has emerged to fill gaps in the market. These companies, many of which are startups, offer fast online applications and below average prices.
Examples: Prosper, SoFi, LendingClub, Avant, Upstart
Potentially lower prices: Similar to online banks, online loan startups may be able to offer you a better personal loan interest rate simply because they have fewer overheads.
Prequalification: By entering your details (such as income and credit specifications) in a quick application, you can pre-qualify for a personal loan and view non-binding offers. It just requires a gentle credit check, which does not affect your creditworthiness, from the lender.
Ready to make loans to people with poor or no creditworthiness: Depending on the lender, they may have more understanding of financial hardship and limited credit history. Some companies align their entire business model with this customer, so this could be to your advantage.
Fast financing: The application process for many startups is a breeze, with some companies offering quick same-day approvals and funding to their clients. So be careful what you sign up for.
How to choose a personal lender
- Check your credit history. Try your existing bank. Most offer a free credit score service.
- Compare prices based on your score. Use your credit history to see what loan amount and interest rate you can qualify for.
- Get pre-qualified. When shopping online for personal lenders, some offer a prequalification where you enter your details for a “gentle” credit check. This usually tells you what you are likely to qualify for.
- Shopping spree. Now that you know what you qualify for, see how it compares to other companies.
- Read the fine print. Read the terms of each loan before agreeing to it.
- First, find out about the company. Check out the Better Business Bureau (BBB) and google the company to see what others are saying about the service.