Looking for a Loan? Here are the 14 Best Personal Loan Options

For many people, a personal loan is the best way to finance a major expense or consolidate debt. Yet, while personal loans may sometimes be necessary, high interest rates and poor loan terms can cause them to become a financial burden.

That’s why it’s important to know what to look for in a lender and understand why a personal loan is necessary in the first place. In this article, you’ll learn about the best personal loan rates, lenders and what to expect when choosing a loan product.

The 14 Best Personal Loan Rates and Options [Updated 2023]

Whether you have good or bad credit, here are the 14 best personal loan options. Keep in mind that all credit scores are based on the FICO standard. Vantage Scores may be slightly different.

Disclaimer: Credit Summit may be affiliated with some of the companies mentioned in this article. Credit Summit may make money from advertisements or when you contact a company through our platform.

Best Overall Loan: SoFi

SoFi offers personal loans to those with good credit and decent income.

• Loan amounts: $5,000 to $100,000 (some states have higher minimums)
• APR range: 7.99% to 23.43% APR with autopay
• Loan terms: 2 to 7 years
• Minimum credit score: 680
• Payment info: Monthly payments
• Fees: No origination, prepayment, or late fees
• Loan application process: Online, secure, and easy
• Time to loan funding: Several days
• Joint applications: Yes, for those with lower credit or who desire a better interest rate
• Other requirements: Short credit history is okay as long as the borrower has consistently made on-time payments

What makes it stand out: SoFi offers exclusive benefits to members such as access to online financial resources and financial advisors. The lender also offers unemployment protection, which allows those experiencing financial hardship or sudden unemployment to defer payments for up to 12 months without hurting their credit. They partner with FDIC-insured banks to offer protection.

Customer reviews: SoFi has 4.5 out of 5 stars on Trustpilot. Most customers enjoyed the easy application, approval process, and great customer support. Negative reviews are mainly about slow turnaround times and high qualification requirements, particularly for mortgage loans.

Rates if You Have Good Credit

• Loan amounts: $5,000 to $100,000
• APR: 7.99% to 19.43% with autopay
• Loan terms: 2 to 7 years
• Minimum credit score: 680
• Other requirements: Must have verifiable income and no major delinquencies on your credit report

Rates if You Have Bad Credit

• Loan amounts: $5,000 to $100,000
• APR: 7.99% to 23.43% APR
• Loan terms: 2 to 7 years
• Other requirements: May need a joint application or high income to qualify

Debt Consolidation Loan Rates

• Loan amounts: $5,000 to $100,000
• APR: 7.99% to 19.43% with autopay, but often less than 10% APR
• Loan terms: 2 to 7 years
• Other requirements: 90+ days’ employment and sufficient income (varies based on the loan amount and other qualifying factors) 

Best for People with Bad Credit: Avant

Avant offers small and medium-sized personal loans to borrowers with poor or fair credit, making it ideal for those who need funding but can’t get it elsewhere.

• Loan amounts: $2,000 to $35,000
• APR: 9.95% to 35.99% APR
• Loan terms: 2 to 5 years
• Minimum credit score: 580
• Payment info: Monthly payments
• Fees: $15 fee for returned payment for insufficient funds. $25 late payment fee. Up to 4.75% origination fee. No early repayment fee.
• Loan application process: Online and secure with a fast approval
• Time to funding: Can be as soon as the next business day
• Joint applications: None
• Other requirements: Undisclosed minimum income

What makes it stand out: Avant’s personal loans are great for refinancing, debt consolidation, and major purchases. The lender has an app that makes it convenient to manage the loan, see your payment history, and make on-time payments.

Customer reviews: Avant has a 4.7 on Trustpilot out of 17,000+ reviews. Most customers appreciate the easy application process, fast approval, and great customer service. Some customers complain about high interest rates though.

Rates if You Have Good Credit

• Loan amounts: $2,000 to $35,000
• APR: As low as 9.95% with excellent credit
• Loan terms: 2 to 5 years with no prepayment fee
• Recommended credit score: 700+

Rates if You Have Bad Credit

• Loan amounts: $2,000 to $35,000
• APR: As high as 35.99% with a credit score below 680
• Loan terms: 2 to 5 years with flexible repayment options
• Other requirements: Since there are no joint applications, you need to meet the minimum credit score requirements, as well as have a low DTI (debt-to-income) ratio and verifiable income.

