Best Personal Loans for Any Need in 2021: Online Application
Personal loans offer a flexible form of funding you can use for almost any purpose. Both traditional and online lenders provide these products, often with fast approval and electronic funds transfer within just a few business days.
Because terms for personal loans vary dramatically depending on amount, credit score, and other factors, you should carefully evaluate offers before moving forward. Review this comprehensive guide to personal loans if you need extra funds to pay for school, refinance high-interest debt, renovate your home, cover travel expenses, or countless other uses.
Top Lenders for Personal Loans
As a loan marketplace platform, LendingTree allows you to shop rates for personal loans and other types of financing in one convenient location. Through LendingTree, you can access loans for any purpose ranging from $1,000 to $35,000 with available APRs from 2.97% to 2.99%.
After answering a few questions about the type of funding you need, the system matches you with lenders that fit your needs. From there, you can prequalify for personal loans and complete the process of receiving your funds. The matching process takes just 15 to 20 minutes; however, prepare for lenders to contact you by text and phone seeking your business after you complete a LendingTree application.
Because LendingTree is a marketplace, terms vary by the lending company you select, so carefully review the fine print before signing on the dotted line.
Like LendingTree, Credible serves as a marketplace rather than a direct lender. This company connects you with its network of partners offering fixed-rate loans with APR ranging from 3.99% to 35.99%. With Credible, you can access personal loans of up to $100,000, much higher than the maximum available from most competitors. You can also compare rates and terms across multiple lender offers in a single dashboard.
When you apply for funding through Credible, the platform performs a soft credit check that won’t affect your score. The company offers a Best Rate Guarantee, so you can claim $200 if you find a better personal loan offer from another lender. Credible also receives high marks for its extensive customer service options and fast approval.
Just keep in mind that some lenders on this platform also charge an origination fee of up to 6% of the total loan amount. You will need a credit score of at least 600 and a debt-to-income ratio below 40% to qualify for a loan through Credible.
If your credit score falls below about 670, finding a personal loan can be challenging. Many industry experts rank Upstart as the best lending option if you have fair credit, usually categorized as about 600 to 669. In addition, this company provides loans for customers who have limited credit, so you might want to consider Upstart if you’ve never had a credit card or loan before.
This lender uses advanced artificial intelligence to review thousands of alternative data points for loan approval, such as education, work history, and geographic location. Upstart relies on a completely automated process for most applications, resulting in a reported increase in approvals among the fair-credit group. The online application process is easy and straightforward.
Upstart’s loans range from 6.76% to 35.99% APR. Keep in mind that if you have less-than-perfect credit, your interest rate will likely be on the higher end of that range. You can access a personal loan of up to $50,000 if you qualify. Most applicants receive funds within two business days.
Upstart charges relatively high origination fees of up to 8% of the total loan amount. Your account is also subject to late fees, returned check fees, and a paper billing fee if requested. Personal loans from Upstart are not available to residents of West Virginia or Iowa or if you have a past-due credit account, public record, or bankruptcy.
When Should You Take Out a Personal Loan?
A personal loan might be a good option for you if you need money quickly but cannot qualify for a lower-interest form of financing. Ideally, taking out the loan in question will improve your finances rather than increasing your debt loan. Good reasons to take out a personal loan include consolidating higher-interest debt or increasing the value of your property with renovations.
On the other hand, you may want to avoid discretionary expenses that require a personal loan. Borrowing money for travel, entertainment, and other nonessentials can lower your financial standing by increasing your debt, reducing your net worth. You will eventually pay much more in interest than the original value of these purchases.
Before deciding to sign a personal loan, review the terms and conditions carefully to make sure you can afford the payments even if your income changes. You can easily compare different loans side-by-side on Credible.
Walk away from a potential loan if you’re not sure whether you can repay it under the stated terms. In that case, try improving your credit and applying again after a few months.
How Do Personal Loans Work?
When you apply for a personal loan, the lender or bank reviews your financial information and decides whether to fulfill your request. If approved, you will repay the designated amount with interest. The higher your credit score, the higher your interest rate because of the associated risk for the lender. However, many personal loans have lower interest rates than credit cards.
Most personal loans have repayment terms from two to seven years with a fixed monthly payment amount. Each payment includes both principal and interest.
Who Can Apply for a Personal Loan?
While anyone can apply for a personal loan, approval depends on various factors. Most lenders prioritize credit score when establishing personal loan qualifications, along with debt-to-income ratio and employment history.
If you have a FICO score of at least a 720, you should be able to qualify for a low-interest personal loan. While many lenders have a minimum credit score of 610 for approval, you may pay excessive interest. Take steps to improve your score such as paying down your credit cards and disputing incorrect information on your credit report.
