Where to get a personal loan
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 to get a personal loan
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.
A feature that sets online lenders apart is that most use a prequalification process. Online lenders can provide custom rates and terms for you after running a “soft” credit check, which won’t impact 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.
Many online lenders are also 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.
There are many online lender options to choose from. 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.
- Perks: Fees may be lower. Online lenders don’t have the expense of operating a physical location, so they can pass the savings on to account holders.
- Drawbacks: Interest rates may be higher. Issuing unsecured personal loans is risky, so online lenders may charge higher interest rates compared to traditional financial institutions.
- Best for: Tech-savvy borrowers who are comfortable applying for a loan without a live banker.
Although online lenders are now playing a bigger role in personal loan lending, banks are still lending tens of billions of dollars annually. Banks typically offer higher loan amounts but require borrowers to have higher credit scores. In fact, 79 percent of unsecured personal loan funds from banks go to borrowers who have a credit score of at least 661, according to TransUnion.
If you have an existing relationship with a bank, some offer relationship discounts. For example, 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.
Even if you’ve been banking with an institution for many years, it’ll still check your credit. The bank will perform a hard credit check and review your personal information before making its lending decision.
- Perks: Loan amounts are usually higher through traditional banks. This can come in handy if you need to borrow a large sum of money.
- Drawbacks: Traditional banks generally require a strong credit score for approval and might have stricter underwriting requirements.
- Best for: Borrowers with good credit.
Instead of answering to shareholders, credit unions are required to act in the best interest of its members, which are customers like you. 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 or live within a certain area.
Borrowers with average credit might have more success getting a personal loan with a credit union. About 38 percent of unsecured personal loan funds from credit unions went to borrowers with credit scores of 660 or lower, compared with 21 percent for banks, according to TransUnion data.
Because credit unions are nonprofit institutions, their mission may influence their lending decisions. For example, 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.
Credit unions tend to offer smaller personal loans compared to banks and online lenders, and their interest rates may be lower. The average interest rate on a three-year personal loan from a credit union is 9.09 percent, compared to 10.24 percent at a bank, according to December 2020 data from the National Credit Union Administration.
- Perks: Credit unions generally have lower credit score requirements.
- Drawbacks: Loan amounts are smaller compared to banks, due to the increased credit risk that credit unions absorb.
- Best for: Members of the credit union who have average credit and don’t need a large loan
How to choose the best lender for you
The amount of money you need to borrow, the terms you’re looking for and your 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.
If you have a relationship with a financial institution that you enjoy working with, it makes sense to see whether it can provide a competitive personal loan offer. When shopping around for a personal loan lender, compare interest rates and fees and evaluate customer service reviews to ensure you’ll get the support you expect.
Before making a decision, use a personal loan calculator to see how much your monthly payments will be and how much the loan will cost you overall.
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