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Good Debt vs. Bad Debt — What’s the Difference?

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

When you think of debt, you might picture someone faced with thousands of dollars in credit card or student loan bills. Or perhaps you’ll think about a substantial loan someone secured to launch their small business.

Although these are all forms of debt, they are not all created equally in the eyes of lenders or credit bureaus. No form of debt is inherently “good,” but there are forms of debt that are not necessarily as bad and can contribute to someone’s financial future in meaningful ways.

Learning to spot the difference between good debt and bad debt, knowing which type of debt to pay off first, and determining what forms of debt you should never take on can allow you to have financial stability and peace of mind.

What is good debt?

Good debt is debt that in some way contributes to your financial future in a significant way.

“When people are financing either assets or other things that have some sort of true and intrinsic value — and maybe even an ascending value — then you can make a pretty good argument that it’s good debt,” said John Ulzheimer, founder of The Ulzheimer Group and a credit-reporting expert formerly of FICO and Equifax.

Gerri Detweiler, a consumer credit expert and author of Debt Collection Answers: How to Use Debt Collection Laws to Protect Your Rights, said good debt boils down to whether someone comes out of debt with something to show for it.

“I think overall, generally good debt is debt where you come out ahead,” Detweiler said. “Whether that’s investing in a home that’s later paid for and provides you with a place to live, or an education that results in higher earning power over your career, or even small business debt that allows you to start or grow a small business that brings an income — those are all examples of debt that can be good debt.”

But Detweiler adds that all forms of good debt must be looked at on a case-by-case basis.

“[They’re not] automatically ‘good’ debt, because it’s possible, of course, to get into a house that ends up being a money waster,” she said. “You could end up spending a lot of money for an education and not be able to translate that into a career or a steady income. Or you could invest in a small business that fails. There’s no guarantee that those types of debt that are often good will be good for you. You have to be sure you’re making a smart decision.”

Experts agree that generally speaking, the following are all forms of good debt.

Mortgages

A mortgage taken out to finance a home is considered a good debt because as a buyer, you are investing in a piece of property that will hopefully provide you a return on investment one day. And depending on your income level, a mortgage could provide a deduction on your taxes.

“You can make a pretty strong argument that debt incurred to buy a home is good debt, presuming that you’re buying a home that is going to appreciate over time, and when you sell it someday, you’re going actually make money out of it,” Ulzheimer said.

Mortgages also tend to have lower interest rates than other types of loans. The average interest rate in the U.S. for a 30-year fixed rate mortgage is currently 4.55 percent, according to the Federal Reserve Bank of St. Louis. On the other hand, the average interest rate for new credit cards in the U.S. is nearly 14 percent, according to the Federal Reserve Bank of St. Louis.

Student loans

Perhaps the most valuable debt someone will incur in their lifetime, according to Ulzheimer, is student loan debt to pursue a college education.

“I think studies are pretty clear that people who have a college degree over their lifetime are going to earn more than people who do not,” Ulzheimer said. “In my mind, that may be the best of all debts in terms of return on investment.”

Interest rates on federal student loans vary, but currently sit between 4.45 and 7 percent, according to the U.S. Department of Education.

The earning potential for college graduates is starkly higher than that of non-graduates. Men with a bachelor’s degree earn an average of $900,000 more in their lifetime than men with only a high school education, while women with a bachelor’s degree earn an average of $630,000 more in their lifetime than their high-school educated counterparts, according to data from the Social Security Administration. The numbers only increase with graduate degrees: Men earn an average of $1.5 million more and women $1.1 million more in their lifetimes than those with only a high school education.

Small business loans

Taking out a small business loan can be beneficial — investing in a small business, assuming it succeeds, means investing in something that could provide you significant future earnings.

Loans guaranteed by the Small Business Administration (SBA), for example, typically have lower down payments, lower interest rates and flexible overhead requirements, according to the organization.

“You’re making an investment in yourself, in your future, in your business,” said Kathryn Bossler, a credit counselor with GreenPath, a nationwide consumer credit counseling agency.

That being said, there are some very high-cost short-term business loans available that could cause a strain on your bottom line; approach these with caution.

Home equity loans

Home equity loans fall into the “good” category because they allow someone to borrow against him or herself (instead of from an outside lender) to make a large purchase or investment, or to pay off debt with a higher interest rate.

In addition, home equity loans typically come with lower interest rates — they range from about 4.25 to 6 percent, according to LendingTree — and can help someone consolidate and pay back other higher interest rate debts.

However, home equity loans used for the wrong purpose, such as financing a vacation or an unnecessary large purchase, could become a form of “bad” debt — ultimately, it all depends on what the home equity loan proceeds are used for.

What is bad debt?

When Detweiler was in her 20s, she went to Sears and got approved for a credit card. She purchased a couch, an answering machine and a lamp. “Before that debt was paid off, the couch had a rip in it, the answering machine had been zapped by lightning and the lamp was broken,” she said. “I still had a bill, and nothing to show for it. That’s definitely bad debt.”

Detweiler said “bad” debt is debt in which the borrower has nothing to show for it, save for the fact that they’ve spent a significant amount of money.

Forms of bad debt typically come with very high interest rates, making it difficult for borrowers with significant debt to pay it back in a timely manner.

Experts agree that generally speaking, the following are all forms of bad debt.

Credit card debt

Credit card debt is perhaps the most pervasive form of “bad” debt in the U.S., with 121 million Americans currently carrying credit card debt. The average credit card debt per person is $4,453, while the average credit card debt per household is $8,683.

Credit card debt falls into the “bad” category mainly because of the high interest rate that often accompanies credit cards. In fact, the average interest rate for a new credit card in the U.S. is around 14 percent, according to the Federal Reserve Bank of St. Louis.

“Typically, it’s a red flag if you need to carry a balance on your credit card,” Bossler said. “Credit cards are really designed for convenience. There are lots of consumer perks in terms of points and rewards … But carrying a balance is probably going to come with a high interest rate, and is promising money that you don’t have right now.”

Luckily, consolidating credit card debt can help borrowers pay it back more quickly than they might be able to pay back other forms of “bad” debt.

Payday loans

Payday loans should be avoided at all costs.