Debt-to-income ratio (DTI) measures the amount of debt you have compared to your monthly income. Lenders usually look for a DTI of less than 40%. That means if you earn $2,000 a month, you should spend $800 or less on debt payments.
Employment history also influences your ability to qualify for a personal loan. Generally, lenders want to see at least two years at the same job for approval.
Types of Personal Loans
With personal loans, you receive the proceeds directly and can spend the money on anything from monthly bills to school expenses. Lenders rarely restrict the usage of personal loans, although most state that they cannot fund illegal activities. Most personal loans fall into these two main categories.
Unsecured Personal Loans
Most personal loans are unsecured, which means they are not associated with physical property such as real estate or a vehicle. If you cannot repay the debt, the lender does not have collateral to repossess, but can take other actions to attempt to collect the debt such as phone calls, letters, and lawsuits.
Secured Personal Loans
On the other hand, secured loans are backed by collateral, typically your home or car. Mortgages and auto loans are the most common types of secured loans. If you default on the loan, the lender can seize your property as payment.
While personal loans are typically unsecured, you may be able to access a lower interest rate or higher loan amount with collateral. However, if your financial situation changes, you risk losing your property if you can’t make payments on the personal loan.
Fixed Interest vs. Variable Interest
Both secured and unsecured personal loans can have either a fixed or variable interest rate. With a fixed-interest personal loan, the APR remains the same for the life of the loan. To change the APR, you would have to refinance into a lower-interest loan. Most personal loans have a fixed interest rate.
Variable interest rates change over the life of the loan according to established terms. Often, these personal loans have a low “teaser” rate for an introductory period before adjusting based on the prime interest rate set periodically by the U.S. Federal Reserve. Your interest rate will change each month and could go up or down depending on current economic conditions.
Usually, you can access a lower APR with a variable-rate personal loan. However, a fixed-rate personal loan offers the stability of a permanent monthly payment amount for the life of the loan.
How to Choose the Best Personal Loan for Your Needs
Review these important factors when selecting a lender for your personal loan:
- Available loan amounts, which vary from $1,000 to tens of thousands or more depending on the lender
- The combined cost of interest and fees based on the annual percentage rate (APR) of the loan
- The types of lender fees, which may include late fees, check return fees, prepayment penalties, application fees, and origination fees
- Eligibility requirements, which vary by lender but typically include credit score, income, debt-to-income ratio, and work history
- Available repayment terms, which most commonly range from one to five years
- The intended purpose of the loan, which may restrict you to particular lenders
- Customer service and reputation, including complaints with the Better Business Bureau and industry organizations
- The ability to prequalify for a loan, which allows you view your APR and other credit terms without a hard credit check that affects your score
Why Should You Consider an Online Lender
You can obtain a personal loan from a traditional bank, credit union, or online lender. Customers are increasingly choosing online lenders like Upstart for their ease, transparency, and convenience. Some reported benefits of using an online personal loan company include:
- Funding within 24 to 48 hours in most cases
- Nationwide availability
- Low interest rates
- Around-the-clock access to loan information through apps and online dashboards
- Streamlined application process, usually completely online
- Use of alternative funding criteria such as education and employment history to expand availability for low-credit borrowers
You may prefer a traditional bank or credit union for your personal loan if you want to apply for funds in person or have a relationship with an existing financial institution in your area.
How Do You Apply for a Personal Loan?
Every lender has its own application process for personal loans. In most cases, however, you’ll follow these general steps.
Check Your Credit Score
If you haven’t reviewed your credit score lately, start by getting your report from each of the three credit bureaus (Experian, Equifax, and TransUnion). You can request a free report once a year as well as anytime you apply for credit and get denied. As mentioned above, you’ll need at least a 610 for approval and 720 for the most favorable rates from most lenders.
Using the criteria listed above under “How to Choose the Best Personal Loan for Your Needs,” create a short list of two to three lenders. Request prequalification from each company so you can review the available terms, rates, and loan amounts to inform your final decision.
You can also use a platform such as LendingTree or Upstart to compare multiple loan offers at the same time. Preserve your credit score by completing a full loan application only with the lender that offers the best conditions for your needs.
Submit Your Final Application
While each lender has its own application process, most require you to submit:
- The complete loan application
- Proof of identity, such as a passport, driver’s license, state ID, birth certificate, or military ID
- Proof of residence, such as a voter registration card, homeowner’s insurance policy, rental lease, or utility bill
- Income verification documents such as W-2 forms, 1099 forms, paystubs, bank statements, and employer contact information
You can typically scan documents and send them online, though some traditional lenders may require you to drop off, mail, or fax your paperwork. If you receive approval, the lender will send your funds either through electronic transfer or with a paper check. Most personal loans take just a few days from application to funding.