Debt Consolidation Loan Rates

• Loan amounts: Up to $35,000
• APR: Between 9.95% and 35.99%
• Loan terms: 2 to 5 years
• Other requirements: May need a 700+ credit score to qualify for the best rates and make debt consolidation worth it through this lender

Best for Repayment Flexibility: Lightstream

With flexible repayment terms and potentially high loans available, Lightstream is ideal for those with good credit who need greater repayment flexibility.

• Loan amounts: $5,000 to $100,000
• APR: 5.99% to 23.99% with autopay (maximum APR 24.49%)
• Loan terms: 2 to 12 years
• Minimum credit score: Unspecified
• Payment info: Monthly payments
• Fees: No hidden fees or prepayment penalties
• Loan application process: Online only
• Time to funding: Same-day funding may be available
• Other requirements: Applicants need solid credit history with few delinquencies. They must also provide proof of income and the ability to save through investments, a savings account, or a retirement fund.
• Worth mentioning: No preapprovals, so loan approvals can take a bit longer. The payment date cannot be changed once the loan is funded. Paying more than 18 days early counts as an extra payment, but does not count towards your regularly scheduled payment.

What makes it stand out: Besides personal loans, Lightstream offers auto loans with decent terms without a down payment.

Customer reviews: On Trustpilot, Lightstream received 2.1 out of 5 stars. Most negative ratings are about the loan products themselves and high qualification requirements.

Rates if You Have Good Credit

• Loan amounts: Up to $100,000 with good or excellent credit
• APR: As low as 5.99% with autopay
• Loan terms: Flexible, up to 12 years
• Other requirements: Unspecified requirements, but be prepared to have proof of income, several years’ credit history, savings, and a good credit score

Rates if You Have Bad Credit

• Loan amounts: Loans as low as $5,000 (consumers with poor credit are unlikely to qualify for higher maximums)
• APR: Up to 24.49%
• Loan terms: 2 to 12 years

Debt Consolidation Loan Rates

• Loan amounts: Between $5,000 and $100,000
• APR: 7.99% to 23.99% with autopay
• Loan terms: 2 to 12 years

Best Personal Loan with the Lowest Fees: TD

TD offers small and large personal loans with lower-than-average fees. The lender operates online and has storefront locations in 15 states and Washington, D.C.

• Loan amounts: $2,000 to $50,000
• APR: 7.99% to 21.99%
• Loan terms: 3 to 5 years
• Minimum credit score: 680
• Payment info: Monthly payments with the option to change the payment date
• Fees: No origination or application fee. 5% late payment fee on the current payment or $10 (whichever’s lower).
• Loan application process: Secure and online
• Time to funding: Same-day funding possible
• Joint applications: No co-signer or joint loans allowed.
• Other requirements: Vague eligibility requirements

What makes it stand out: For those who want the brick-and-mortar banking experience, TD is a solid option. It’s also good for both debt consolidation and financing major purchases.

Customer reviews: Existing customers enjoy access to various financial resources and good customer service. However, some reviews note that it may be easier to qualify for a loan if you’re already a customer and have good or excellent credit.

Rates if You Have Good Credit

• Loan amounts: Up to $50,000 to fund most major purchases or consolidate debt
• APR: Starting at 7.99%
• Loan terms: 3 to 5 years with fixed rate payments
• Other requirements: Unspecified

Rates if You Have Bad Credit

• Loan amounts: Starting at $2,000
• APR: As high as 21.99%
• Loan terms: 3 to 5 years
• Worth mentioning: TD only offers unsecured personal loans, so borrowers with bad credit may not qualify or may only be eligible for smaller amounts

Debt Consolidation Loan Rates

• Loan amounts: $2,000 to $50,000
• APR: 6.99% to 18.99%
• Loan terms: Flexible 3 to 5-year terms
• Worth mentioning: No direct payment to creditors

Best Option if You Have Little Credit History: Upstart

Upstart offers unsecured personal loans to borrowers with very little credit history or a lower credit score.