“I think the worst of the worst, most people would agree, would be payday loan type debt, because the interest rates are so high and the repayment requirements are so immediate,” Bossler said. “And usually someone who is taking out that type of loan is in serious financial distress.”

Because payday loans are typically smaller and paid back in a couple of weeks, borrowers might not feel their impact. But that doesn’t mean it’s not there.

“They’re called ‘lenders of last resort’ for a reason,” Ulzheimer said. “Their interest rates are, when you annualize them, in some cases several hundred percent APR. You don’t feel that because they have short-term amortization schedules.”

“Gray area” debt

Some debts may not be inherently good or bad. It all depends on how you use them.

401(k) loans

Borrowing against your 401(k) might not seem like a terrible decision in the short-term — after all, you’re taking out a loan from yourself — but it can come with a number of consequences. Ulzheimer said he often sees people take money out of their retirement accounts to pay off debt, but then fail to pay back their 401(k) loan.

“You’re almost compounding the problem by doing something silly like that,” he said. By not paying it back, people face countless consequences, including delaying their retirement plan, potentially paying more in taxes (401(k) funds are pre-tax), and potentially paying a penalty for not paying back the loan in time.

In addition, if someone leaves a job before paying back their 401(k) loan, he or she must repay the loan over a set period of time or it could be treated like a distribution and taxed accordingly.

Auto loans

Auto loans fall into the murky territory between good and bad. A car can be a necessary purchase for many people. And someone with the right financial know-how can take on an auto loan that is neither bad nor good, but rather necessary.

However, Detweiler said people often get swept up into higher car payments than they can afford, which can lead to a situation in which someone is paying for a car that is either not running or not worth investing in anymore. “You really have to be on guard when going into debt for something like a car, because it’s very easy to get talked into or psyched into spending more than you can afford.”

Bossler said that when she first began working as a credit counselor 12 years ago, three to five-year loans were common. Now, because cars are more expensive and because consumers want the lowest interest rate possible, she’s seeing terms as long as 72 and 84 months.

“That’s when I would say we’re getting into dangerous territory,” she said. “The car is probably not going to be worth what you owe a couple years down.”

Learn more: Revolving debt vs installment debt

Installment debt is a standardized loan that is paid back in installments that are typically monthly. Mortgages and auto loans are common forms of installment debt. The amount the borrower pays typically remains the same month-to-month.

Revolving debt, on the other hand, doesn’t have a set amount to be paid by the borrower each month, though there is a limit to how much a borrower can use. Credit cards and home equity lines of credit are common forms of revolving debt, because credit is borrowed, then paid back, then borrowed again in a revolving manner, with the amount changing each month.

Both forms of debt affect your credit report and credit score, though revolving debt is typically seen as riskier by the credit bureaus, as credit scores often hinge on the amount of available credit a consumer uses. Installment debt is often associated with an asset (i.e. a home or car), making it a safer form of debt in the eyes of credit bureaus.

It’s generally viewed as positive to carry a mix of both installment and revolving debt, with fewer of the latter in your credit mix. Credit mix makes up 10% of your credit score.

How to eliminate debt

Regardless of what type of debt you have, paying it off in a timely manner is crucial for achieving financial freedom. Keep these best practices in mind when you begin paying off your debt.

1. Know your interest rates.

Detweiler said she has spoken to countless consumers who have no idea what their interest rates are. They will throw money at a debt trying to get out of it before actually looking at what the numbers say.

By taking a look at the interest rates for all of your loans, you can determine whether refinancing or consolidating is a good option. Or, you can identify which loan has the highest interest rate, and then prioritize paying back that loan first.

2. Consider refinancing your debt.

Getting a lower interest rate on your debt can be integral for paying it off. “While you’re paying off debt,” said Detweiler, “look at whether you can refinance some of that debt to make the interest rate less expensive.”

For personal loans, such as mortgages and student loans, this could mean refinancing to get a lower rate. For credit card debt, it could mean taking on a lower-interest debt consolidation loan or transferring a balance to a card with a better interest rate.

3. Establish your priorities.

Ulzheimer said you should first ask yourself what your priority is. Is your priority to get out of debt as quickly as possible? Is it to pay down your most expensive debt first? Is it to eliminate nuisance balances on retail store credit cards? Is it to improve your credit score?

Once you identify your priorities, you can begin effectively paying off your debt.

One strategy Ulzheimer recommends for paying off credit card debt is paying down the cards you use the most while also paying off your nuisance balances.

“Credit scores hate balances on credit cards, and credit scores hate to see highly leveraged cards, to the extent you can take care of those first,” Ulzheimer said. “A. You’re getting out of debt which is good, and B. Your credit scores are going to start to improve because your utilization ratios are going to go down, and the number of accounts you have balances with is also going to go down.”

4. Be conscious of the credit you use while paying off debt.

Bossler said she would advise someone looking to get out of debt pursue the strategy that is not only going to give them the best interest rate, but is also going to stop them from using the credit again and digging themselves into the same hole.

“What we see sometimes is that people will refinance their home or take out equity to pay off credit cards or get into those 0 percent interest credit cards, and then go back around and use the old cards again,” she said. “Something we talk a lot about with consumers is yes, we have this strategy to address your debt, but what are the other steps you’re going to take to avoid it again?”

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Jamie Friedlander
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Jamie Friedlander is a writer at MagnifyMoney. You can email Jamie here

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Guide to Credit Counseling: 7 Key Questions to Ask

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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If you have little knowledge on the topic of personal finance and are struggling with your own money issues, you might want to think about getting credit counseling.

Credit counselors can help you set a budget and advise you on how to manage your debt, which can include credit card debt, student loan debt and even housing debt.

Reputable credit counseling organizations have certified counselors who are trained in consumer credit, budgeting, and money and debt management. Credit counselors will work with you to come up with an individualized plan to address any money problems you may have. This can be done in person, over the phone or online.

Seeking credit counseling is typically voluntary but can be required when filing for bankruptcy. In this guide, we’ll answer some key questions you might have about credit counseling and whether it’s right for you.

How do you find a credit counselor?

Before settling on a credit counseling organization, do your homework to make sure they are not only reputable but will also be the most helpful for your particular financial circumstances. Check with your state’s attorney general and consumer protection agency to see if there have been any complaints filed against the organization.

