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If you’ve never applied for a personal loan, you might not know where to start or think it’s too difficult and time-consuming. To help you navigate the application process, I’ve made this quick and comprehensive guide of everything you need to know about personal loans.
See the Student Loan Refinancing and Personal Loans bonus offers from SoFi here.
About Personal Loans
An unsecured personal loan is a fixed-rate, fixed-term loan that doesn’t require a house or vehicle to guarantee it. This is riskier for the lender which reflects in higher rates than secured loans. Generally speaking, personal loans can be used for any purpose, including debt consolidation, home improvement, business expenses, wedding expenses, car purchases, and even travel.
By design, unsecured personal loans provide more flexible terms and can be used for a variety of personal and business needs. It’s a good way to consolidate existing debt, like credit cards, optimally lowering your monthly payment and interest rate while also improving your credit score.
A personal loan provides the opportunity to dig yourself out of a hole. However, if you charge new debt on your credit cards, it also has the potential to become a bigger hole. Also, not everyone is qualified for the best rates. As with anything relating to personal finance, make sure to read the fine print before signing on the dotted line.
Factors To Consider
Here are a few things I kept in mind when picking out the best unsecured loan for me:
- Annual percentage rate. The APR is the interest accrued annually. Different interest rates and loan amounts will impact the APR of your loan.
- Loan limits. How much do you need? Does the lender allow you to borrow that amount? Be careful not to bite off more than you can chew.
- Loan terms. Some lenders only have a couple term options, like three or five years. Others have shorter or longer terms to accommodate your needs.
- Credit inquiry. When applying for a loan, the lender will check your credit. A soft credit check will only be visible to you and won’t hurt your credit score. However, a hard inquiry will show up on your credit report. This will stay on your report for two years and may negatively affect your credit for one year.
- Repayment options. Most lenders offer a few different repayment options like autopay, online payment or check by mail. Make sure the lender offers a repayment option that suits you.
- Fees. Lenders may charge origination, prepayment, late payment, insufficient funds and check processing fees. Find out each lender’s fee schedule and narrow down your selection from there.
- Area of service. Most online lenders do not serve all of the United States. Check to make sure they offer loans in your state.
- Additional perks. Access to a user-friendly mobile app or exclusive events may make a lender stand out to you. It could be the difference between lenders with the same competitive features.
How To Qualify For The Best Rates
Before giving you the most competitive rates they offer, lenders typically look for the following:
- High credit score. To get the best rate, you must have good or excellent credit. The first step to qualifying for a loan is usually based on your credit score alone.
- Strong credit history. Lenders like to see that you’ve had a long history of paying off different types of debt responsibly. This is also partly reflected in your credit score.
- High income. To get the most competitive rate, you’ll need to have an income much higher than the lender’s minimum requirement.
- Low debt-to-income ratio (DTI). The lower, the better. DTI is calculated as the ratio of your monthly debt payments to your monthly income.
5 Best Personal Loan Lenders
LightStream: Rate Beat Program
| Max Amount $100,000 | Loan Terms 2 to 7 Years* | APR see website for current rates | Origination Fee None |
*Payment example: Monthly payments for a $10,000 loan at 5.89% APR with a term of 3 years would result in 36 monthly payments of $303.72.
LightStream is an online lending division of Truist Bank that uses a unique lending model which tailors rates to the purpose of the loan. A loan to consolidate debt is considered higher risk than a loan to purchase a car; the higher the risk, the higher the rate. LightStream is so confident in the competitiveness of their interest rates, they will beat any APR presented by other lenders by .10 percentage points, given similar terms and conditions.
To qualify, you must have good to excellent credit profiles. See LightStream’s FAQs page for their full definitions of good credit and excellent credit profiles.
The Good. Low interest rates, loan limit of $100,000, no origination fee or any other fees, Rate Beat Program, $100 loan experience guarantee, and tree donation for every funded loan.
The Bad. High borrower standards.
SoFi: With Unemployment Protection
| Max Amount $100,000 | Loan Terms 2 to 7 Years | APR Fixed Rates: 7.99% to 23.43% APR (with AutoPay) | Origination Fee None |
This direct online lender’s claim to fame is student loan refinancing, but it also offers a wide range of personal loans. SoFi goes out of its way to connect and help borrowers by setting up networking events, providing free financial counseling and offering Unemployment protection.
To qualify, the recommended minimum credit score is 680. There are no income or DTI requirements.
