How to choose the best personal loan lender
The Bankrate promise
At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict , this post may contain references to products from our partners. Here's an explanation for .
To find the best personal loan lender for you, shop around. Consider interest rates, fees and the overall experience you can expect as a customer to make an informed decision.
Personal loans come with a variety of terms, so knowing what you need from the start will help narrow down your options. In many cases, you can borrow $1,000 to $50,000 with a repayment period of up to six years. Typically APRs range from 6 to 36 percent, depending on your credit score and other factors.
What factors to use to evaluate lenders
When comparing personal loan options, evaluate the lender’s rates and fees as well as the types of loans offered, among other factors.
The interest rate is generally determined by your credit score and loan term. Lenders advertise low interest rates to entice customers. However, the lowest personal loan rates are typically reserved for customers with excellent credit — generally 720 or higher — although a good credit could also get you competitive rates.
If you have less-than-perfect credit, you can expect to pay more interest. Search for lenders that consider other factors, like your job history or educational background, to have a better shot at getting a personal loan with a competitive interest rate. You may want to improve your credit score before applying to secure lower rates, since a high interest rate can mean paying thousands of dollars more over the life of your loan.
Lenders often offer personal loans for $1,000 to $50,000. For many people, this should cover almost any big expense. However, there are some lenders that have personal loans up to $100,000. These are geared toward borrowers with strong income and high credit scores, and often have a higher minimum amount — usually $5,000.
Check your lender’s cutoff when you apply. Some may limit their borrowers to just $20,000. While this can be as much as you need, it should be a factor you take into account when you compare lenders.
The time you take to pay back your loan has a huge influence on how much your lender earns in interest. A two-year term may have high monthly payments, but it will mean saving hundreds, or even thousands, over the life of your loan.
A long loan term does the opposite. If your lender offers five- or six-year terms, you may be able to keep your monthly payment low. However, you will also pay significantly more in interest.
Does the lender charge application, prepayment or origination fees? Depending on how much you borrow, they add up quickly.
Many lenders offer personal loans without application or origination fees and won’t charge you a penalty if you pay off your loan early. But these aren’t the only fees to consider — examine the fee schedule to determine the amount the lender charges for late or returned payments.
Don’t let fees disqualify a certain lender, however. In some cases, a loan with low interest rates could still cost less, even if you have to pay some fees.
Look up ratings for the lender and check what its hours of operation are. Some lenders only have email forms to submit questions while others have phone and chat options. If you are looking at a personal loan from a bank or credit union, see if a branch is close by in case you have a problem with your loan.
Types of loans offered
Personal loans are either secured or unsecured with variable or fixed rates. Many are marketed for a specific purpose, including:
- Bad credit loans are offered by lenders to customers with past credit challenges.
- 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.
- Emergency loans are designed to cover unexpected expenses and last-minute financial emergencies.
- Home renovation loans are used to make costly upgrades to your home without tapping into the equity you’ve built up.
Lenders might offer special perks as well. For example, some lenders may offer free credit score monitoring, credit reports or online privacy protection services. To help you manage your loan, some lenders might have a mobile app.
How to choose the best personal loan lender
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.
- Narrow down your choices based on the factors that are most important to you. Interest rates, loan amount and fees are all worth considering.
- Apply for prequalification with each lender. This allows you to see your rates without harming your credit and makes it easier to compare your choices.
- Review 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.
- Complete a full application to confirm that you qualify. If you do, the lender will have you sign final paperwork before disbursing the loan.
Before you apply for a loan, run the numbers to ensure you’re making an informed decision. Origination fees or higher rates doesn’t mean the lender isn’t worth considering. A personal loan from a lender that isn’t reputable or provides underwhelming customer service could prove to be even more costly.
Why it is important to shop around for lenders
Ultimately, the best personal loan comes down to the lender’s reputation and the loan terms it’s offering. Although your credit score and overall financial history will determine if you qualify for a loan, get quotes from several lenders to evaluate rates and fees. With research and time, you can find a lender that is the best for your financial situation.