Ensure that the organization is accredited and certified. Check to see if they are members of the National Foundation for Credit Counseling or the Financial Counseling Association of America. Most non-profit credit counseling agencies are associated with these organizations.

When researching agencies, first ask what information or educational materials they provide for free. Organizations that charge for information are typically more interested in their bottom line than in helping you. Also, ask about the types of services they offer. Limited services can be a red flag. The fewer services they offer, the fewer solutions they may provide for you.

You should also attempt to understand the organization’s fee system — not only how much services will cost but also how employees are paid. If employees make more based on the number of services you receive, look for another credit counseling organization.

MagnifyMoney has come up with a list of some of the best credit counseling options, which is a great place to start. If you are looking for credit counseling as a pre-bankruptcy measure, the U.S. Trustee Program has a list of approved credit counseling agencies that can provide pre-bankruptcy counseling.

How much does credit counseling cost?

Credit counseling can involve both start-up and monthly maintenance costs. The Department of Justice says that $50 per month is a reasonable fee. Further, the National Foundation for Credit Counseling (NFCC) suggests that a start-up fee should not exceed $75 and monthly maintenance fees should not be more than $50 per month.

Credit counseling agencies may offer fee waivers or reductions, depending on your income levels. Where credit counseling is required, the DOJ says that, if household income is less than 150% of the current poverty line, the client is entitled to a fee waiver or reduction.

Other regulations, such as when fees can be collected and circumstances that would warrant a fee reduction or waiver, may also be outlined by your state.

How long does credit counseling last?

While the length of your credit counseling session depends on the complexity of your financial problems, sessions typically last 60 minutes. After the initial session, credit counselors will follow up to ensure you understand the actions you need to take and that you have been able to get started on the plan they developed. Another session may be necessary depending on how your financial situation unfolds following the first session.

What do you accomplish with credit counseling?

According to the NFCC, reputable counseling involves three things. First, there must be a review of a client’s current financial situation. You cannot move forward unless you know from where you are starting. Second, there should be an analysis of the factors that contributed to the client’s bad financial situation. You don’t want bad habits to undermine your progress. Lastly, there must be a plan to address the situation without incurring negative amortization of debt. Negative amortization occurs when the amount of debt you have increases because you aren’t paying enough to cover the interest, even though you are making payments.

Understanding these three factors of good credit counseling gives you a place to start in improving your financial situation.

What is the difference between credit counseling and debt management programs?

A debt management plan is just one solution a credit counselor may recommend based on your financial situation. Having a debt management plan is not the same as credit counseling.

A debt management plan involves the credit counseling organization acting as an intermediary between you and your creditors. Each month you will deposit an agreed upon amount of money to your credit counseling agency, which they will, in turn, apply it to your debts.

The credit counseling agency works with your creditors to determine how the amount will be applied each month, and negotiates interest rates and any fee waivers. It’s important to call your creditors directly to check whether they are open to negotiating interest rates or offering waivers for fees. In some cases, a credit counseling firm may promise to negotiate those items for you but be stonewalled when they discover a creditor isn’t even open to the discussion.

Before agreeing to a debt management plan, make sure you understand any fees associated and any choices you might be giving up. For example, some debt management plans may require you to give up opening up new lines of credit for a specified period of time. Remember that a debt management plan is just one of many solutions a credit counselor may advise you to consider.

How does credit counseling impact your credit score?

Not directly. While the fact you are in credit counseling may show up on a credit report, that does not affect your credit score. The actions you take as a result of credit counseling, however, can impact your score.

For example, if you don’t choose a reputable credit counseling agency, the agency may submit a payment on your behalf late to your creditors. So even though you submitted your payment on time to the credit counseling agency, your score may still be dinged. This is just one reason why it’s important to make sure you use a reputable credit counseling agency.

Who should consider credit counseling, and when?

While credit counseling is sometimes required, such as in instances of bankruptcy, you always have an ability to seek credit counseling.

Boston-based Bankruptcy attorney Julie Franklin explains, “For bankruptcy purposes, there are two course requirements — a debtor must complete the first credit counseling course prior to filing and obtain a certificate that is filed with the court in their initial bankruptcy petition documents. Post bankruptcy filing, the debtor is required to take a second course, and upon completion, the certificate that is issued must be filed with the court in order for the debtor to obtain an order of discharge.”

Anyone struggling with their personal finances can consider credit counseling as an option. Franklin also notes that “the first credit counseling course is a tool for debtors, as it compels the individual taking the course to closely examine the household assets, income, liabilities and spending habits to determine if there’s a way to save the debtor from having to file bankruptcy.”

If you are considering bankruptcy, you will have to attend some credit counseling anyhow, but doing so could also help you avoid filing for bankruptcy at all. Keep in mind that filing for bankruptcy will always have a significant effect on your credit score, and can hurt your changes for getting loans or new credit for years to come. If you can avoid it, you probably should.

Voluntary credit counseling might not help if you are already being sued to have a debt collected. However, you may be able to negotiate terms with the debt collector that result in a withdrawal of the suit if you agree to enroll in credit counseling and possibly a debt management program. Not all creditors will agree to such terms, but it is possible.

Bottom line

Many people run into trouble with their finances, whether they have too much credit card debt, are struggling to make their housing payments or just find general budgeting to be a challenge. Some people are dealing with more serious issues, such as potential bankruptcy. There are credit counselors available to help you with any difficult financial situation you may be facing. The most important thing is to ensure you work with a reputable credit counseling agency, so do your research first. A good credit counselor can help you get on the road to financial health, but working with a bad one can lead to more problems than you already have.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Liz Stapleton
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Liz Stapleton is a writer at MagnifyMoney. You can email Liz here

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The 8 Best Personal Loans for 600 to 700 Credit Scores

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Disclosure : By clicking “See Offers” you’ll be directed to our parent company, LendingTree. You may or may not be matched with the specific lender you clicked on, but up to five different lenders based on your creditworthiness.

7 Personal Loans for 600 to 700 Credit Scores

Updated June 03, 2019

If you have a less-than-perfect credit and want to pay off credit card debt, fund home improvement projects, or pay for unexpected expenses, then finding a lender that will consider your credit might seem like an uphill battle.

