So many lenders offer personal loans online for fast, easy service.
Before you click 'apply', how much do you know about that bank? A lot can go wrong if you don't compare lenders before you apply.
The bank could stick you with high rates, bad terms, iffy customer service, or worse. They could charge fees and sneaky penalties.
Long-term, this is a mess for your finances.
You end up paying higher interest and get dinged with hidden charges, fees, and penalties. The loan will cost you much more than it should. You may have trouble getting another loan or even a mortgage.
The deeper problem is customers often don't know what attributes to research and compare. If you are caught off guard with extra fees and penalties, this can affect your monthly budget and you could struggle to keep up with payments.
Some lenders hide terms or deliberately mislead customers just to make the sale.
Borrowers are then stuck in a bad deal, charges rising higher and higher over their budgeted monthly payment. These sneaky tactics result in people defaulting on personal loans.
There is evidence default rates are increasing: according to TransUnion data, the personal loan delinquency rate is forecasted to increase year-over-year for the first time since the second quarter of 2014, up to 3.72% by the end of 2017.
So if you want a personal loan and you just click on the first Google ad that promises speedy approval and low rates for people with good credit—without researching the going rates—you could end up in a world of hurt.
Without a fixed rate, you could pay 25-35% interest on a big unsecured loan, and get stuck in the contract for years. At that rate, you would be better off with a credit card.
Shopping around for a good interest rate and favorable loan terms is a good idea, according to Diane Moogalian of Equifax.com. Be sure to compare the total cost of the loan, including fees, not just the interest rate, and speak to different lenders.
"Also bear in mind that a low-interest rate could be an indicator of additional fees and conditions," she said.
Don't be fooled by misleading promises from shifty banks and arm yourself with the knowledge to negotiate your best terms.
Personal loan checklist and cheat sheet
Know your credit score. And learn what a credit check is before you go looking for a loan agreement. It's free! A report will tell you if you have any late payment issues that are dragging down your credit score.
Get what you owe on debt to below 40% of what you earn. Lenders call this your debt-utilization ratio. It'll help with long and short term loans, as well as online personal loan applications.
Familiarize yourself with this personal loan language. Here's a number of terms you'll see issuers and experts throwing around:
Peer-to-peer lending. Banks aren't the only entity lending people money these days. Technology has enabled other financial services to pool money from many small investors to create a "super fund" that is chopped up and distributed to qualified applicants. Because they're new on the block and don't have the same brick n' mortar costs as traditional banks, peer-to-peer lenders can be easier, savvier, friendlier, and more affordable.
Origination fee. A fee that lenders apply simply to handle your loan. A good origination fee should range between .5% and 1% of the loan amount. So if you have a $10,000 loan and a 1% origination fee, you'll pay $100 in fees.
Prepayment fee. A fee you'll pay if you pay back your loan too early. Yes, this happens. Lenders plan to make money on you paying your loan over a long period of time (sometimes, too long). Some will charge you if you pay it all back too early, which is why you want to shop around.
Secure loans. This type of loan makes lenders feel more comfortable loaning you money because you've promised something to help pay off the amount if you don't pay it back i.e. your car. Generally, you get a better rate with a secured loan.
Unsecured loans. Because you're not promising anything to help pay off the amount you've borrowed (like your car), you can pay a higher rate for an unsecured loan. You may need to have good to excellent credit to qualify.
The key is to shop around. Don't overlook peer-to-peer lending. We've listed the peer-to-peer lender, the Lending Club below. Whatever you do, be very wary of taking out a payday loan for a cash advance, which can cost a fortune in interest payments.
Armed with the right know-how, you'll lock in the best personal loan rate, get flexible terms, and establish a good, solid rapport with your lender for future loans.
Even if you've had bad experiences with loans, taken out a highly expensive payday loan, or been denied a loan in the past, these places are worth reconsidering. They lead the pack among the many personal loan providers out there.
This San Francisco-based financial services firm is a top name in social financing, especially in the tech arena. It offers unsecured personal loans from $5,000-$100,000 with rates starting at 5.49% APR, provided you sign up for auto pay.
Four graduate students from Stanford founded SoFi in 2011. The bank was initially conceived as a Stanford alumni-to-alumni lending network. It offers 24-hour-a-day, 7-day-a-week customer support and is expanding globally. Applicants must be employed or have a letter of employment beginning in 90 days or fewer.
It made its name for loans that help consumers consolidate student loan debt. Its best feature is its extremely low-interest rates, but that comes at a price. You have to have good credit, usually 700 or higher, to get a SoFi personal loan.
Some people find these loans hard to acquire and complain that it doesn't accept anyone without excellent credit. Most often people question the extremely low rates but they are real - just read the fine print.