How Much Does a Personal Loan Cost?
The total cost of a personal loan includes both the interest and fees you will pay on top of the original borrowed amount, or principal. While cost varies by lender and applicant, evaluate these four factors to estimate the cost of a loan offer.
Annual Percentage Rate (APR)
Usually referred to simply as interest, the APR is the annual interest rate charged on the loan. Each month, your bill will include payment toward your principal balance and a portion of the APR. The U.S. Federal Reserve reports that the average APR for personal loans is around 10%.
This fee typically totals 1% to 5% of the personal loan amount. The lender subtracts the origination fee from your loan before you receive the proceeds. For example, if you take out a $25,000 personal loan with a 4% origination fee of $1,000, the lender will disperse $24,000 (though you still repay $25,000 plus interest).
Not every lender charges an origination fee. You have a better chance of qualifying for a fee-free loan with a good or excellent credit score.
Many lenders charge a late fee if you do not make your monthly payment on time. Some lenders offer a grace period of up to a week before charging this fee, which is added to your balance and accumulates interest. Most fees of this kind range from $20 to $50.
Paying extra toward your principal balance each month is a smart way to save on interest. For this reason, avoid lenders that charge a prepayment penalty. This fee, often a percentage of the outstanding balance, will likely discourage you from repaying your loan before its stated end date.
Personal Loan vs. Credit Card
Is a credit card a better option for your financial needs than a personal loan? Understanding how these products differ can help you make a smart decision.
With a credit card, you have a maximum threshold for purchases called a credit limit. You can make charges of any size on your card until you reach this limit (or “max out” your credit card). Personal loans consist of a lump sum of money that you receive all at once.
A personal loan makes sense for you if:
- You can afford to make fixed monthly payments for the life of the loan.
- You need money for a large single expense, such as a home renovation.
- You have several high-interest loans and credit cards and want to consolidate your debt.
- You can qualify for a lower interest rate on your personal loan than on your existing debt, which typically means you have a low DTI and a FICO score of at least 680.
A credit card might be the smarter option when:
- You can qualify for a very low interest rate, such as a 0% APR promotional period.
- You can afford to completely repay your balance each month to avoid costly interest.
- You need money for smaller, everyday expenses rather than for one sizable purchase.
What Can You Do If Your Personal Loan Application Is Denied?
While a denial can be disappointing, you do have a few options if a lender does not approve your personal loan application. If you were denied for an unsecured personal loan, try applying for a secured personal loan if you have collateral such as a vehicle. Your approval odds increase with a secured loan because the lender has a lower risk of loss.
You can also ask a trusted friend or family member who has good credit to cosign your personal loan. A cosigner agrees to make the payments on your behalf if you cannot do so. He or she must also agree to submit loan application documents for approval. Remember that if you default on the loan, the payment responsibility will fall to your cosigner, which could negatively impact your relationship with that person.
How fast can I get a personal loan?
While approval times vary by lender, most send an electronic funds transfer within one to two business days. Online lenders like Upstart often have shorter funding times for personal loans than traditional banks. You may wait up to a week if you need a paper check or choose a bank with a waiting period for personal loans.
Can I get a personal loan with bad credit?
While you can possibly qualify for a personal loan with bad credit, you will pay an average interest rate of 28% to 32%. Unless you have an emergency need for funds and cannot borrow money or qualify for a credit card at a lower APR, you may want to consider taking steps to improve a low credit score before taking a personal loan.
You can always check your options on a site like Credible.
What is a good interest rate on a personal loan?
The answer depends on your credit score, but it’s easy to compare different solutions on LendingTree.
Only borrowers in the highest credit tier can access the best personal loan rates of 3% to 8%. If you have excellent credit, expect to pay an average of 10% to 12% APR. With good credit, your average personal loan APR will range from about 13% to 15%, which increases to 18% to 20% with fair credit.
How does COVID-19 affect personal loans?
Forbes reported that Americans took fewer personal loans during the COVID-19 pandemic. Experts theorize that lenders tightened approval requirements to reduce their potential risk as the nation faced economic challenges. However, many people saw their credit scores increase in 2020, possibly as a result of reducing their debt.
What fees should I look out for when choosing a personal loan?
Some of the most common fees associated with personal loans include late payment fees, origination fees, prepayment penalties, returned check fees, and paper billing fees. Many lenders charge catch-all “administrative fees.” Read the terms and conditions carefully to avoid signing a loan with overly expensive fees.