Refinancing high-interest debt with a personal loan can quickly cut down the amount of interest you’re paying, which effectively allows you to pay it off in less time. You particularly want to avoid payday and title loan lenders at all costs.

Many personal loan companies approve people with scores as low as 600. The best way to shop for a loan is to pre-qualify with as many lenders as possible who perform a soft credit pull (which doesn’t harm your credit score). With our first recommendation, LendingTree, simply fill out an online form and obtain up to 5 lender quotes (including all of those on our list below) with one online form and no negative impact to your score.

Company
APR
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As low as 3.99%

24 to 60

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A Personal Loan can offer funds relatively quickly once you qualify you could have your funds within a few days to a week. A loan can be fixed for a term and rate or variable with fluctuating amount due and rate assessed, be sure to speak with your loan officer about the actual term and rate you may qualify for based on your credit history and ability to repay the loan. A personal loan can assist in paying off high-interest rate balances with one fixed term payment, so it is important that you try to obtain a fixed term and rate if your goal is to reduce your debt. Some lenders may require that you have an account with them already and for a prescribed period of time in order to qualify for better rates on their personal loan products. Lenders may charge an origination fee generally around 1% of the amount sought. Be sure to ask about all fees, costs and terms associated with each loan product. Loan amounts of $1,000 up to $50,000 are available through participating lenders; however, your state, credit history, credit score, personal financial situation, and lender underwriting criteria can impact the amount, fees, terms and rates offered. Ask your loan officer for details.

As of 28-Feb-2019, LendingTree Personal Loan consumers were seeing match rates as low as 3.99% (3.99% APR) on a $10,000 loan amount for a term of three (3) years. Rates and APRs were based on a self-identified credit score of 700 or higher, zero down payment, origination fees of $0 to $100 (depending on loan amount and term selected).

3.99%-16.99%

24 to 144

months

660

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Your APR may differ based on loan purpose, amount, term, and your credit profile. Rate is quoted with AutoPay discount, which is only available when you select AutoPay prior to loan funding. Rates under the invoicing option are 0.50% higher. Subject to credit approval. Conditions and limitations apply. Advertised rates and terms are subject to change without notice. Payment example: Monthly payments for a $10,000 loan at 3.99% APR with a term of 3 years would result in 36 monthly payments of $295.20.

6.95%-35.89%

36 or 60

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600

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Marcus by Goldman Sachs®

5.99%-28.99%

36 to 72

months

Varies

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Your loan terms are not guaranteed and are subject to our verification of your identity and credit information. To obtain a loan, you must submit additional documentation including an application that may affect your credit score. Rates will vary based on many factors, such as your creditworthiness (for example, credit score and credit history) and the length of your loan (for example, rates for 36 month loans are generally lower than rates for 72 month loans).Your maximum loan amount may vary depending on your loan purpose, income and creditworthiness. Your verifiable income must support your ability to repay your loan. Marcus by Goldman Sachs is a brand of Goldman Sachs Bank USA and all loans are issued by Goldman Sachs Bank USA, Salt Lake City Branch. Applications are subject to additional terms and conditions. For New York residents, rates range from 5.99% to 24.99% APR.

Up to 29.99%

36 or 60

months

700

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*The Annual Percentage Rate (APR) is the cost of credit as a yearly rate and ranges from 5.99%-29.99%, which may include an origination fee from 0.99% - 5.99%. Any origination fee on a 5-year loan will be at least 4.99% and is deducted from loan proceeds. The APR offered will depend on your credit score, income, debt payment obligations, loan amount, loan term, credit usage history and other factors, and therefore may be higher than our lowest advertised rate. Requests for the highest loan amount may resulting an APR higher than our lowest advertised rate. You need a minimum 700 FICO® score and a minimum individual annual income of $100,000 to qualify for our lowest rate.

Best Egg loans are unsecured personal loans made by Cross River Bank, a New Jersey State Chartered Commercial Bank, Member FDIC. Equal Housing Lender. "Best Egg" is a trademark of Marlette Funding LLC. All uses of "Best Egg" on this site mean and shall refer to "the Best Egg personal loan" and/or "Best Egg on behalf of Cross River Bank, as originator of the Best Egg personal loan," as applicable. Loan amounts generally range from $2,000-$35,000. Offers up to $50,000 may be available for qualified customers who receive offer codes in the mail. The minimum individual annual income needed to qualify for a loan of $50,000 is $130,000. Borrowers may hold no more than two open Best Egg loans at any given time. In order to be eligible for a second Best Egg loan, your existing Best Egg loan must have been open for at least six months. Total existing Best Egg loan balances must not exceed $50,000. All loans in MA must exceed $6,000; in NM, OH must exceed $5,000; in GA must exceed $3,000.

Borrowers should refer to their loan agreement for specific terms and conditions. A loan example: a 5–year $10,000 loan with 9.99% APR has 60 scheduled monthly payments of $201.81, and a 3–year $5,000 loan with 5.99% APR has 36 scheduled monthly payments of $150.57. Your verifiable income must support your ability to repay your loan. Upon loan funding, the timing of available funds may vary depending upon your bank's policies.

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9.95%-35.99%

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16.05%-35.99%

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Varies

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Not all applicants will qualify for larger loan amounts or most favorable loan terms. Loan approval and actual loan terms depend on your ability to meet our credit standards (including a responsible credit history, sufficient income after monthly expenses, and availability of collateral). Larger loan amounts require a first lien on a motor vehicle no more than ten years old, that meets our value requirements, titled in your name with valid insurance. Maximum annual percentage rate (APR) is 35.99%, subject to state restrictions. APRs are generally higher on loans not secured by a vehicle. The lowest APR shown represents the 10% of loans with the most favorable APR. Active duty military, their spouse or dependents covered under the Military Lending Act may not pledge any vehicle as collateral for a loan. OneMain loan proceeds cannot be used for postsecondary educational expenses as defined by the CFPB’s Regulation Z, such as college, university or vocational expenses; for any business or commercial purpose; to purchase securities; or for gambling or illegal purposes. Borrowers in these states are subject to these minimum loan sizes: Alabama: $2,100. California: $3,000. Georgia: Unless you are a present customer, $3,100 minimum loan amount. Ohio: $2,000. Virginia: $2,600.

