Updated November 06, 2017
Personal loans allow borrowers to have access to a fixed amount of money at a fixed interest rate, with a fixed monthly payment and you know when you’ll have completely paid off the loan. They are a great resource for someone looking to refinance debt and can’t use a balance transfer. If you need cash, personal loans are usually the best way to borrow. Personal loans tend to be much cheaper and simpler than a credit card.
How to get a personal loan?
Step 1: Check and see if you can get a loan with an Internet-only lender.
Ideally, you should start your shopping with a site like LendingTree, which lets you shop at dozens of lenders with just one simple online form (described below). LendingTree is the parent company of MagnifyMoney.
Step 2: Go to your local credit union and see if they can match or beat your P2P loan
Step 3: Take the loan with the lower interest rate
If you aren’t eligible for a P2P loan from an Internet-only lender then try your local credit union.
The rise of technology allowed a new wave of lenders to offer an alternative to traditional bank loans. Peer-to-Peer lending (or P2P for short) allows borrowers to receive loans from “peers” often in the form of individual investors or hedge funds, endowments and pension funds.
Peer-to-peer loans are interesting because they were developed specifically for the digital environment. This makes them accessible with a few clicks on a computer and a relatively simple application process. Companies like Prosper, LendingClub and Upstart facilitate matching borrowers with investors. There is no need to visit a bank branch. The aim of P2P lending is to give a borrower lower interest rates while giving investors higher returns.
Interestingly, some big banks have acquired or built their own online lenders which are offering consumers even better rates. SunTrust has done that with the acquisition of LightStream, and Goldman Sachs Bank USA has recently invested in building Marcus.
Step 1: Shop Online for a Personal Loan (without hurting your score)
[Disclosure: LendingTree is the parent company of MagnifyMoney.] At LendingTreee, you can shop for a loan at dozens of lenders with just one online form (that takes less than 5 minutes to complete). LendingTree will perform a soft credit pull (with no impact to your score), and you can get real offers - including how much you can borrow and the interest rate. We think this is one of the best places to start your personal loan shopping journey.
- If you have excellent credit, LightStream offers some of the lowest interest rates in the market. Rates start as low as 3.09% with autopay (to finance an auto) and 5.49% with autopay(to refinance credit card debt).
- You can get the money by the next business day. This is a remarkably fast process.
- LightStream has a rate match promise: if you find a lower interest rate somewhere else, they will match it.
- There is no pre-payment penalty and no origination fee.
- You must have excellent credit to qualify.
- LightStream does not have "soft pull" functionality. If you apply for a loan, there will be a hard inquiry on your credit report.
- Their interest rates are most likely lower than other loans with an APR range of 5.98% to 35.89%.
- You can find out your interest rate without a hard inquiry on your credit score. Prosper uses a “soft pull” so there will be no point reductions on your credit score, nor an inquiry left on your report for finding out the interest rate.
- There is no pre-payment penalty(fine if you pay off the loan early), but they won’t refund your loan fee.
- You must have a high credit score (600 or higher) to be eligible to get a personal loan from LendingClub.
- You probably won’t be accepted if you have a history of missed payments.
- There is an upfront fee, but your APR will include the fee. Be sure to compare the APR and not just the interest rate when you’re shopping around.
People with minimal credit history can turn to Upstart for an opportunity to be eligible for a personal loan.
Upstart evaluates where you went to school, your area of study, your grades and employment history to determine your eligibility for a loan and your interest rate.
Step 2: Credit Unions
Credit unions are not-for-profit organizations that offer alternatives to traditional banks. They have more of an emphasis on serving their community than worrying about a corporation’s bottom line. Unlike banks, credit union members own the credit unions.
Credit unions do offer loans, but first you must become a member of the credit union. Some credit unions are closed. But others (like PenFed) will let you join if you make a $15 donation to a charity.
- Loans from a credit union usually have lower interest rates than a bank, and possibly the lowest you can find.
- You will need to join a credit union, and may not qualify for a loan so you could be out the cost to join.
PenFed offers a 9.99%-14.99% interest rate with no upfront fee for a term of five years. However, you will need to have a 700+ credit score to be competitive for this personal loan.
OneMain is a non-bank lender owned by Citigroup. You will have to physically visit a branch to get approved. But, the process usually takes less than 30 minutes. Borrowers with high credit scores should first explore the P2P space and credit unions before turning to OneMain, because it will be a more expensive form of borrowing.
- If having face-to-face contact is important to you, then you can visit physical branches.
- OneMain will approve people with credit scores as low as 550, so it is possible to get a loan when other reject you. Although expensive, OneMain will be much less expensive than payday loans or title loans.
- You have to visit a branch, even if you’re preapproved online. If you don’t have a branch near you, this could be a serious hassle.
- There will be a hard inquiry on your credit report
- Likely higher interests rates (APRs) than a loan from P2P lenders like Prosper or LendingClub
- A few complex terms and conditions
- Don’t bother with the insurance products they’ll try to sell you.
Step 3: Take the Lowest Interest Rate
Personal loans can be valuable tools to help pay down debt, reduce interest rates and save you hundreds to thousands of dollars. But remember; don’t rush into a personal loan just because it seems like a good deal. Take the time to do your research, shop around and ensure your getting the absolute best interest rate you can. Even the difference of .01 can make a difference in the long run.
Read where to find the best personal loan rates online here.
Goldman Sachs Bank USA High-yield 12 Month CD
Synchrony Bank High Yield Savings
Barclays Online Savings Account
Ally Bank High Yield 12-Month CD
* All banks listed are a Member FDIC.