Pros. Super affordable low-interest rates.
Cons. Gotta have a high credit score (>700).
To apply, click here. An application does not require a "hard pull" on your credit report, which can damage your credit score, so that's also a bonus.
A bit older San Francisco-based peer-to-peer lender, the pioneering Lending Club was founded in 2006.
Its online personal loans start lower at $1,000 and top out at $40,000. Its advertised fixed annual percentage rate starts at 5.99% but there is a 4.99% rate for those with excellent credit. Terms are also short, at three years.
This is not a lender for you if you've had a dicey financial history. In order to borrow from Lending Club, applicants must have a minimum credit score of 600 and a three-year credit history at the minimum.
Unsecured personal loans also typically go to those earning $76,000 or more annually. It also does not favor applicants with too much debt-to-income, and its average borrower has a super low 18% DTI ratio, excluding mortgage.
So if you're just starting out or have bad credit, Lending Club is not for you. Knowing which lenders would match best with your needs keeps your credit score from taking an unnecessary hit as well, and this can prove to be valuable if you are trying to build your credit.
One big advantage to Lending Club, as with SoFi, is that the process is entirely online and borrowers can have quick access to their money should they be approved.
The chief complaint from potential borrowers is Lending Club's strict criteria for loan approval. Make the minimum requirements, and you're in.
Pros. Good low-interest rates and speedy application process.
Cons. Low credit scores need not apply. Minimum credit score is >600.
To apply, click this link.
It may be a surprise to see an old school, real bank on this list but Wells Fargo & Co., another San Francisco lender, comes highly recommended in the personal loan space. Borrowers looking for $3,000-$100,000 can apply here. Wells Fargo is a top personal loan lender.
And if you're a student or only starting your career, you don't have to go at it alone. Wells Fargo does allow joint applications for personal loans, which is unusual for an online lender and helpful for those with a low credit score.
For that reason, many students who don't qualify for federal loans use Wells Fargo unsecured personal loans to finance college.
It prioritizes relationships it has with customers, and those with a Wells Fargo certificate of deposit or savings account can use those assets to receive a lower interest rate on a personal loan.
A downside to borrowing from Wells Fargo is that your location matters. This lender is good for those who live near a branch because one caveat is that anyone without a Wells Fargo bank account needs to visit a branch to apply for a personal loan.
Some customers think the process to be approved for a Wells Fargo loan is too extensive and complain about the volume of documentation needed. Others say the entire process is seamless.
The bank has been through a scandal within the last year about bogus accounts but has been regaining public confidence after it replaced three of 15 board members and brought in a new chairwoman, former Federal Reserve governor Betsy Duke.
Pros. If you bank with Wells Fargo, their rates and service are worth a careful look.
Cons. Checkered company history with scandals and lengthy application process that favors in-person application.
The online applications are for Wells Fargo customers only. Apply here.
LightStream is a good choice for those with excellent credit scores. This online division of Sun Trust Bank offers seriously low fixed interest rates of 2.19-17.49% to borrowers with a solid credit history. Their unsecured personal loans (separate from home and auto) range from $5,000-$100,000. Terms are from 24-84 months as well, which is about average.
LightStream is a peer-to-peer lending network and has that incredibly fast approval so many customers want. In some cases, your money can be in the bank the same day.
It does not charge fees or prepayment penalties. There is even a $100 guarantee you will have a good loan experience after being approved.
And like SoFi, the negative here is it's not easy to get one of these personal loans. The lender looks for credit reports with at least five years' history, several accounts with variation, and a FICO score over 720.
You must have an excellent payment history without late payments and some amount of savings. LightStream is at least upfront about it, with "Good Credit Only" as part of its company tagline.
Pros. Super fast online approval process that does not charge fees or prepayment penalties.
Cons. Must have a credit score approximately greater than 700 to qualify and no checkered credit history.
Light Stream does do a hard check on your credit before approving an unsecured personal loan. Potential borrowers can apply here.
Unlike some other lenders, Earnest is a lender that looks at the whole picture. It will evaluate your application based on credit score, education, savings, and career.
Earnest offers personal loans from $2,000-$50,000, unsecured. APR ranges from 4.25-9.25% based on the amount, terms, and credit history. There is no origination fee, which is a big plus.
The downside (or upside, depending on your point of view) to Earnest is the short terms, from 12-36 months. I would rather pay off a loan in a shorter amount of time than be stuck with a payment that will take longer to pay off.
Earnest has a whole section online showing what criteria it uses beyond credit score to issue loans. Eligibility factors include employment, earning potential, revenue/expense ratio, and bank balance increases over time. The lender also checks that applicants manage their money well day-to-day, and avoid late fees and insufficient fund charges.