Borrowers (other than present customers) in these states are subject to these maximum unsecured loan sizes: Florida: $8,000. Iowa: $8,500. Maine: $7,000. Mississippi: $7,500. North Carolina: $7,500. New York: $20,000. Texas: $8,000. West Virginia: $7,500. An unsecured loan is a loan which does not require you to provide collateral (such as a motor vehicle) to the lender.

5.99%-29.99%

24 to 60

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All loans available through FreedomPlus.com are made by Cross River Bank, a New Jersey State Chartered Commercial Bank, Member FDIC, Equal Housing Lender. All loan and rate terms are subject to eligibility restrictions, application review, credit score, loan amount, loan term, lender approval, and credit usage and history. Eligibility for a loan is not guaranteed. Loans are not available to residents of all states – please call a FreedomPlus representative for further details.

6.95%-35.99%

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640

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on LendingTree’s secure website

Advertiser Disclosure.

For example, a three-year $10,000 loan with a Prosper Rating of AA would have an interest rate of 5.31% and a 2.41% origination fee for an annual percentage rate (APR) of 6.95% APR. You would receive $9,759 and make 36 scheduled monthly payments of $301.10. A five-year $10,000 loan with a Prosper Rating of A would have an interest rate of 8.39% and a 5.00% origination fee with a 10.59% APR. You would receive $9,500 and make 60 scheduled monthly payments of $204.64. Origination fees vary between 2.41%-5%. APRs through Prosper range from 6.95% (AA) to 35.99% (HR) for first-time borrowers, with the lowest rates for the most creditworthy borrowers. Eligibility for loans up to $40,000 depends on the information provided by the applicant in the application form. Eligibility is not guaranteed, and requires that a sufficient number of investors commit funds to your account and that you meet credit and other conditions. Refer to Borrower Registration Agreement for details and all terms and conditions. All loans made by WebBank, member FDIC.

Consider LendingTree

With LendingTree, you only need to fill out one short online form. A soft pull will be performed – so your credit score will not be harmed. LendingTree has a panel of dozens of lenders who will then compete for your business. You may be able to see how much you can borrow and the interest rate. This is a great place to start – especially for people with credit scores below 700.

LendingTree
APR

As low as 3.99%

Credit Req.

Minimum 500 FICO®

Minimum Credit Score

Terms

24 to 60

months

Origination Fee

Varies

SEE OFFERS Secured

on LendingTree’s secure website

LendingTree is our parent company

Advertiser Disclosure

LendingTree is our parent company. LendingTree is unique in that you may be able to compare up to five personal loan offers within minutes. Everything is done online and you may be pre-qualified by lenders without impacting your credit score. LendingTree is not a lender.


A Personal Loan can offer funds relatively quickly once you qualify you could have your funds within a few days to a week. A loan can be fixed for a term and rate or variable with fluctuating amount due and rate assessed, be sure to speak with your loan officer about the actual term and rate you may qualify for based on your credit history and ability to repay the loan. A personal loan can assist in paying off high-interest rate balances with one fixed term payment, so it is important that you try to obtain a fixed term and rate if your goal is to reduce your debt. Some lenders may require that you have an account with them already and for a prescribed period of time in order to qualify for better rates on their personal loan products. Lenders may charge an origination fee generally around 1% of the amount sought. Be sure to ask about all fees, costs and terms associated with each loan product. Loan amounts of $1,000 up to $50,000 are available through participating lenders; however, your state, credit history, credit score, personal financial situation, and lender underwriting criteria can impact the amount, fees, terms and rates offered. Ask your loan officer for details.

As of 28-Feb-2019, LendingTree Personal Loan consumers were seeing match rates as low as 3.99% (3.99% APR) on a $10,000 loan amount for a term of three (3) years. Rates and APRs were based on a self-identified credit score of 700 or higher, zero down payment, origination fees of $0 to $100 (depending on loan amount and term selected).

1. LightStream

LightStream offers personal loans for between $5,000 and $100,000. It requires a minimum credit score of 660 and offers APRs between 3.99% and 16.99%. That low 3.99% APY includes a 0.50% rate discount for signing up for automatic payments.

To check rates, you’ll need to submit to a hard credit check. Don’t let that scare you off from this lender, though. LightStream offers a Rate Beat Program, where it’ll outmatch any qualifying rate. And if you’re unhappy with your loan, you can earn $100 for completing a questionnaire that helps LightStream improve its services.

The Fine Print

LightStream doesn’t offer fees, but in order to qualify for a loan, you’ll need to have good credit. On its website, LightStream says it finds borrowers with good credit tend to have the following characteristics:

  • Healthy credit history showing a variety of accounts, such as lines of credit (credit cards) and installment debt (auto loan, mortgage)
  • Solid payment history
  • Evidence that you know how to save and manage money, such as by having retirement savings and balancing revolving debt
  • Good income and assets that show you can repay your outstanding debts and a loan offered to you by LightStream

You can use a LightStream personal loan for a variety of purposes, from buying a car to consolidating debt. However, LightStream personal loans can’t be used for college expenses or to refinance college loans.

Pros

  • Low-interest rates
  • No fees
  • Loans for between $5,000 and $100,000
  • You may receive same-day funding
  • Will beat qualifying competitor rates
  • Offers $100 Guarantee Program

Cons

  • Requires a minimum 660 credit score
  • Hard Pull to check rates
  • You can’t change the payment due date
  • Doesn’t offer preapproval
  • Can’t refinance student loans

LightStream is a solid choice for borrowers with solid credit who want fast funding. LightStream’s Rate Beat Program means you can receive a competitive rate, while its $100 Guarantee Program shows that this lender cares about your satisfaction.

APR

3.99%
To
16.99%

Credit Req.

660

Minimum Credit Score

Terms

24 to 144

months

Origination Fee

No origination fee

SEE OFFERS Secured

on LendingTree’s secure website

Advertiser Disclosure

LightStream is the online lending division of SunTrust Bank.... Read More


Your APR may differ based on loan purpose, amount, term, and your credit profile. Rate is quoted with AutoPay discount, which is only available when you select AutoPay prior to loan funding. Rates under the invoicing option are 0.50% higher. Subject to credit approval. Conditions and limitations apply. Advertised rates and terms are subject to change without notice. Payment example: Monthly payments for a $10,000 loan at 3.99% APR with a term of 3 years would result in 36 monthly payments of $295.20.