• Loan amounts: $1,000 to $50,000
• APR: 6.5% to 35.99%
• Loan terms: 3 to 5 years
• Minimum credit score: 600
• Payment info: Monthly payments
• Fees: Up to 8% origination fee. $15 returned payment fee. 5% or $15 past due fee. One-time fee of $10 for paper copies.
• Loan application process: Online
• Time to funding: 1+ business day
• Joint applications: No joint applications or co-signers
• Other requirements: $12,000 annual income

What makes it stand out: Upstart is a flexible lender that works with borrowers who need to consolidate debt or secure financing for things like a vehicle.

Customer reviews: Upstart has 4.9 out of 5 stars on Trustpilot with 15,000+ reviews. Most reviewers liked the hassle-free application process, quick funding, and transparent loan terms and conditions. Some reviewers mention that Upstart’s loans have higher interest than others.

Rates if You Have Good Credit

• Loan amounts: Up to $50,000
• APR: Highly competitive (starting at 6.5%)
• Loan terms: 3 to 5 years
• Other requirements: Unspecified

Rates if You Have Bad Credit

• Loan amounts: Starting at $1,000
• APR: Could be high for those with poor credit or limited credit history
• Loan terms: 3 to 5 years
• Other requirements: Although a 600 credit score is required, the lender may consider other factors like income and DTI ratio
• Worth mentioning: Good for building credit

Debt Consolidation Loan Rates

• Loan amounts: Up to $50,000
• APR: 6.5% to 35.99%
• Loan terms: Flexible
• Worth mentioning: No direct payment to creditors

Best Option if You Need to Pay Off Credit Card Debt: Happy Money (Formerly Payoff)

Payoff by Happy Money has served over 100,000 customers by providing personal loans to help them manage credit card debt.

• Loan amounts: $5,000 to $40,000
• APR: 7.99% to 29.99%
• Loan terms: 2 to 5 years
• Minimum credit score: 640
• Payment info: Monthly payments
• Fees: No fees
• Loan application process: Fast, secure, and online
• Time to funding: 2 to 14 days
• Joint applications: None

What makes it stand out: Happy Money focuses on consolidating credit card debt into one easy monthly payment to make it easier for consumers to manage their finances and build credit.

Customer reviews: It has 4.2 stars on Trustpilot. Some customers complain about the slow approval and funding process, most people like how easy it is to consolidate their credit card debt at a competitive rate.

Rates if You Have Good Credit

• Loan amounts: Up to $40,000
• APR: As low as 7.99% for those with good or excellent credit
• Loan terms: 2 to 5 years
• Other requirements: Unspecified

Rates if You Have Bad Credit

• Loan amounts: As low as $5,000
• APR: Up to 29.99%
• Loan terms: 2 to 5 years
• Other requirements: 640 credit score is required, though the lender may consider other factors
• Worth mentioning: Since Payoff doesn’t allow joint applications, borrowers must apply based on their own merit

Debt Consolidation Loan Rates

• Loan amounts: Up to $40,000
• APR: Start at 8.99%, which is lower than most major credit cards, especially with good credit
• Loan terms: 2 to 5 years

Best if You Need Your Money Fast: Upgrade

Upgrade offers a variety of hassle-free financial products at competitive rates, including affordable personal loans.

• Loan amounts: $1,000 to $50,000
• APR: 8.49% to 35.99%
• Loan terms: 2 to 7 years
• Minimum credit score: 620
• Payment info: Monthly payments
• Fees: 2% to 8% origination fee (average is 5%). No prepayment fee.
• Loan application process: Online and secure
• Time to funding: Up to same-day funding
• Joint applications: Yes
• Other requirements: 680 credit score recommended
• Worth mentioning: Not available in WV, MD, CO, or IA

What makes it stand out: Upgrade’s mission is to provide customers a better banking experience than what they’d traditionally receive. The lender does this by offering affordable personal loans and credit cards. It also offers a high-yield checking account.

Customer reviews: Upgrade has 4.7 out of 5 stars on Trustpilot with 19,000+ reviews. Positive reviews mention helpful service, a hassle-free application process, fast funding, and good rates. A few customers complain about limited refinancing options.

