Personal loans are just that: personal. Whether your car broke down, you need to pay a hospital bill, or you want to cover costs for a wedding, a personal loan can help you cover the cost right away.
Personal loans are available from a range of lenders, including banks, credit unions, online lenders, and peer-to-peer platforms. Consider the different types of personal loan lenders and weigh their pros and cons to decide which is best for you.
Personal Loans From a Bank
Many big banks offer personal loans, including Wells Fargo, TD Bank, and PNC. Smaller, local banks may also offer personal loans.
Pros of Personal Loans From Banks
- Streamline banking: If you already have an account at a bank that offers personal loans, you can keep all your banking services under one roof.
- High maximum borrow amount: Some lenders, like Wells Fargo, offer loans of up to $100,000 for qualifying individuals.
- Low rates available: For borrowers with the best credit, you can expect really low interest rates, depending on how much you borrow and which bank you borrow from.
- Easy application: Many banks offer versatile ways to apply, including online, by phone, and in person, for whatever suits your needs.
Cons of Personal Loans From Banks
- No prequalification option: Many banks let you apply a few different ways, but some won’t let you find out if you’re eligible for a personal loan without first applying for one. This means there’s a chance you could get denied, face a credit score dip, and still need to apply (and get accepted) elsewhere.
- Possibly long disbursement of funds: While many personal loan lenders can approve or deny your loan application moments after you apply, the timeline for receiving your funds can vary. Big banks can typically disburse funds within a couple of days, but the timing can depend on whether you are already a member of the bank or starting a new account, as well as the size of the institution.
Personal Loans From Credit Unions
While banks are for-profit entities, credit unions are not-for-profit financial institutions, which means the loan process is different.
Pros of Credit Union Loans
- Capped interest rates: Federal credit unions cap interest rates at 18%. Some online lenders, such as Avant and OppLoans, are as high as 36%.
- Community focus: Since credit unions are not-for-profit, they operate with the goal of helping their member-owners, so most of the money they make goes back to their members and the community they’re based in. As a result, loan rates from credit unions are often lower than big banks that are striving to grow profit.
- Small-dollar loans available: Federal credit unions offer payday alternative loans ranging from $200 to $1,000, so you can skip taking out a high-interest payday loan.
Cons of Credit Union Loans
- Joining is required: Most credit unions require you to become a member before you can take advantage of offers, but it varies by institution. Some let you join and open accounts the same day, while others might have a more rigorous approval process, based on qualifying rules.
- Limited services and possible inconvenience: While credit union customer service might be top-notch, credit unions typically cannot compete with the convenience and technology of major banks. In the age of paying bills, transferring funds, and checking balances via your cellphone, many smaller credit unions may not have the resources to compete.
- Approval lag time: Many credit unions don’t have a prequalification option. Along with that, approval and disbursement of funds might take longer compared to banks and online lenders.
Online Personal Loans
Online personal loans come from lenders that aren’t traditional banks. Digital lenders tend to have a robust user experience and easy application process.
Pros of Online Personal Loans
- Prequalification is often available: Prequalification lets you see if you’re eligible for a loan from a particular lender without triggering a hard inquiry (this happens when you complete a full application). You can prequalify with many lenders, including Avant and SoFi, to compare different interest rates and fees before deciding which lender is right for you.
- Quick application and funding: Many online lenders let you prequalify, complete an application, and potentially receive your funds all within a day, depending on when you apply. If you need money right now, this is an important factor to consider.
- Poor credit is OK: Some online lenders will work with borrowers who have a poor or fair credit history. Payoff, for example, will distribute loans to those with a credit score of 640 or higher, in most cases. While you might have to pay a higher interest rate or some additional fees, it could be the difference between qualifying for a loan and not.
When you receive your loan depends on factors like whether or not it’s a business day, what time you complete the application process, and if you finalize every step accurately.
Cons of Online Personal Loans
- Potentially higher interest rates: While some online lenders offer competitive interest rates, they’re not the lowest. Many banks and some credit cards might have lower interest rates than what you qualify for at an online lender.
- Be aware of fees: Some online lenders have origination fees, late payment fees, and sometimes prepayment penalties if you pay off your loan before the term ends.
LightStream and SoFi are two lenders that offer zero fees.
Peer-to-Peer (P2P) Loans
Peer-to-peer loans come from peer-to-peer (P2P) lending platforms, a form of online lending. These types of platforms let individual investors—not banks—directly fund loans for individuals.
Pros of Peer-to-Peer Loans
- Prequalification available: Some lenders offer a prequalification option where you can check your eligibility for a loan without hurting your credit score.
- Work with people, not institutions: You’re borrowing from people just like you, not big banks or other financial institutions. Your loan application is matched to individual investors who evaluate your risk. You might have many investors or lenders fund your loan.
- Fair to moderate credit scores accepted: Many P2P companies rely on less conventional data to determine creditworthiness, in addition to reviewing an individual’s credit score, making them more appealing for those with lower credit scores. For example, Payoff’s minimum for qualifying is 640, while Upstart, with a motto of “You are more than your credit score,” has a recommended minimum of 580.
Cons of Peer-to-Peer Personal Loans
- Higher APR: Many peer-to-peer lenders have higher interest rates compared to online lenders, banks, and credit unions.
- More fees: Many peer-to-peer lenders charge origination fees, ranging from 0% to 5%. Many banks, credit unions, and online lenders don’t charge this fee.
Choosing the Right Type of Lender for You
For each personal loan borrower, there is a different type of personal loan lender that may be the best fit for you. When looking at and deciding between lenders, consider the following:
- Eligibility: While lenders have varying criteria for eligibility of a personal loan, it’s best to maintain a good credit score. A good range, typically between 670 and 739 or higher, will give you access to more lenders and better interest rates. You may also need to provide income and employment information upon applying.
- Fees: The less you pay in fees, the less extra money you’ll pay on top of your principal balance. When researching, try to find lenders with the fewest and lowest fees.
- Fund disbursement: Many borrowers need money immediately. See how quickly lenders can get cash to you so you can cover costs right now.
- Minimum and maximum borrowed amount: Every lender has a different minimum and maximum amount you can borrow, and that can have an impact on the lender you choose. If you only need to borrow a few hundred dollars, for example, you might want to check out a federal credit union.
- Interest rates: The better your credit score, the lower your interest rate. See which lenders offer the lowest interest rate based on your credit history.
- Repayment terms: Some lenders have a couple of repayment terms while others let you choose from half a dozen. Find terms that fit your schedule.
- Cosigner availability: If you don’t have strong enough credit, you might need help from a cosigner. Some lenders don’t allow cosigners, so if you need one, make sure you find a lender that has this option.