Personal loans are no longer governed by face-to-face consultation at your local bank branch.
With the increase in online lending 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.
There are a lot of companies vying for your business, which means you have to be extra careful about weighing your options — and to be sure that a personal loan is right for you. But it also may give you a better negotiating position. The lower the interest rate, the less you’ll have to spend in the long term, so it can pay off to put in work up front.
The three main places you can get a personal loan are:
- Personal loans
- Online lenders
We detailed the benefits and drawbacks of each place you can get a personal loan. Keep in mind the loan offer you receive will be dependent on your individual circumstances and creditworthiness. We recommend comparing offers from multiple institutions and looking closely at the fine print.
Personal Loan Options From Banks
The marquee banks found on every street corner of America are probably the lenders that first come to mind when you consider taking out a loan. These major players often have stricter lending standards, but you may get a break if you’re a current responsible customer.
Examples: Chase, Wells Fargo, Bank of America
Personal service: Most big banks offer options to apply online for a loan. But if you want questions answered in real time, there’s no better alternative. And for people with complicated financial factors, talking to a banker in person can be a better option than trying to explain in an online application.
Good for existing customers: If you already bank with a household name, your existing relationship with the institution could work to your advantage. On paper, you may have limited credit history, but a bank may be willing to overlook any gaps or hiccups if you’re a good customer.
Potentially higher interest rates: The downside is that interest rates may be higher than if you’d gone with a credit union, online bank, or online lender. More bank locations means more overhead, which means cost savings are less likely to be passed onto you.
Higher minimum credit standards: Big banks tend to be stricter about 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 cosigner or need to put up collateral — if you can get approval at all.
Local and regional banks are the lifeblood of American banking. Customer service is one of the biggest selling points of community banks, some of which are employee-owned.
Examples: Texas National Bank, Valley National Bank, Heritage Bank
Customer service: Unlike online banks and lenders, you can go in-person to your community bank for one-on-one service. You’ll also experience less wait time than if you went to the local Chase branch or called 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 perhaps more cost-efficient.
Local expertise: A banker who knows the local economy may be more willing to extend a personal loan offer than an impersonal lender who may not see the value of a particular financial need or business idea.
With fewer overhead costs than a Bank of America, for example, you may find that these online-only banks are willing to pass on the cost savings and give you a more competitive interest rate.
Potentially lower rates: You may never see a bank representative in person, but terms for deposit accounts and loans may be more favorable with an online bank. With no physical locations, online banks eschew some of the most costly line items, namely rent, staff, and maintenance costs of having physical locations, of being a bank and can offer better interest rates to customers.
Faster applications: As digital-only institutions, online banks will be better equipped to handle your online loan application than your average bank. Some banks can give 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 interest rates more favorable than big banks.
Examples: Alliant Credit Union, Navy Federal Credit Union
Limited qualification: Credit unions typically limit their services to particular communities, locations, industries, workplaces, faith communities, and affiliations. To open an account or borrow money from a credit union, you will likely need to meet their unique eligibility requirements and become a member.
More lenient standards: Credit unions tend to be more understanding when lending to people with average or poor credit scores. As nonprofits, they are more likely to work with your individual circumstances, since they’re not motivated by profit. Larger banks tend to have more stringent qualifications.
In-person service: Credit unions aren’t always the savviest when it comes to technology, but the trade-off is you can get one-on-one service with a local specialist. A smaller membership base means a shorter wait time for appointments.
Less tech savvy: As small nonprofits, credit unions are less likely to have their own mobile apps and less likely to have robust online customer service, though there are exceptions to the rule.
Personal Loan Options From Online Lenders
A new crop of online-only loan providers have emerged to fill gaps in the market. These companies, many of which are start-ups, offer quick online applications and lower-than-average rates.
Potentially lower rates: Similar to online banks, online lending start-ups may be able to get you a better rate on a personal loan, just by virtue of having less overhead.
Prequalification: By inputting your information (such as income and loan specifications) into a quick application, you can get prequalified for a personal loan and look at offers without committing to anything. It will just require a soft credit check, which doesn’t impact your credit score, from the lender.
Willing to lend to people with bad credit or no credit: Depending on the lender, they may be more understanding of financial hardship and limited credit histories. Some companies orient their whole business model to this customer, so this could work to your advantage.
Fast funding: The application process for many start-ups is a breeze, with some companies offering quick approvals and same-day funding to customers. So be careful what you’re signing up for.
How to Choose a Personal Loan 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 what loan amount and interest rate you can qualify for.
- Get pre-qualified. When shopping online for personal loan 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 qualify for.
- Shop around. Now that you know what you qualify for see how it compares to other companies.
- Read the fine print. Read the terms and conditions on any loan before agreeing.
- Learn about the company first. Check the Better Business Bureau (BBB) and google the company to see what others are saying about the service.