Rates if You Have Good Credit

• Loan amounts: Up to $50,000
• APR: As low as 7.96%
• Loan terms: Flexible
• Other requirements: Need at least 680 credit score for the best rates

Rates if You Have Bad Credit

• Loan amounts: Starting at $1,000
• APR: Could be as high as 35.97%
• Loan terms: 2 to 7 years
• Other requirements: Unspecified
• Worth mentioning: Up to an 8% origination fee

Debt Consolidation Loan Rates

• Loan amounts: $1,000 to $50,000
• APR: 7.96% to 35.97%
• Loan terms: 2 to 7 years
• Worth mentioning: Personal loans through Upgrade have flexible terms designed to fit the borrower’s timeline and monthly budget

Best if You Still Bank In-Person: PNC

PNC Bank offers personal loans and other traditional banking products to borrowers who prefer to bank in person rather than online.

• Loan amounts: $1,000 to $20,000
• APR: 11.69% to 30%
• Loan terms: 6 months to 5 years
• Minimum credit score: 660
• Payment info: Monthly payments
• Fees: No application fee. No origination fee. No prepayment penalty. Variable late fee.
• Loan application process: Easy and mostly online, but customers may need to visit a branch in-person to receive funds.
• Time to funding: Next-day funding
• Joint applications: Yes
• Other requirements: Must be an existing customer for online funding
• Worth mentioning: Loan terms and amounts vary based on state (ex. maximum loan amount in CA is $10,000)

What makes it stand out: Unlike most modern lenders, which operate solely or mostly online, PNC Bank still provides a traditional banking experience for people who prefer to conduct business in person.

Customer reviews: PNC has 1.3 out of 5 stars on Trustpilot. Most positive reviews mention that PNC’s loan products are less expensive than other banks. However, some negative reviews mention having issues with existing accounts and mortgage loans. Some reviewers also note there’s no fee forgiveness.

Rates if You Have Good Credit

• Loan amounts: Potentially up to $35,000 for borrowers with good credit
• APR: Fixed rates starting at 11.69%
• Loan terms: Flexible
• Worth mentioning: Existing PNC Bank customers may receive a 0.25% discount on their loan’s APR with autopay

Rates if You Have Bad Credit

• Loan amounts: Starting at $1,000
• APR: Caps out at 30%
• Loan terms: Up to 5 years
• Other requirements: Although not specified, most existing customers had at least a 660 credit score

Debt Consolidation Loan Rates

• Loan amounts: Varies by location
• APR: 7.74% to 30%
• Loan terms: Up to 5 years

Best loan if you have fair to bad credit: Bestegg

Bestegg offers hassle-free personal loans to individuals with fair or poor credit at reasonable, fixed rates.

• Loan amounts: $2,000 to $50,000
• APR: 7.99% to 35.99%
• Loan terms: 3 to 5 years
• Minimum credit score: 600
• Payment info: Monthly payments
• Fees: $15 late fee. $15 returned payment fee. 0.99% to 5.99% origination fee.
• Loan application process: Online and secure
• Time to funding: 1 to 3 business days
• Joint applications: None
• Other requirements: Maximum DTI ratio is 65%

What makes it stand out: Unlike many other lenders, Bestegg grants unsecured personal loans to borrowers with minimal credit history and fair or bad credit.

Customer reviews: Bestegg has overwhelmingly positive reviews on Trustpilot. Most reviews are about the easy application and approval process and fair interest rates.

Rates if You Have Good Credit

• Loan amounts: Up to $50,000
• APR: Starting at 7.99%
• Loan terms: 3 to 5 years

Rates if You Have Bad Credit

• Loan amounts: Starting at $2,000
• APR: As high as 35.99%
• Loan terms: Flexible
• Other requirements: Maximum DTI ratio is 40%

Debt Consolidation Loan Rates

• Loan amounts: $2,000 to $50,000
• APR: 799% to 35.99%
• Loan terms: Flexible
• Other requirements: Unspecified
• Worth mentioning: Best for high-income earners with good credit

Best Loan if You Can Add Collateral or Have a Co-Borrower: OneMain Financial

OneMain Financial offers secured and joint personal loans to borrowers who need funding relatively quickly and are having trouble qualifying with other lenders.