The Good. Low interest rates, loan limit of $100,000, initial soft credit check, no origination fees or any other fees, community events, and unemployment protection.
The Bad. High borrower standards, relatively slow funding time.
Prosper: With Clarity Money Compatibility
| Max Amount $40,000 | Loan Terms 3 or 5 Years | APR 7.95% – 35.99% | Origination Fee 2.4% – 5% |
Prosper Funding LLC is a peer-to-peer online lender offering investor-funded loans for a wide range of uses. It’s compatible with Clarity Money, an app that helps you take control of your finances. The software displays your financial picture, helps cancel unwanted subscriptions, and delivers financial advice that’s tailored to you.
To qualify, you must have a minimum credit score of 640, at least two years of credit history and a maximum DTI of 50%. There is no income requirement.
The Good. Low interest rates for good credit borrowers, initial soft credit check, no prepayment penalty, and compatible with Clarity Money app.
The Bad. High interest rates for bad credit borrowers, only two fixed term lengths to choose from, origination, check processing, late payment and insufficient funds fees.
LendingTree: Where Lenders Compete For You
| Max Amount $35,000 | Loan Terms 1 to 5 Years | APR 5.32% – 36% | Origination Fee Varies |
This online broker lets you receive multiple loan offers with one simple application. Instead of doing all the grunt work, you can sit back and make lenders compete for you.
LendingTree, itself, does not have any eligibility requirements. However, the lenders it works with have their own minimum income, credit score and DTI thresholds.
The Good. Low interest rates for good credit borrowers, initial soft credit check, mobile app with financial tools, and loan monitoring.
The Bad. High interest rates for bad credit borrowers, fees vary from lender to lender, and too much contact from lenders trying to woo you.
LendingClub: With Cosigner Option
| Max Amount $40,000 | Loan Terms 3 to 5 Years | APR 10.68% to 35.89% | Origination Fee 1% – 6% |
This peer-to-peer lender connects you to investors interested in funding your personal loan. If your credit isn’t the strongest, LendingClub lets you apply with a cosigner, so you have a better chance of getting approved for better rates.
To qualify, you must have a minimum credit score of 600, more than 3 years of credit history and a DTI of less than 40%, or 35% for joint applicants.
The Good. Low interest rates for good credit borrowers, initial soft credit check, and no prepayment penalty.
The Bad. High interest rates for bad credit borrowers, origination and other fees.
Other Top Lenders
Upstart: With A “Smarter” Credit Model
| Max Amount $30,000 | Loan Terms 3 or 5 Years | APR 7.00% – 35.99% | Origination Fee 0% – 8% |
Upstart is the first lending platform to utilize artificial intelligence and machine learning to price credit and automate the borrowing process. With a “smarter” credit model that takes into account education and job history, Upstart has the ability to approve almost twice as many borrowers, with fewer defaults.
To qualify, you must have a minimum credit score of 620, a gross annual income of at least $12,000 and a debt-to-income ratio of up to 45%.
The Good. Loan limit of $30,000, initial soft credit check, no prepayment penalty, no check processing fee, unique approval process, and ability to borrow twice.
The Bad. High interest rates, only two fixed term lengths to choose from, and origination, late payment and insufficient funds fees.
Best Egg: Where You Can Borrow Twice
| Max Amount $35,000 | Loan Terms 3 or 5 Years | APR 5.99% – 29.99% | Origination Fee 0.99% – 5.99% |
Best Egg is an online lending platform that has originated over $5 billion in loans to more than 350,000 borrowers. Definitely not the norm, Best Egg lets borrowers take out two loans at the same time, if eligible.
To qualify, you must have a minimum credit score of 640 and while the minimum credit history isn’t specified, the average is 7 years. The minimum annual income required isn’t specified either, but the average is $80,000. Your debt-to-income ratio should typically be less than 35%.
The Good. Low interest rates for good credit borrowers, initial soft credit check, no prepayment penalty, multiple payment options, mobile app, and ability to borrow twice.
The Bad. High interest rates for bad credit borrowers, only two fixed term lengths to choose from, origination, check processing, late payment and insufficient funds fees.
PersonalLoans.com: Where It’s OK To Have Bad Credit
| Max Amount $35,000 | Loan Terms 3 to 6 Years | APR 5.99% – 35.99% | Origination Fee 1% – 5% |
PersonalLoans.com is a lender-matching service that specializes in quickly and efficiently connecting less creditworthy borrowers to personal loans by utilizing its comprehensive network of lenders and lending partners. Three types of personal loans are available via PersonalLoans.com: peer-to-peer, personal installment and bank personal loans.