Pros. Looks at more than your credit score to determine you eligibility. No origination fee.
Cons. Only available in certain states. Only offers short-term loans.
Its services are available in 36 states and the District of Columbia. Apply here.
Have less-than-perfect credit? Avant may be your lender. The Chicago-Based online platform was founded in 2012 with the idea of modernizing the lending process.
This lender looks at more than FICO score but you must have a minimum score of 580 to qualify.
The average FICO score of an Avant borrower is 650. This company aims for the average American when lending and its customers earn about $40,000 per year.
Loans are available from $1,000-$35,000 at a starting APR of 9.95%. The loans also come with an origination fee of .95-4.75%, which is a competitive rate. The application process is completely done online, and there is also a customer service line open seven days a week for assistance.
The application process does a "soft pull," which will not damage your credit score, but if approved, there is a hard check before money is paid out.
One of the benefits Avant has is no prepayment fee, which is a penalty if you pay off the loan ahead of time. It also prides itself on speed and in some cases with all your credit checks and paperwork in order, you can have money the next day.
A drawback of Avant is that it's APR can get very high — up to 35% — in which case you would almost be better off using a credit card. Late fees for payments more than 10 days overdue are not cheap either, at $25. It does have a forgiveness program though that refunds a late fee after three consecutive on-time payments.
Pros. Good low-interest rate for people with good credit i.e. >600.
Cons. Look at that high APR! Fees can add up, if payments are not made on time.
Avant is available in all states except Colorado, Iowa, and West Virginia. Here's the link to get started.
This lender was founded in 2014 in Wilmington, Delaware with loans provided by Cross River Bank of New Jersey.
It provides loans of up to $35,000 with a starting interest rate of 5.99%. There is an origination fee for the loan, from .99- 5.99% but no other fees.
The minimum credit score to qualify is 640 but the average borrower from Best Egg has a 715 score. Also, its customers' average income level skews much higher than $53,675, which is the national median.
A typical amount borrowed is $15,000. But you will need to have a history of judicious financial decisions because Best Egg is not in the habit of loaning to anyone with an average debt-to-income ratio above 20%.
One positive feature of BestEgg is that it's another lender that has no prepayment fees, so if you can double your payments and repay the loan early, you will get ahead faster.
Everything is handled online. Customers have reported the process of applying for a loan and receiving it was fast and simple.
But it's not a good choice if you either only want to borrow $5,000 or less or need a longer loan term to pay off the loan. BestEgg is somewhat limited on terms, offering just 24-36 month repayment plans. Also, it's minimum loan amount is $6,000.
Pros. No prepayment fees. Prides itself on a no-hassle policy in addition to its affordable loans.
Cons. Minimum loan amount is $6,000.
To find out more, visit BestEgg.
Here is a lender that former Google employees founded in Silicon Valley.
Its claim to fame is using artificial intelligence and machine learning rather than merely FICO score to evaluate risk, and this results in many more loans being approved than older processes.
Although it factors in many variables, anyone with a FICO score below 620 will have a tough time borrowing. It requires applicants to have employment—full time or part time—or at the very least a job offer letter.
Upstart is part of the tech industry so it also has a program that loans money to people pursuing technical skills even if they aren't employed yet. It partners with several computer coding boot camps and may loan money for tuition to those who already have a college degree.
You can borrow $5,000-$50,000 from Upstart with an APR starting at 8.69%.
The process is done completely online and the lender may seek other documents beyond credit rating. In some cases, if you're not very far out of college, Upstart will ask for a college transcript to evaluate your risk and responsibility level. They even look at the subjects you studied.
Starting at 7.39%, the annual percentage rates are higher than some other lenders and may be even more when you factor in origination fees.
Pros. Looks at more than your credit score to determine rates, including your college transcript if you're a recent graduate.
Cons. Rates are a little higher than others.
Upstart is a lender that serves all 50 states. Click here to apply.
In the end, you don't have to be Warren Buffett in order to choose the right lender for you. It only takes a little comparison. For some it might be the interest rate that is the biggest concern, or perhaps it's the amount of time you have to repay the loan.
I once had a lender offer the same exact interest rate as another lender. The difference was the amount of time for repayment. One wanted the loan repaid in 5 years. One offered 6 years. The difference was, the longer the loan repayment term, the more money the lender would make in interest, and I did not want to be stuck with a longer payment term.
Understanding the costs and benefits of personal loans means looking for a lender whose terms are clear, rates are upfront, and whose qualifications you are most likely to match. Then, watch those high-interest payments become nothing more than a memory.
Have you ever used one of these lenders for a personal loan? Did they live up to their high reputations, or was it a nightmare? Let us know in the comments below.