2. LendingClub

LendingClub offers loans of up to $40,000, for individuals with a minimum credit score of 600. Its APR ranges from 6.95% to 35.89%. LendingClub also uses a soft credit pull to determine your rate, which will not affect your credit.

The Fine Print

In order to qualify for a LendingClub personal loan you must:

  • Not have more than 5 hard credit inquiries in the last 5 months
  • Have at least two active credit accounts open
  • Have a credit history of at least 36 months
  • Debt-to-income ratio of less than 40%
  • Be able to verify employment and income

Once you have met the minimum criteria, LendingClub uses its own scoring system to determine what amount you can borrow as well as your rate.

You can borrow money for 36 or 60 months, but it does charge up-front (origination) fees ranging 1.00% - 6.00% depending on credit worthiness, which come out of the loan amount.

Pros

  • Can see your rate with a soft credit pull
  • Will consider applicants with credit scores as low as 600
  • Offers very competitive interest rates for people with scores below 700
  • The application process only take a few minutes

Cons

  • Missed payments or items in collections will result in your application being rejected
  • Loan processing could take a week or more
  • APR can be as high as 35.89%
  • It does charge origination fees (1.00% - 6.00%)
  • Is not available in Iowa or West Virginia

LendingClub will approve people with credit scores as low as 600. If approved, the interest rates offered can be very competitive and the online application process is easy. This is good first stop for anyone with a score of 600 or higher to find the best deal.

APR

6.95%
To
35.89%

Credit Req.

600

Minimum Credit Score

Terms

36 or 60

months

Origination Fee

1.00% - 6.00%

SEE OFFERS Secured

on LendingTree’s secure website

LendingClub is a great tool for borrowers that can offer competitive interest rates and approvals for people with credit scores as low as 600.... Read More

3. Marcus by Goldman Sachs®

Marcus by Goldman Sachs® offers personal loans for up to $40,000 for debt consolidation and credit consolidation. With APRs ranging from 5.99% to 28.99% they offer one of the best personal loan options that is available from a traditional lender. While Goldman Sachs Bank USA has been around for over a century, Marcus is a completely online, streamlined experience that lets you complete your application and submit all of the needed documents from your computer.

The Fine Print

There are no specific credit requirements to qualify for a personal loan through Marcus by Goldman Sachs®, though, the company does target those with “prime” credit, which usually includes those with a FICO score higher than 660. While the credit requirements are lower than many other lenders, you will more than likely be rejected if you have missed payments recently or have any other negative marks on your credit report.

Applicants must be over 18 (19 in Alabama and Nebraska, 21 in Mississippi and Puerto Rico) and have a valid U.S. bank account. You are also required to have a Social Security or Individual Tax I.D. Number.

Terms currently range from 36 to 72 months and there is no origination fee. They also will only do a soft pull on your credit if you want to compare your loan options, which won’t affect your credit score. Additional perks of getting a personal loan through Marcus are no late fees (if you miss a payment, your loan will be extended and more interest will be added) and the ability to defer payments after you have made on time payments for a full year.

Pros

  • No origination fee
  • No late fees
  • Ability to defer payments after a year of on time payments
  • Wide range of repayment terms available between 36 to 72 months
  • Can see rates with a soft pull

Cons

  • Currently not available in Maryland
  • Rates up to 28.99% APR
  • No clear qualification information
  • Late payments will accumulate more interest, resulting in a larger final payment.

Marcus is a great option if you have good credit and want to get a personal loan that has a lower rate. It is also a great option for those that want to work with a traditional lender.

Marcus by Goldman Sachs®
APR

5.99%
To
28.99%

Credit Req.

Varies

Minimum Credit Score

Terms

36 to 72

months

Origination Fee

No origination fee

SEE OFFERS Secured

on LendingTree’s secure website

Advertiser Disclosure

Marcus by Goldman Sachs® offers personal loans for up to $40,000 for debt consolidation and credit consolidation. ... Read More


Your loan terms are not guaranteed and are subject to our verification of your identity and credit information. To obtain a loan, you must submit additional documentation including an application that may affect your credit score. Rates will vary based on many factors, such as your creditworthiness (for example, credit score and credit history) and the length of your loan (for example, rates for 36 month loans are generally lower than rates for 72 month loans).Your maximum loan amount may vary depending on your loan purpose, income and creditworthiness. Your verifiable income must support your ability to repay your loan. Marcus by Goldman Sachs is a brand of Goldman Sachs Bank USA and all loans are issued by Goldman Sachs Bank USA, Salt Lake City Branch. Applications are subject to additional terms and conditions. For New York residents, rates range from 5.99% to 24.99% APR.

4. BestEgg

BestEgg offers personal loans up to $35,000 for people with credit scores as low as 700. APRs range from 5.99% to 29.99%. You can check your rate without hurting your credit score, and BestEgg has an excellent application process (that can result in funding your loan very quickly).

The Fine Print

BestEgg does charge an origination fee, which can be between 0.99% - 5.99%. However, there is no prepayment penalty, and you can pay off your loan early without penalty.

Pros

  • Can see your rate with a soft pull
  • Will consider applicants with credit scores as low as 700
  • Offers very competitive interest rates
  • Fast application process and fast funding

Cons

  • APR can be as high as 29.99%
  • It does charge origination fees

BestEgg offers competitive rates and a quick online process to get your loan. It is an excellent option for people with less than perfect scores.

APR

Up to 29.99%

Credit Req.

