While there are many types of lenders willing to give you a personal loan, there is no one best option. Depending on where you prefer to manage your money and the loan’s terms, fees and interest rates, you may find a great personal loan at a credit union, bank or online lender.
Before you apply for a personal loan, look for the best offers across each type of lender.
The best places to get a personal loan:
- Online lenders: These digital lenders allow you to research and compare offers, apply for the loan, and receive the funds entirely online. It’s a quick, convenient approach to getting a personal loan if you’re comfortable with the online approach.
- Banks: These lenders typically have local, brick-and-mortar branches you can visit if you need help with the loan application or during the life of the loan. You can look to local banks or some of the major financial institutions such as Citigroup and Wells Fargo.
- Credit unions: You typically must be a member to apply for a loan at these member-owned financial institutions, but personal loans from credit unions can have lower interest rates and more flexible terms than loans from other lenders.
Where can I get a personal loan?
Online lenders now own the largest market share — 38 percent — of all unsecured personal loan balances, according to TransUnion data.
These financial institutions streamline the borrowing process, allowing you to compare personal loan rates and terms, apply online and receive an answer usually within the same day. Here’s what else sets online lenders apart:
- Most use a prequalification process: Online lenders can provide customized rates and terms for you after running a “soft” credit check, which won’t hurt your credit. However, the lender will perform a “hard” credit check when you finalize the loan, which usually temporarily lowers your credit scores by a few points.
- You may qualify with less-than-stellar credit: Many online lenders are willing to work with people with lower credit scores. In addition to reviewing your credit history and income, they will consider other factors, such as your job and education, when making a lending decision.
- You have more options: For example, you may decide to work with a peer-to-peer lender online. These loans are funded by investors instead of a traditional bank.
- Fees may be lower: Online lenders don’t have to shoulder the expense of operating a physical location, so they can pass on the savings to account holders.
- Interest rates may be higher: Due to the risk involved in issuing unsecured personal loans, online lenders may charge higher interest rates compared to those from credit unions and traditional banks.
Although online lenders are now playing a bigger role in personal loan lending, banks are still lending tens of billions of dollars annually. Here’s what to know before applying at a bank:
- You may need good credit: Banks typically require borrowers to have higher credit scores. In fact, about two-thirds of all bank personal loans go to borrowers who have a credit score of at least 661, according to TransUnion.
- Loan amounts are usually higher: Because they’re taking on less risk, banks tend to issue larger loans on average, about $10,000 compared to $5,300 at credit unions. This can come in handy if you need to borrow a large sum of money.
- Some offer relationship discounts: Some banks shave 0.25 percent off your personal loan APR if you already have a qualifying account with the bank. That can help you save money over the life of the loan. If you like your bank or have been a longtime customer, ask about this type of discount.
- They’ll still check your credit: The bank will perform a hard credit check and review your personal information before making their lending decision—even if you’ve been banking there for many years.
Instead of answering to shareholders, credit unions are required to act in the best interest of its members, which are customers like you. While these financial institutions issue fewer loans than banks, they’re still significant players. Here’s what to know about credit unions:
- They’re typically members-only: Most credit unions require membership to qualify for a personal loan, but this may be an easy hurdle to clear. For example, some credit unions just require you to make a small donation to a charity.
- You may qualify with so-so credit: About 38 percent of personal loans from credit unions went to borrowers with credit scores of 660 or lower, compared with 21 percent for banks, according to TransUnion data.
- The mission statement guides the way: Because credit unions are nonprofit institutions, their mission may influence their lending decisions. For example, the Navy Federal Credit Union, which serves members of the U.S. armed forces and the National Guard, may offer loans to borrowers who wouldn’t be approved elsewhere.
- Loan amounts may be smaller: Credit unions tend to offer smaller personal loans, compared to banks and online lenders.
- Interest rates may be lower: The average interest rate on a three-year personal loan from a credit union is 9.41 percent, compared to 10.31 percent at a bank, according to September 2019 data from the National Credit Union Administration.
How to choose a personal loan lender
The amount of money you need to borrow, the terms you’re looking for and your personal financial history all contribute to determining the best personal loan for you.
Here are steps you can take to figure out which type of lender is best for you:
- Research personal loan rates, fees, terms and amounts at several types of financial institutions.
- Check eligibility requirements for each loan.
- Determine whether you qualify for membership at a local credit union.
- Check your credit reports and credit scores.
- Figure out how much you need to borrow.
- Calculate the monthly payments you can afford.
Once you’ve found the personal loan that fits your needs, research that particular lender’s reputation. Look through online reviews, the Better Business Bureau and the Consumer Financial Protection Bureau.