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Where to Find the Best Personal Loans (and How to Get One)

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A recent TransUnion study found that most people who consolidate debt with a personal loan raise their credit score by 20+ points. Data also revealed consolidating debt with a personal loan could help decrease your credit utilization, and improve your chances of getting a mortgage, loan, or other line of credit in the future.

From brick-and-mortar banks and credit unions to online lending marketplaces, your options for personal loans are abundant. But figuring out where to find the best personal loans to fit your financial situation and credit profile can take some legwork. But it’s worth it.

To save the most over the life of your loan, do a little research before you apply. The interest rate, origination fee, and loan terms on a personal loan can all vary by lender. Figuring out where to get a personal loan doesn’t have to be complicated. It all comes down to researching the best personal loan companies, comparing interest rates and loan terms, and evaluating what makes the most sense for your situation.

Where to Find the Best Personal Loans: 4 Types of Lenders

Technology has opened doors in the financial world. While your local bank branch (or borrowing from friends and family) was once your only choice, you now have a range of options to consider when choosing where to get a personal loan:

Peer-to-peer lenders

With peer-to-peer lenders, you borrow money from a person or group of people instead of through a brick-and-mortar bank. Typically, these loans happen online through a financial technology (fintech) company, meaning you’re able to skip meeting in person with a bank loan officer. Funds get approved and deposited into your account quickly. However, some lenders may put a cap on loan-to-value ratios (65% is a common limit, according to The Motley Fool). If you’re looking for a large loan, you may not be able to secure the full amount in one fell swoop through peer-to-peer lending.

Online lenders (online lending marketplaces)

Getting a loan through an online lender is the modern approach to the traditional method of meeting with a loan officer at a local bank or credit union in your community. Because of their low overhead and use of the latest technology, online lenders can offer lower fees, some of the lowest rates, and great customer service to boot. Depending on your credit, sometimes you can have the funds deposited in your bank account the next day. If you’re comfortable applying for a loan entirely online, and are willing to forgo the “in-person” experience, online lenders are a good option to consider.

Credit unions

Credit unions work much like traditional brick-and-mortar banks with a few key exceptions. For example, your credit union may offer better interest rates than your local bank. And many credit unions also offer more flexible eligibility requirements, making them a better choice for borrowers with lower credit scores. However, most credit unions require membership. This means you may have to meet membership eligibility requirements or pay membership fees before you can even apply for a personal loan.

Brick-and-mortar banks

Most traditional, brick-and-mortar banks offer personal loans. You can meet with a loan officer in person, apply over the phone, or online in some cases. Although it makes sense to start with your local branch, your bank may not be the best place to get a personal loan. Interest rates and loan terms can vary widely by lender—even if you have a preexisting customer relationship—as do approval terms. Traditional brick-and-mortar banks can also have high eligibility requirements, but you may enjoy the benefit of being able to walk into a physical branch and speaking with a loan officer about your loan.

What Makes a Good Personal Loan? 6 Factors to Consider

Not all personal loans are created equal. While interest rates and loan terms vary, so do eligibility requirements and even the level of customer service you’ll receive. Consider these key factors when deciding where to get a personal loan:

Secured or unsecured?

There are two types of personal loans: a secured loan, which is backed by collateral such as your home, or an unsecured loan, which is not backed by collateral. Secured loans carry higher risk for you, meaning if you default on the loan, you could risk losing your car or home in the event of default. However, a secured loan usually comes with a lower interest rate. Unsecured loans lean more on your credit profile and history and don’t carry the same risk as secured loans. But eligibility standards may be more stringent and interest rates/APR’s are usually higher. Most personal loans are unsecured and will require a higher income, a lower debt to income ratio, a better credit score, or other requirements to qualify.

Interest rate and APR

Your interest rate and APR (annual percentage rate) are two of the most crucial factors to consider when evaluating a loan offer. The APR you’re offered is the final word on what you’ll pay overall (includes all fees—the total cost of the loan). Although a lot of indicators, such as your credit score, income level, and borrowing amount will factor into your interest rate, shopping around is key. Your APR could be several percentage points lower from one lender to the next.