700

Minimum Credit Score

Terms

36 or 60

months

Origination Fee

0.99% - 5.99%

SEE OFFERS Secured

on LendingTree’s secure website

Advertiser Disclosure

People looking for a process that is fast and straightforward can’t go wrong when applying through Best Egg for a personal loan. ... Read More


*The Annual Percentage Rate (APR) is the cost of credit as a yearly rate and ranges from 5.99%-29.99%, which may include an origination fee from 0.99% - 5.99%. Any origination fee on a 5-year loan will be at least 4.99% and is deducted from loan proceeds. The APR offered will depend on your credit score, income, debt payment obligations, loan amount, loan term, credit usage history and other factors, and therefore may be higher than our lowest advertised rate. Requests for the highest loan amount may resulting an APR higher than our lowest advertised rate. You need a minimum 700 FICO® score and a minimum individual annual income of $100,000 to qualify for our lowest rate.

Best Egg loans are unsecured personal loans made by Cross River Bank, a New Jersey State Chartered Commercial Bank, Member FDIC. Equal Housing Lender. "Best Egg" is a trademark of Marlette Funding LLC. All uses of "Best Egg" on this site mean and shall refer to "the Best Egg personal loan" and/or "Best Egg on behalf of Cross River Bank, as originator of the Best Egg personal loan," as applicable. Loan amounts generally range from $2,000-$35,000. Offers up to $50,000 may be available for qualified customers who receive offer codes in the mail. The minimum individual annual income needed to qualify for a loan of $50,000 is $130,000. Borrowers may hold no more than two open Best Egg loans at any given time. In order to be eligible for a second Best Egg loan, your existing Best Egg loan must have been open for at least six months. Total existing Best Egg loan balances must not exceed $50,000. All loans in MA must exceed $6,000; in NM, OH must exceed $5,000; in GA must exceed $3,000.

Borrowers should refer to their loan agreement for specific terms and conditions. A loan example: a 5–year $10,000 loan with 9.99% APR has 60 scheduled monthly payments of $201.81, and a 3–year $5,000 loan with 5.99% APR has 36 scheduled monthly payments of $150.57. Your verifiable income must support your ability to repay your loan. Upon loan funding, the timing of available funds may vary depending upon your bank's policies.

To help the government fight the funding of terrorism and money laundering activities, federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account. When you open an account, we will ask for your name, address, date of birth, and other information that will allow us to identify you.

5. Avant

Avant offers access to loans from $2,000 to $35,000. There is no prepayment fee. It is possible to get your loan as soon as the next business day. Although every case is unique, we have seen Avant accept people with credit scores as low as 580 be approved.

The Fine Print

APRs range from 9.95% to 35.99%. The Avant platform does charge an up-front origination fee of up to 4.75%, which is lower than most of the competition.

Checking your Loan Options through Avant only requires a soft pull to see your rate, which does not affect your credit score, and there are no prepayment fees.

A personal loan through Avant received an “A” from MagnifyMoney’s Transparency Score.

Pros

  • Approved people with lower credit scores
  • “A” Transparency Score
  • Can see your Loan Options with a soft pull
  • Fixed terms, fixed interest rate, no prepayment fees

Cons

  • Interest rates as high as 35.99%
  • Charges an origination fee
  • Not available in Colorado, Iowa, West Virginia, and Vermont

Avant is a good option for people with less than perfect credit. You can check your Loan Options without hurting your score and it has an “A” transparency score.

APR

9.95%
To
35.99%

Credit Req.

Varies

Minimum Credit Score

Terms

24 to 60

months

Origination Fee

Up to 4.75%

SEE OFFERS Secured

on LendingTree’s secure website

Avant branded credit products are issued by WebBank, member FDIC.

Avant is an online lender that offers personal loans ranging from $2,000 to $35,000. ... Read More

6. OneMain

OneMain Financial offers loans up to $30,000 for individuals with credit scores starting at 600. It offers terms of up to 60 months and APR ranges from 16.05% to 35.99%.

The Fine Print

In order to be accepted for a OneMain Loan, you must live near a OneMain branch, as a face-to-face meeting is required to finalize the loan. OneMain personal loans are not available in Alaska, Arkansas, Connecticut, Massachusetts, Nevada, Rhode Island, Vermont, or Washington D.C.

In order to qualify you must have:

  • Verifiable, steady income
  • No bankruptcy filings, ever
  • Be at least 18 years of age
  • Have at least some established credit history
  • Credit score of at least 600

If, at any time during the application process, OneMain becomes aware that you intend to use the personal loan for gambling, your loan application will be cancelled. OneMain personal loans cannot be used for business expenses or tuition.

Pros

  • Credit score as low as 600
  • Fixed Rates
  • No Prepayment penalty
  • Fixed terms

Convenient location, at OneMain branches

Cons

  • APR ranges from 16.05% to 35.99%
  • Loans cannot be used for business expenses or tuition
  • See potential rate with a hard pull
  • Personal loans only available up to $30,000
  • Loans not available in Alaska, Arkansas, Connecticut, Massachusetts, Nevada, Rhode Island, Vermont, or Washington D.C.
  • You must visit a OneMain branch to complete the loan.

The OneMain personal loan caters to people with low credit scores, or who would prefer to complete the personal loan application process at a branch, rather than online.

APR

16.05%
To
35.99%

Credit Req.

Varies

Minimum Credit Score

Terms

24 to 60

months

Origination Fee

Varies

SEE OFFERS Secured

on LendingTree’s secure website

Advertiser Disclosure

If you have a credit score below 600, OneMain Financial is one of the few lenders that you can use to get a personal loan.... Read More


Not all applicants will qualify for larger loan amounts or most favorable loan terms. Loan approval and actual loan terms depend on your ability to meet our credit standards (including a responsible credit history, sufficient income after monthly expenses, and availability of collateral). Larger loan amounts require a first lien on a motor vehicle no more than ten years old, that meets our value requirements, titled in your name with valid insurance. Maximum annual percentage rate (APR) is 35.99%, subject to state restrictions. APRs are generally higher on loans not secured by a vehicle. The lowest APR shown represents the 10% of loans with the most favorable APR. Active duty military, their spouse or dependents covered under the Military Lending Act may not pledge any vehicle as collateral for a loan. OneMain loan proceeds cannot be used for postsecondary educational expenses as defined by the CFPB’s Regulation Z, such as college, university or vocational expenses; for any business or commercial purpose; to purchase securities; or for gambling or illegal purposes. Borrowers in these states are subject to these minimum loan sizes: Alabama: $2,100. California: $3,000. Georgia: Unless you are a present customer, $3,100 minimum loan amount. Ohio: $2,000. Virginia: $2,600.

