Where to get a personal loan?
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Personal loans are no longer governed by an in-person consultation at your local bank branch.
With the increase in the number of online loan start-ups over the past 15 years, it’s easier than ever to get a personal loan to consolidate debt or pay for an emergency expense.
Many companies are vying for your business, which means you need to be very careful weighing your options – and be sure that one the personal loan is for you. But it can also give you a better negotiating position. The lower the interest rate, the less you’ll have to spend in the long run, so it can pay off to get started right off the bat.
The three main places where you can get a personal loan are:
- Personal loans
- Online lenders
We have detailed the pros and cons of each place where you can get a personal loan. Remember that the loan offer you receive will depend on your personal situation and your creditworthiness. We recommend that you compare offers from several institutions and take a close look at the fine print.
Personal loan options from banks
Traditional bricks and mortars
The reputable banks found on every corner of America are probably the lenders that come to mind when you are considering taking out a loan. These major players often have stricter lending standards, but you can get a break if you are currently a responsible client.
Examples: Chase, Wells Fargo, Bank of America
Personal service: Most major banks offer options for applying for a loan online. But if you want real-time answers to questions, there is no better alternative. And for people struggling with complex financial factors, talking to a banker in person may be a better option than trying to explain in an online app.
Good for existing customers: If you already have a bank with a familiar name, your existing relationship with the institution could be beneficial. On paper, you might have a limited credit history, but a bank may be willing to ignore gaps or hiccups if you’re a good customer.
Potentially higher interest rates: The downside is that the interest rates can be higher than if you had gone through a credit union, online bank, or online lender. More banking sites mean more overhead, which means the cost savings are less likely to be passed on to you.
Higher minimum credit standards: Large banks tend to be more stringent on loan approvals and may require a higher credit score (670 and above) to receive approval. If you have bad credit or no credit, you may need a co-signer or provide collateral – if you can get approval.
Local and regional banks are the lifeblood of American banking. Customer service is one of the main selling points of community banks, some of which belong to employees.
Examples: Texas National Bank, Valley National Bank, Heritage Bank
Customer service: Unlike banks and online lenders, you can visit your community bank in person for one-on-one service. You’ll also have less waiting time than going to the local Chase branch or calling the customer service line of a major bank.
Competitive rates: Community banks may be able to offer you lower rates on personal loans because the organization is smaller and possibly more profitable.
Local expertise: A banker who knows the local economy may be more willing to offer a personal loan offer than an impersonal lender who may not see the value of a particular financial need or business idea.
With less overhead than a Bank of America, for example, you might find that these online-only banks are willing to pass on the cost savings and offer you a more competitive interest rate.
Examples: Ally, Discover, Marcus by Goldman Sachs
Potentially lower rates: You may never see a bank representative in person, but the terms for deposit accounts and loans may be more favorable with an online banking. In the absence of physical locations, online banks avoid some of the more expensive items, namely rent, staff, and maintenance costs associated with having physical locations, bank status, and can best interest rates to customers.
Faster applications: As digital-only institutions, online banks will be better equipped to process your online loan application than your average bank. Some banks may make you an offer within minutes of submitting an application.
Personal loan options from credit unions
Known for their personal touch, nonprofit credit unions offer their members access to financial products with lower interest rates than the big banks.
Examples: Alliant Credit Union, Navy Federal Credit Union
Limited qualification: Credit unions generally limit their services to particular communities, places, industries, workplaces, religious communities, and affiliations. To open an account or borrow money from a credit union, you will likely need to meet their unique eligibility criteria and become a member.
More lenient standards: Credit unions tend to be more understanding when lending to people with average or low credit scores. As nonprofits, they are more likely to work with your personal situation because they are not motivated by profit. Big banks tend to have more stringent qualifications.
In person service: Credit unions aren’t always the most tech savvy, but the tradeoff is that you can get one-on-one service with a local specialist. A smaller membership base means a shorter wait time for appointments.
Fewer techies: As small nonprofits, credit unions are less likely to have their own mobile apps and less likely to have robust online customer service, although there are exceptions to the rule.
Personal loan options from online lenders
A new generation of online-only loan providers has emerged to fill the gap in the market. These companies, many of which are start-ups, offer fast online applications and below average rates.
Examples: Prosper, SoFi, LendingClub, Avant, Upstart
Potentially lower rates: Like online banks, online loan start-ups may be able to offer you a better rate on a personal loan, just by having less overhead.
Prequalification: By entering your information (such as income and loan specifications) into a quick app, you can be pre-qualified for a personal loan and view offers without committing to anything. It will just take a flexible credit check, which does not impact your credit score with the lender.
Willing to lend to people with bad credit or no credit: Depending on the lender, they can better understand financial difficulties and limited credit history. Some companies are orienting their entire business model towards this customer, so that might work to your advantage.
Quick financing: The application process for many start-ups is a snap, with some companies offering quick approvals and same-day funding to clients. So be careful what you sign up for.
How to choose a personal lender
- Check your credit score. Try your existing bank. Most offer a free credit score service.
- Compare rates based on your score. Use your credit score to see the loan amount and the interest rate you are eligible for.
- Be pre-qualified. When shopping online for personal lenders, some offer a pre-qualification where you enter your information for a “soft” credit check. This usually tells you what you are likely to be eligible for.
- Compare the prices. Now that you know what you are eligible for, see how it compares to other companies.
- Read the fine print. Read the terms and conditions of any loan before agreeing.
- Learn about the company first. Check the Better Business Bureau (BBB) and google the business to see what others are saying about the service.