Fees

Depending on the lender you go with, you will likely pay several fees to start and/or maintain your loan. It’s always a good idea to read the fine print and compare these fees for any loan you are considering:

  • Origination fee — the cost to start your loan; can be taken out of your loan amount
  • Processing fee — a fee imposed by some lenders to processyour loan application and related documents
  • Prepayment penalty — a fee some lenders charge if you pay off all, or part, of your loan early
  • Membership fees – Imposed by some lenders, such as credit unions

Eligibility

Most lenders will look at your whole financial picture before approving you for a personal loan. That could mean reviewing your credit history and credit scores, your monthly income, and your debt-to-income ratio. Different lenders have different eligibility requirements. While poor financial health may lead to higher rates or having your loan denied by one lender, another lender may approve the loan, and, possibly with better terms.

Joint applications

Some lenders offer the option to apply with a cosigner or co-borrower. A cosigner acts as a financial backer. This person promises to make payments and keep up with the loan if you default, but they don’t have rights to the loan funds. With a co-borrower, you’re both equally responsible for the loan and have equal rights to the funded amount. If you have a lower credit score or your income varies from month-to-month or seasonally, both cosigners and co-borrowers can help you get approved for the best personal loans. Learn more about how applying with someone can help you get approved for a personal loan.

Customer service

You could spend a couple of years repaying your personal loan, meaning you could be with your lender for a while. Although interest rates and loan terms are key when you’re applying for a loan, how that loan is managed is important overall. Look for lenders with positive customer reviews, and loan features that matter to you, such as automatic payments, online chat, or extended service hours.

How to Find the Best Personal Loans in 5 Steps

Finding the best personal loan companies may take some research, but you can get the financial help you need with these steps:

1. Improve your credit score

Before you apply for a personal loan, review your credit reports to see where you stand. Dispute any mistakes with the credit bureaus, and look for ways you can boost your credit score:

  • Pay down debt: Lowering your revolving credit card balances can boost your credit score.
  • Catch up on any past due accounts: Paying on time, every time can improve your score and keep it up.
  • Don’t apply for more than what you need, and avoid opening new credit cards or applying for other loans. If it looks like you're taking on too much debt too quickly, you may look like too much of a credit risk to a lender.

2. Thoroughly research lenders

With so many personal loan lenders out there, it can be confusing who to choose. Before you sign, do your research. Sites such as Trustpilot, Google, and Better Business Bureau offer reviews and experiences from real customers. The CFPB maintains the Consumer Complaint Database that shows any official complaints filed with the CFPB against a lender.

3. Get quotes from multiple lenders

Don’t just go with the first lender you find. Use several lenders’ online preapproval tools to see what interest rate and loan terms you could qualify for. Pre-applying or “checking your rate” will not affect your credit score but can help you find the best rate, and compare lenders.

4. Focus on APR, not interest rate

Your annual percentage rate (APR) is the annual cost of a loan. Beyond the simple interest rate you’ll pay, APR also includes all fees charged by the lender (such as the origination fee, or closing fees) converted into a total yearly cost. Some lenders may offer a competitive interest rate but charge more—or higher—fees. APR can help you compare how a loan breaks down overall so you’ll know if you’re really getting a good deal once all the costs are factored in.

5. Avoid excessive fees

Although you’ll have to pay something to get a personal loan, be sure to compare fees across several lenders. Different lenders offer different fee amounts, and the best lenders won’t tack on every fee possible. Be wary of any lender that isn’t upfront or appears to hide any of its fees. If the true cost of your loan is hidden in the fine print, you may be better off somewhere else.

The Bottom Line

There's no one best place to find the best personal loan for you. Different lenders offer different terms and interest rate, and your overall creditworthiness will play a big part in the rate and terms that will be offered to you. Finding the best personal loan is about researching the costs to borrow because, eventually, you’ll need to repay the money. With a wealth of lending companies and lending options available today, spending time to compare offers can save you a bundle in the long run.

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