• Loan amounts: $1,500 to $20,000
• APR: 18% to 35.99%
• Loan terms: 2 to 5 years
• Minimum credit score: None
• Payment info: Monthly payments with flexible payment dates
• Fees: $25 to $500 origination fee in some states (or 1% to 10%). No prepayment fee.
• Application process: Fast, secure, and online
• Time to funding: Same-day funding is available
• Joint applications: Yes.
• Other requirements: Borrowers must have a stable credit history, manageable debt, and proof that they can repay the loan. The average income is $45,000.
• Worth mentioning: Storefront branches are available in 44 states. Some states have higher or lower loan maximums.

What makes it stand out: Rather than relying on a borrower’s credit score, OneMain Financial assesses an individual’s eligibility based on its own underwriting system.

Customer reviews: On Trustpilot, OneMain Financial has 4.8 out of 5 stars with over 35,000 reviews. Positive reviews mention great customer service, an easy application process, and fast funding. Some negative reviews mention not knowing how high the APR would be until after qualifying for the loan.

Rates if You Have Good Credit

• Loan amounts: Up to $20,000
• APR: Varies, but the average is 25%
• Loan terms: Flexible
• Other requirements: 690+ recommended
• Worth mentioning: 7-day cancellation policy with no penalty

Rates if You Have Bad Credit

• Loan amounts: Starting at $1,500
• APR: Relatively high (up to 35.99%)
• Loan terms: 2 to 5 years
• Other requirements: May need a joint application or collateral worth the amount of the loan to qualify

Debt Consolidation Loan Rates

• Loan amounts: $1,500 to $20,000
• APR: 18% to 35.99%
• Loan terms: 2 to 5 years
• Other requirements: May require collateral or a good credit score

Best for Full-Service Online Banking: LendingClub

LendingClub is a full-spectrum fintech marketplace bank at scale. It offers a wide array of financial products and services through a tech-driven platform. LendingClub says its goal is to help members pay less when borrowing and earn more when saving. LendingClub is a loan marketplace, meaning it matches borrowers with lenders.

• Loan amounts: Up to $40,000
• APR: 8.05% – 36.00%
• Loan terms: 3 to 5 years
• Minimum credit score: 600
• Payment info: Monthly payments
• Fees: LendingClub charges an origination fee that ranges from 3-6% of your total loan amount (depending on your credit).
• Loan application process: Simple, online, and secure
• Time to funding: Within 3-7 business days
• Joint applications: Yes
• Other requirements: Eligibility requirements based on lender

What makes it stand out: LendingClub is best for borrowers with fair credit who only need small loans. Borrowers may be eligible to borrow more or qualify for more competitive rates if they apply with a co-borrower.

Customer reviews: On Trustpilot, LendingClub has received 4.8 out of 5 stars with more than 4,500 reviews. Most reviews mention quick and easy service, while a handful complain about a “glitchy” website.

Rates if You Have Good Credit

• Loan amounts: Up to $40,000
• APR: As low as 8.05%
• Loan terms: Flexible
• Other requirements: Depends on the lender

Rates if You Have Bad Credit

• Loan amounts: Variable
• APR: Up to 36%
• Loan terms: Flexible
• Other requirements: Depends on the lender

Debt Consolidation Loan Rates

• Loan amounts: $1,000 to $40,000
• APR: 8.05% – 36.00%
• Loan terms: Variable
• Other requirements: Variable

Best for Comparing Multiple Loan Options: LendingTree

LendingTree isn’t a traditional lender. Instead, it’s an online marketplace connecting borrowers with prospective lenders to find the best possible rates.

• Loan amounts: Vary based on lender
• APR: 7.99% to 35.99%
• Loan terms: Variable
• Minimum credit score: 600
• Payment info: Monthly payments
• Fees: Based on lender
• Loan application process: Easy, online, and secure
• Time to funding: Within 2 business days, depending on the lender
• Joint applications: Yes
• Other requirements: Eligibility requirements based on lender

What makes it stand out: LendingTree has established a reputation for itself as a trustworthy platform to match borrowers with lenders. It offers personal loans, home loans, debt consolidation, and insurance.