Borrowers (other than present customers) in these states are subject to these maximum unsecured loan sizes: Florida: $8,000. Iowa: $8,500. Maine: $7,000. Mississippi: $7,500. North Carolina: $7,500. New York: $20,000. Texas: $8,000. West Virginia: $7,500. An unsecured loan is a loan which does not require you to provide collateral (such as a motor vehicle) to the lender.

7. Freedomplus

FreedomPlus offers loans ranging from $7,500 to $40,000 that can be used for everything from debt consolidation, to unexpected expenses. APR ranges from 5.99% to 29.99%.

Its biggest selling point is the same-day approval and availability of funds within 48 hours, a lifesaver in some circumstances.

The Fine Print

In order to qualify for a Freedomplus loan, you must:

  • Be 18 years or older
  • Be a legal US resident
  • Have a valid ID
  • Minimum credit score of 0
  • At least $25,000 in verifiable income
  • No bankruptcies in the last two years

Freedomplus charges origination fees ranging from 0.00% - 5.00%, which is deducted from the loan amount before you receive the funds. There are no prepayment penalties.

The Freedomplus personal loan scores a “B” Transparency score because its fee structure and much of the fine print is unclear or not covered by the final contract.

You can prequalify with a hard pull, which does not affect your credit score. However, Freedomplus requires a phone screening with each applicant before the loan is approved.

Pros

  • Will approve credit scores as low as 0
  • The phone screening may improve your chances of being approved for the loan
  • Same-day approval and funds within 48 hours
  • No prepayment penalty
  • Can prequalify with a hard pull

Cons

  • APR ranges from 5.99% to 29.99%
  • The fee structure is not readily available for review
  • Origination fee of 0.00% - 5.00% applies

The Freedomplus personal loan is a good option for you if you have less than perfect credit, and need access to funds quickly, without visiting a physical branch.

APR

5.99%
To
29.99%

Credit Req.

Varies

Minimum Credit Score

Terms

24 to 60

months

Origination Fee

0.00% - 5.00%

SEE OFFERS Secured

on LendingTree’s secure website

With a personalized application process that includes a phone interview, FreedomPlus gives people with below average credit a shot at getting approved for a personal loan.... Read More

8. Prosper

The Prosper personal loan process is a little different than a traditional lender. It is not a bank, but rather a peer-to-peer lender. Once you have applied, and checked loan terms and rates, you create a loan “listing” that then appears on in the Prosper marketplace.

From these listings, peers (investors) choose which loans they would like to finance. When your loan listing is financed, the money is transferred to your bank account.

Prosper offers loans from $2,000 to $40,000, and APR ranges from 6.95% to 35.99%. It offers loans terms of either 36 or 60 months. Your APR is determined during the application process, and is based on a credit rating score created by Prosper. Your score is then shown with your loan listing to give potential lenders an idea of your creditworthiness.

The Fine Print

Your loan listing will remain active for 14 days. After 14 days, your loan must be at least 70% funded to receive the funds. If you are not 70% funded within 14 days, you must reapply to have your loan re-listed.

Origination fees range from 2.41% - 5.00% and are based on your Prosper score. In order to qualify, you must:

  • Have a bank account
  • Have a social security number
  • No more than 7 inquiries on your credit in the last six months
  • A verifiable, steady income
  • A credit-to-debt ratio of less than 50%
  • At least three open accounts, such as checking, savings, and credit card.
  • No bankruptcies in the last year

A returned payment may result in a $15 fee, and late payments past 15 days are charged a 5% fee, with a minimum of $15.

Prosper’s overall fine print is very clear is its fees are quite minimal, so it scores it an “A” Transparency Score. Also, you can check your Prosper rate with a soft credit pull, which will not affect your credit score.

Pros

  • Minimum credit score of 640
  • Can see your rate with a soft pull
  • No prepayment penalties
  • Paying off a Prosper loan can reduce your APR on future Prosper loans

Cons

  • Only 14 days to secure financing from peer lenders
  • Origination fee of 2.41% - 5.00% applies
  • APR varies from 6.95%– 35.99%

Prosper is a flexible alternative with a low-end APR that beats a credit card.

APR

6.95%
To
35.99%

Credit Req.

640

Minimum Credit Score

Terms

36 or 60

months

Origination Fee

2.41% - 5.00%

SEE OFFERS Secured

on LendingTree’s secure website

Advertiser Disclosure

Prosper is a peer-to-peer lending platform that offers a quick and convenient way to get personal loans with fixed and low interest rates. ... Read More


For example, a three-year $10,000 loan with a Prosper Rating of AA would have an interest rate of 5.31% and a 2.41% origination fee for an annual percentage rate (APR) of 6.95% APR. You would receive $9,759 and make 36 scheduled monthly payments of $301.10. A five-year $10,000 loan with a Prosper Rating of A would have an interest rate of 8.39% and a 5.00% origination fee with a 10.59% APR. You would receive $9,500 and make 60 scheduled monthly payments of $204.64. Origination fees vary between 2.41%-5%. APRs through Prosper range from 6.95% (AA) to 35.99% (HR) for first-time borrowers, with the lowest rates for the most creditworthy borrowers. Eligibility for loans up to $40,000 depends on the information provided by the applicant in the application form. Eligibility is not guaranteed, and requires that a sufficient number of investors commit funds to your account and that you meet credit and other conditions. Refer to Borrower Registration Agreement for details and all terms and conditions. All loans made by WebBank, member FDIC.

Shop Around to Find the Best Deal

If you have made past credit mistakes, or have very little credit, there are personal loans out there for you. Many of these lenders offer rates much lower than what you would be paying on a credit card, shaving month and hundred or thousands of dollars off of your debt.

Don’t give up on a personal loan just because of your credit – there are options out there for you. It never hurts to shop around and look for the best rates available, especially if the lender does a soft credit pull to show you your options.

*We’ll receive a referral fee if you click on offers with this symbol. This does not impact our rankings or recommendations. You can learn more about how our site is financed here.

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Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Gretchen Lindow
Gretchen Lindow |

Gretchen Lindow is a writer at MagnifyMoney. You can email Gretchen at [email protected]

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