To qualify, you must have a minimum credit score of 580 and at least $2,000 in income per month. There is no DTI requirement. PersonalLoans.com wants to see that you’ve overcome your past issues with credit and are now making your payments in a timely manner.
The Good. Low interest rates for good credit borrowers, relatively quick funding, and no prepayment penalty.
The Bad. High interest rates for bad credit borrowers, origination, late payment and insufficient funds fees.
Peerform: With Debt Consolidation Perks
| Max Amount $25,000 | Loan Terms 3 or 5 Years | APR 5.99% – 29.99% | Origination Fee 1% – 5% |
Peerform’s online lending platform allows borrowers with less than perfect credit hassle-free loans at competitive rates. It’s especially great for debt consolidation with slightly lower rates and higher loan amounts for this specific loan purpose.
To qualify, you must have a minimum credit score of 600, at least one year of credit history, a gross annual income above $10,000, and a maximum DTI of 40% (excluding mortgage).
The Good. Low interest rates for good credit borrowers, initial soft credit check, no prepayment penalty, and debt consolidation perks.
The Bad. High interest rates for bad credit borrowers, relatively slow funding time, only two fixed term lengths to choose from, origination, check processing, late payment and insufficient funds fees.
PenFed: With Debt Protection
| Max Amount $25,000 | Loan Terms 6 months to 5 Years | APR 6.49% – 17.99% | Origination Fee None |
As a credit union, PenFed requires that you join in order to apply for a loan. Anyone is qualified for membership by signing up with Voices for America’s Troops ($14 in dues) or the National Military Family Association ($15 in dues). This military-focused credit union acknowledges that, sometimes, bad luck happens. When you enroll in its debt protection insurance plan, you’re covered.
PenFed considers your entire financial situation during the underwriting process to evaluate your loan application. There are no set credit score, income or DTI requirements to qualify.
The Good. Low interest rates, no origination fee or prepayment penalty, flexible loan repayment, live customer service 24/7, and debt protection option.
The Bad. Available only to PenFed customers, hard credit check, and late payment and insufficient funds fees.
Wells Fargo: Where Relationship Matters
| Max Amount $100,000 | Loan Terms 1 to 5 Years | APR 5.49% – 24.49% | Origination Fee None |
Personal loans through Wells Fargo is a great choice for borrowers with good to excellent credit. Approval is based on your “whole picture” and takes into consideration length of credit history, debts, and relationship with Wells Fargo.
The Good. Low interest rates for good credit borrowers, loan limit of $100,000, cosigners welcomed, relatively fast funding time, no origination, prepayment or check processing fees, and small rate discounts for Wells Fargo checking account or certificate of deposit account customers.
The Bad. High interest rates for bad credit borrowers, hard credit check, and late payment and insufficient funds fees.
Avant: On Forbes’ Radar
| Max Amount $35,000 | Loan Terms 2 to 5 Years | APR 9.95% – 35.99% | Origination Fee 0% – 4.75% |
In 2015, Forbes Magazine named Avant the sixth most promising company in the United States. That comes as no surprise since the lender service has originated $4 billion in loans to over 600,000 borrowers in just 3 years.
To qualify, you must have a minimum credit score of 580 and a gross annual income of at least $20,000. There is no DTI requirement.
The Good. Initial soft credit check, relatively quick funding time, no prepayment penalty, mobile app, and live customer service seven days a week.
The Bad. High interest rates, origination, late payment and insufficient funds fees.
OneMain: Where Bad Credit Is OK
| Max Amount $20,000 | Loan Terms 2 to 5 Years | APR 18.00% – 35.99% | Origination Fee Varies |
Formerly known as SpringLeaf, OneMain Financial offers customized loan solutions operating out of over 1,700 branches in 44 states. It specializes in providing personal loans of up to $20,000 to people with bad credit.
There are no set credit score, income or DTI requirements to qualify.
The Good. Cosigners and collateral welcomed, initial soft credit check, relatively quick funding time, flexible payment options, no prepayment penalty, seven-day commitment guarantee, and OneMain Rewards program.
The Bad. High interest rates, must meet in person to complete the application, origination, late payment, insufficient funds and payment processing fees, full coverage insurance required for collateral.
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