Customer reviews: On Trustpilot, LendingTree has received 4.5 out of 5 stars with 10,000+ reviews. Most reviews mention transparent terms and fast turnaround time. A few negative reviews note that refunding extra payments is slow.

Rates if You Have Good Credit

• Loan amounts: Up to $50,000
• APR: Variable, could be as low as 7.99%
• Loan terms: Flexible
• Other requirements: Depends on the lender

Rates if You Have Bad Credit

• Loan amounts: Variable
• APR: Up to 35.99%
• Loan terms: Flexible
• Other requirements: Depends on the lender

Debt Consolidation Loan Rates

• Loan amounts: $1,000 to $50,000
• APR: Average 12%
• Loan terms: Variable
• Other requirements: Variable

Best Loan With Tools to Help You Improve Your Finances: Rise

Rise (Elevate) is an online lender that offers installment loans to borrowers with bad credit. Because of the minimal requirements, the APRs are significantly higher than those offered by other lenders.

• Loan amounts: $300 to $5,000
• APR: 60% to 299%
• Loan terms: 4 to 26 months
• Minimum credit score: None
• Payment info: Monthly payments
• Fees: No origination fee, application fee, or prepayment penalty.
• Loan application process: Quick application with fast approval
• Time to funding: Within 1 business day
• Joint applications: None
• Other requirements: Minimal
• Worth mentioning: Not available in 18 states or Washington, D.C. Military personnel and families are not eligible.

What makes it stand out: Unlike the other lenders on this list, Rise offers short-term installment loans to people who need fast funding and who want to improve their credit score and financial situation.

Customer reviews: Rise has 4.5 out of 5 stars on Trustpilot with more than 3,400 reviews. Some of the positive reviews mention the fast, easy application process. A few negative reviews mention low maximum loan amounts and high interest rates.

Rates if You Have Good Credit

• Loan amounts: Up to $5,000
• APR: Starting at 50%
• Loan terms: Short-term
• Worth mentioning: These loans are best for individuals with poor credit. If you have good credit, you’ll likely qualify for one of the other options with better rates.

Rates if You Have Bad Credit

• Loan amounts: A few thousand dollars
• APR: Up to 299%
• Loan terms: Flexible, but short
• Other requirements: Unspecified
• Worth mentioning: Borrowers may rebuild credit since the lender reports to all 3 credit bureaus

Debt Consolidation Loan Rates

• Loan amounts: Up to $5,000
• APR: Starting at 50%
• Loan terms: 4 to 26 months, depending on the state
• Worth mentioning: With high interest rates, these loans are not recommended for debt consolidation

Best for Peer-to-Peer Lending: Prosper

As the first peer-to-peer lending online marketplace, Prosper offers affordable personal loans to borrowers with all kinds of financial and credit histories.

• Loan amounts: Up to $40,000
• APR: 6.99% to 35.99%
• Loan terms: 3 to 5 years
• Minimum credit score: Average is 600
• Payment info: Monthly payments
• Fees: Based on lender
• Loan application process: Fast, secure, and easy
• Time to funding: Next day funding is available
• Joint applications: Yes
• Other requirements: Depends on the lender

What makes it stand out: Prosper matches borrowers with the best investors to help them meet their financial needs.

Customer reviews: Prosper has 4.9 out of 5 stars on Trustpilot with nearly 7,000 reviews. While most reviews are positive, a few customers complain about being denied a loan after a hard credit inquiry.

Rates if You Have Good Credit

• Loan amounts: Up to $40,000
• APR: Starting at 6.99%
• Loan terms: 3 to 5 years
• Other requirements: Based on lender

Rates if You Have Bad Credit

• Loan amounts: Variable, but may be lower for borrowers with poor credit
• APR: Caps out at 35.99%
• Loan terms: 3 to 5 years
• Other requirements: Variable

Debt Consolidation Loan Rates

• Loan amounts: Up to $40,000
• APR: As low as 6.99%
• Loan terms: 3 to 5 years
• Other requirements: Depends on the lender

What You Need to Know About Personal Loans

Personal loans are a common type of installment loan. In fact, around 22% of adult American consumers have taken out a personal loan at some point in their life.

