Small personal loans can be a good alternative to help you access the money you need if you can’t consolidate your debt, take care of an unexpected expense, or finance a home improvement project,.
Personal loans help you consolidate your credit card debt or pay off a big expense without over-burdening you with interest. They are usually awarded for a short period of time in amounts ranging from $1,000 and $100,000.
Most personal loans are unsecured, meaning you don’t have to put down collateral to qualify. If you have a good credit score, you could receive your funds in as little as one or two days.
The best loans usually come with fixed interest rates and fixed monthly payments that make it simple to budget in your monthly expenses.
What is a Personal Loan?
A personal loan is a type of installment account. It’s a fixed amount of money you borrow one time from a lender. When your loan application is approved, the lender issues your full loan amount in a single lump sum.
Personal loans generally feature fixed interest rates as well. Plus, you repay the loan in set monthly payments over a fixed number of months.
Personal loans have many benefits compared to other classes of borrowing, such as typically offering lower interest rates than credit cards.
Pros and Cons of Personal Loans
One lump sum, usually with a fixed interest rate, helps keep monthly payments on track.
Get money quickly, sometimes within as little as a day, depending on the lender you choose.
Many are unsecured loans, which means your home or car isn’t used to borrow money.
Interest rates are much lower compared with payday loans, which charge upward of 400%.
Unlike highly risky payday loans, personal loans give you a reasonable amount of time to repay.
APRs are generally higher than those of some secured loans.
If you have a low credit score, you might not qualify.
Some lenders charge fees, like origination, late, and prepayment fees. The lower your credit score, the more likely you are to have a lender that charges more fees.
Some lenders don’t offer co-signers, which means you can only use your credit score and history to qualify.
You’re adding another bill to your monthly payments, which might stretch or even break your budget.
Best Personal Loans
SoFi: Best Overall
SoFi, a digital lender, offers products ranging from personal loans to student loan refinancing, private student loans, home loans, investing, and various types of insurance.
It’s working on becoming an all-encompassing place to save, spend and manage your money.
SoFi offers a wide range of benefits that go beyond just funding your personal loan. It offers customers an autopay discount and unemployment protection in case you lose your job and can’t afford to repay your loan.
It also offers career counseling and a referral bonus if a qualifying friend signs up. Members get personalized financial planning and aren’t charged any fees.
Loans, which are fee-free, range from $5,000 to $100,000 and must be repaid in two to seven years.
APRsfor variable-interest personal loans are capped at 14.95 percent, while other lenders may charge as much as 36 percent. Fixed-rate loans range from 5.99 percent APR to 18.64 percent APR.
Marcus by Goldman Sachs: Best loan for debt consolidation
A debt consolidation loan is a loan that is used to pay off multiple outstanding debts. You’ll borrow money with one loan to pay off many smaller loans or credit cards that were charging much higher interest rates.
Then you make one monthly payment to your new loan. Marcusoffers debt consolidation loans to simplify your debt, making it easier to pay so you don’t fall behind.
Interest rates start as low as 6.99 percent, and you can borrow as much as $40,000 to pay off outstanding debt. Marcus doesn’t charge any fees.
You also have the chance to change your monthly due date up to three times during the life of the loan based on what works best for your finances.
LightStream: Best loans for generous repayment terms
LightStream, a division of Truist, offers loans for practically any occasion and generous repayment terms. It offers auto loans, home improvement loans, loans for a medical emergency, loans for a family need and more.
Repayment terms range from two to 12 years, which means you can take longer to pay off your loan and benefit from lower monthly payments.
Maximum loan amounts go up to $100,000, which is good if you need to borrow more money.
There are no fees and no prepayment penalties, and you get a discount on your interest rate when you sign up for autopay.
While Upstart has minimum credit scorerequirements, it evaluates more than just your credit score when you apply. The lender looks at your education, your job history, and some credit score factors when determining your eligibility.
You can apply even if you don’t have a long credit history. If you’re relatively new to borrowing money, you might be eligible. There’s no prepayment penalty for paying off your loan early, and you can borrow as little as $5,000.
Avant: Best loan for people with bad credit
Avantspecializes in lending to people with fair or poor credit. Not everyone has great credit, but that doesn’t mean they shouldn’t be able to have the chance to borrow a loan.