The loan purpose is flexible. These can be used to pay for nearly anything, including:

• medical bills
• home repairs or refinancing
• debt consolidation
• honeymoon or family vacation
• other major purchases

As an installment loan, personal loans are repaid in set monthly installments that include the loan’s principal balance, APR (annual percentage rate), and other fees. Most personal loans have a payoff period of 1 to 7 years.

Depending on the lender and the consumer’s credit history, income, DTI ratio and other factors, personal loans may be either secured or unsecured. Some will offer a discount if you set up automatic payments.

The financial institution or credit union where you have your bank account is the best place to start looking for a loan. Once you know the interest rates and terms they offer, weigh your options against these recommendations to ensure you get the best loan terms for your personal financial situation, then complete an online application.

READ MORE: Struggling with high-interest loans? Here’s how to get help

Factors That Determine the Interest Rate You Pay

Your loan rates are set based on a lender algorithm that predicts how likely a borrower is to default.

Here are some of the factors lenders use:

• Credit score: The higher your credit score, the better your chances of scoring a lower APR.
• Credit report data: Missed payments, recent hard inquiries and high balances are key risk indicators for lenders.
• Loan amount: The more you borrow, the higher the risk for lenders if you default. So larger loans usually have higher APRs.
• Repayment term: Longer repayment terms also have higher risk for lenders.
• Debt-to-income ratio: Lenders will assess how much of your gross monthly income goes toward debt. The higher your debt-to-income ratio is, the higher your interest rates will be. This is the primary reason why experts warn against closing paid-off credit card accounts.
• Collateral: Secured personal loans usually have lower APRs, because they’re secured with some form of collateral, like a deposit, savings account or even your home.
• Market conditions: If you’ve ever wondered why Federal Reserve actions get so much attention, this is why. Federal Reserve adjustments to the federal funds rate affect the prime rate, which is what lenders use to set their own rates. If the federal funds rate increases or decreases, loan rates will follow.

Average Interest Rates for a Personal Loan

Lenders determine interest rates based on several factors, including the borrower’s credit score. The people with the highest credit scores usually qualify for the lowest rates. If you’re trying to figure out what kind of interest rate you may qualify for, here’s what to expect (based on data from Experian).

• Excellent credit loans: An excellent credit score is between 800 and 850. Borrowers with an excellent credit score are likely to qualify for most loans and receive the best rates. The interest rates for borrowers in this credit range should be below 10% APR.
• Good credit loans: A good or very good credit score ranges from 670 to 799. Consumers with a good credit score may not get the absolute best rates, but they’re likely to receive better rates than borrowers with lower credit. The average interest rate is between 7.99% and 15%, though it may be higher in some cases.
• Fair credit loans: A fair credit score ranges from 580 to 669. People with a credit score in this range may have trouble qualifying for financial products like loans. If they do qualify, they may face unfavorable terms or rates. Fair credit loans generally have an average interest rate ranging from 17.80% to 28.5%.
• Bad credit loans: Borrowers with a 300 to 579 credit score fall in the “bad credit” category. In this range, the average interest rate for a personal loan is around 36%. People with a bad credit score are often declined for personal loans, credit cards, and other financial products. Because of this, many people turn to high-interest installment or payday loans with interest in the triple digits.

READ MORE: Which credit report, score or bureau is most accurate?

What are the Requirements for a Personal Loan?

Although some lenders have specific requirements, here’s what’s required for most personal loans:

• A minimum credit score of 600
• Proof of income with at least 3 months’ steady employment (this may include paystubs, W-2s, tax returns, or other documentation)
• Two forms of identity (passport, driver’s license, birth certificate, social security card, etc.)
• Contact information (full name, address, phone number, email, etc.)
• Banking information (for direct deposit or withdrawal)

Check with potential lenders to see what their minimum and recommended eligibility requirements are before applying for a personal loan.

Pros and Cons of Personal Loans

Personal loans have some key advantages, but also a few major disadvantages.

Pros

• Easy application process
• Fixed interest rates for the life of the loan
• Fast funding with a lump-sum payment
• Unsecured loans are available
• Lower interest rates and longer repayment terms than other options like payday loans
• Ability to build credit with on-time payments

Cons

• Potentially high APRs, especially for people with poor credit
• Difficult to qualify for unsecured personal loans
• Some lenders charge other fees like origination fees, late fees, and returned payment fees
• Not all lenders allow joint applications or co-signers
• They increase the borrower’s total debt
• It may be difficult to manage another monthly payment

How to Choose the Best Personal Loan for You

The first thing to do is make sure you know how much you need to borrow and why. Once you can answer this, it’s time to check out lenders. Here are the main things to look for:

• Approval requirements: Each lender has its own eligibility requirements. Make sure you qualify based on things like debt-to-income ratio, credit score, credit history, and state residency.
• Interest rates: Personal loans usually cap out at 36%, even for borrowers with bad credit. However, many lenders offer more competitive interest rates. When consolidating debt, make sure the interest rate is lower than the debt you already have to make it worthwhile. Some loans come with fixed (not changing) interest, while others have variable (subject to change) interest.
• Other fees: Common fees to watch out for are administrative or origination fees, late payment fees, returned payment fees, early payoff fees, and other one-time fees. These can add up if you’re not careful.
• Loan amounts: Personal loans range widely from around $1,000 to $100,000. While it may be tempting to get a larger loan, only take out a loan that covers exactly what you need.
• Repayment options: Some online lenders allow the borrower to set up automatic withdrawals for their monthly payments, while others require it. Other lenders allow payment through a mobile app or online.
• Any unique features: Look for anything that makes the lender stand out. Some lenders, like SoFi, offer unique features like a one-month payment deferment. Others have customized payment schedules. Lenders may also offer discounts to loan products at different times of the year.
• Customer service: Read online reviews about different lenders to see how they stack up when it comes to customer service. Look for reviews that mention responsive, reliable, and friendly customer service.

Which is Better? Personal Loans or Low-Interest Credit Card Offers 

Although they may seem similar, personal loans and low-interest credit cards differ significantly.

For example, personal loans come in a lump that you must repay over a set period. Credit cards, meanwhile, are a form of a revolving line of credit. This means that, unlike with personal loans, you can continue borrowing money to cover unexpected expenses until the credit card caps out. Even then, some financial institutions will increase the cap based on factors like income and credit score.

Low-interest credit cards may come with 0% APR, but this usually only lasts for the first 12 or 14 months. After that, the amount on the credit card will start to accrue interest. For the most part, personal loan interest rates can be lower than credit cards. That said, you won’t be charged interest on a credit card if you pay the balance in full every month. Your credit profile will matter to qualify for these offers. You’ll need to have a credit score of around 670 to be eligible.

A personal loan may be better than a low-interest credit card if you need to consolidate debt (especially credit card debt), finance larger purchases, or pay for things like medical bills or home repairs.

A low-interest credit card may be better for paying for smaller expenses like groceries or gas, especially if you can pay off the balance each month. Some credit cards also have certain perks like cashback rewards or travel points.

Both options can be used for nearly anything, but personal loans are more predictable with set monthly loan payments, fixed interest rates, and established payoff terms.

Use a personal loan calculator to figure out which option is best for you.

READ MORE: Best balance transfer credit cards

Why Borrowers Turn To Personal Loans

According to Experian, the most common types of personal loans are for:

• Debt consolidation: 26% of consumers took out a personal loan to consolidate credit cards or other high-interest debt. Another 9% used personal loans to refinance their debt for a better rate.
• Emergencies: Between 6% and 11% of people used a personal loan to cover an emergency.
• Home improvements: 17% of people used a personal loan to pay for renovations or repairs on their homes. Be aware that homeowners often can qualify for significantly better APRs by using a home equity loan or home equity line of credit (HELOC) instead of a personal loan.
• Major life events: Approximately 28% of all borrowers used their personal loans for a major life event like a wedding, cross-country move, or family vacation.

The Bottom Line

Personal loans can help you get your financial life back on track, or can help you through a sudden financial crisis. However, you may have better options that will cost less in the long run. Make sure to shop around to find the lowest interest rate you can qualify for, because those interest costs can add up quickly.

FAQs