Most Avant customers have a credit score between 600 and 700. You can get your money within a day after getting approved and take advantage of fixed interest rates.
Loans start as low as $2,000, which is helpful if you don’t need to borrow a lot of money but still need access to cash.
Terms go as high as five years. This is helpful if you need to have low monthly payments to ensure you make them on time.
Payoff: Best loan for paying credit card debt
Payoff loans are specifically geared toward borrowers who want to pay off high-interest credit card debt.
If you’re struggling to get out of credit card debt and facing mounting interest rates, you can use a Payoff loan to get rid of it and then make fixed monthly payments to your one Payoff loan.
You have access to your free FICO score, updated monthly. There’s no penalty for paying off your loan early or making additional payments. There are also no late payment fees or fees if you have a returned check.
LendingClub: Best loan for using a cosigner
If you’re struggling to find a lender that will let you borrow, you might need to enlist the help of a co-signer. Unfortunately, not every lender offers the option to do this.
LendingClub lets you apply with a co-signer or a joint application.
LendingClub allows you to use a co-signer to qualify for a loan you wouldn’t otherwise have gotten. Or, use a co-signer to qualify for the lowest interest rate available.
At LendingClub, rates start at 10.68 percent. There’s also a 15-day grace period in case you can’t pay your loan the day it’s due.
How to Apply for a Personal Loan
With so many lenders to choose from, getting a personal loan can be a daunting task. Here are five steps to take when searching for the best personal loan for you:
Determine how much you need. Write down the amount of money you’ll need for your loan purpose, whether that’s debt consolidation or a home repair. Make sure to factor in any origination fees, which some lenders take out of the total loan amount.
Check your credit score. The lower your credit score, the better APR you’ll receive. If you have fair or poor credit, consider adding a co-signer to your loan; a co-signer with good credit will improve your overall credit picture and earn you more favorable rates.
Compare lenders. Many lenders allow you to check your rates using a process called prequalification, which won’t hurt your credit score. Look at rates from a variety of lenders, including online lenders, banks and credit unions, to see which offers you the best deal.
Complete the approval process. Once you receive an offer and accept the loan, you will likely have to submit pay stubs, tax documents and personal identification. Many lenders allow you to submit these documents online.
Begin loan payments. After finalizing your loan, you’ll likely receive your loan within a week, although many online lenders boast funding in as little as one business day. Make sure to note your first payment due date, and consider setting up automatic payments if they’re available; many lenders offer discounts for doing so.
Is a Personal Loan Right for Me?
It depends. Personal loans can be an excellent way for many people to borrow money. They often have reasonable and fixed interest rates, especially for borrowers with strong credit histories.
And they make sense for debt consolidation and funding large purchases.
One alternative you might consider is a balance transfer credit card or a 0% APR credit card. There are several credit cards on the market with 0% APR periods of 18 months or longer for new cardholders.
If you’re confident you can pay back the debt in that amount of time, it could be a better option.
Like any personal finance product, personal loans aren’t right for everyone. However, competition is high among personal lenders, and that means that it could be a great time to find a good deal.
Explore a few of your loan options to see if it could be a smart move for you.
Alternatives to Personal Loans
Instead of getting a loan, you might be able to handle financial shortfalls in other creative ways:
1. How will a personal loan affect my credit score?
Please note that the FICO credit scoring formula is a well-guarded secret, and personal loans can have different effects on borrowers’ credit. When you apply for a new loan, a credit inquiry will appear on your credit report. That affects the “new credit” category of the FICO formula, which makes up 10% of your score. The new loan itself also affects the new credit category.
2. Can I get a personal loan if I have bad credit?
The best personal loans for bad credit offer reasonable terms, and the lender may consider factors besides your credit score when deciding your interest rate. However, if you get a personal loan with bad credit, you’ll probably get a much higher interest rate and potentially higher fees than a borrower with good credit.
3. Can I get a personal loan with no credit?
It is sometimes possible to get a personal loan with no credit. There are personal loan lenders that consider other criteria, such as your income, education level, and employment status. Unfortunately, the interest rate is generally much higher on personal loans if you have no credit history or have poor credit.
If you use a personal loan the right way, it may help you to pay off other high-interest debts or cover essential, unplanned expenses.
Make sure to carefully assess your ability to pay back the loan because taking on debt is a serious decision and should not be taken lightly.
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