A Full Guide to Online Personal Loans

Life can throw you curveballs. That tooth you thought may have a cavity ends up breaking apart and you need a crown instead of just a filling. Or your wedding is coming up, the caterer just canceled, and you’re going to have to pay much more to the new one because of the last-minute request.

You need money to cover the costs, quickly. You don’t have a credit card with enough room on its credit line or you don’t want to pay the high interest rate. To get money in the quickest way possible, one of the best options is an online personal loan. Here are some key factors to determine the right one for your circumstances.

Why online personal loans?

The number of people taking out personal loans has risen steadily over the years, with an 18% increase from 2013 to 2015, according to data from TransUnion. It’s clear that borrowers are turning to personal loans, with online personal loans becoming increasingly popular. The real question is: why are more people choosing nontraditional lenders over banks?

One of the most tangible benefits of online personal loans is the ability to research multiple lenders at your convenience. With online access to dozens of lenders, you’ll be able to compare rates and terms in real time. Search tools such as SuperMoney’s personal loans review can help you filter lenders by the rates and terms that you feel comfortable with.

Another benefit online lender have over traditional lenders is speed. While traditional lenders can take anywhere from a few days to a few weeks to make their decision, online lenders have a different approach. Online lenders start by evaluating your loan request much faster than the competition. What could take a traditional lender weeks to assess, an online lender can give you an answer on approval in about 10 minutes in some cases.

How are online lenders able to approve personal loans so quickly? They typically use specially designed software to consider a borrower’s potential risk factors quickly and easily. Combine that with rapid decision-making, and you end up with a faster process.

Online lenders also hold the speed advantage when it comes to getting you the money once you have been approved for a personal loan. They can make funds available to borrowers much faster than their traditional counterparts,  sometimes as quickly as within 24 hours.

Online lenders tend to cost less money to run. Lower operating costs mean online lending companies need less money from you to remain profitable. The money these companies save directly translates into you having access to better rates and smaller personal loans.

Some of the leading online lenders for installment loans include Sofi, LendingClub, and Prosper. You can get more information about them and other options using SuperMoney’s Personal Loan Review Listings.

Before you get a loan…

You first need to determine what your ideal lending situation is: Do you want a fixed or variable interest rate? How much can you afford for monthly payments? What length of loan do you want? How much can you afford in fees and other services? Your answers help you choose the right lender.

Ask for references

Word of mouth is such a powerful tool because it offers perspective from an unbiased party. Check with friends, family and colleagues for any recommendations, and you can also check with professional sources such as financial advisers. Anything from prior experience to knowledge about a unique lender in the marketplace can be useful when narrowing down the search. Assuming they aren’t getting a commission from the products they recommend, you should have a better understanding of your options once you ask for references.

Check credentials

After you’ve narrowed down your search by asking for references, you’ll want to go ahead and check the credentials of the remaining lenders. Once you have narrowed your list of potential lenders, you can check their credentials online. State banking departments have updated directories with information on lenders, and you can find their ratings through the Better Business Bureau. It may not all be there, seeing as how not all financial institutions choose accreditation with the BBB, but you can still see their overall rating and learn if any complaints have been filed against your soon-to-be lenders.

Secured and unsecured loans

There are two main types of personal loans: secured and unsecured. Each type comes with its own list of pros and cons, but it’s important that you, the potential borrowers, understand what each type looks like to ensure that you choose the best personal loan for you.

Secured loans are essentially when you offer an asset (something such as your car) as collateral if you fail to pay. The easiest way to think about a secured loan is that it’s secure for the lender. Even if you can’t afford to pay the loan back, the asset you offered as collateral ensures that the lender can get something back for the money the company gave you.

Unsecured loans

While the defining characteristic of secured loans is that you’re required to offer up assets as collateral, unsecured loans have no such requirement. If you don’t have any assets to offer, you can consider looking at taking out an unsecured loan. To even qualify for this kind of loan, you’ll probably likely need to provide the lender with proof of income to show that you’re capable of making repayments on your loans. While unsecured loans these are a great option for borrowers without assets, they unsecured loans aren’t the best option for everyone.

Lenders on average charge higher fees and interest rates than their secured loan counterparts. These loans also are known for their high fees for late payments. Lenders can go on to take legal action if you end up defaulting on the loan.

Unsecured loans can be divided further into two categories: open end and closed.

Open-end unsecured loans

Open-end loans, sometimes known as revolving credit, are loans you use over and over with an agreed upon credit limit. Provided you don’t go beyond your credit limit and make the minimum payments, you’re in the clear. It’s worth noting that open-end loans create an environment that makes accumulating debt frighteningly easy. Paying only the minimum monthly payments means you can rack up huge interest payments over time.

Closed-end unsecured loans

On the other end of the spectrum we have closed-end loans, also known as nonrevolving credit. Closed-end loans provide you with a lump sum of money that must be repaid by a certain date, along with interest and fees. Student loans fall into this category. While closed-end loans don’t provide the flexibility of open-end loans, they do have the distinct advantage of providing borrowers with a fixed payment schedule that limits the interest borrowers end up paying over the life of the loan.

Reasons for a personal loan

Here are some of the most common reasons you would seek a personal loan and some recommendations.

Car loans

Car loans are some of the most common types of personal loans that borrowers apply for. Car loan borrowers can drive off in their new car today and use the next 36-84 months to pay for it (plus interest) over time. With car loans, the asset that’s put up as collateral is typically the car you’ve just bought. If you’d rather not list your car as an asset, lenders like Prosper even offer unsecured personal loans.

Before you sign anything, it’s critical that you understand what your loan terms are. Make sure you have the answers to questions like:

  • What’s the vehicle’s price today?
  • What’s the interest rate?
  • How much will I end up paying in total?
  • How long is the loan?
  • What’s the down payment?
  • What are the monthly payments?
  • Are there any additional fees that I should know about?

Debt consolidation loans

If you’re drowning in debt from multiple credit cards and other loans and can’t seem to find a way out, a personal loan that allows you to consolidate debt can simplify your life and lessen your stress. By paying off all your outstanding debt with a new loan, you end up with one loan payment a month instead of tracking due dates and making payments to several lenders.

Personal loans to consolidate your debt are likely to have lower interest rates than your current credit cards and other debt rates. Lenders such as Prosper are strong candidates for this, with interest rates as low as 5.99% annual percentage rate (APR).

Loans for medical expenses

Medical procedures can quickly become too expensive for the average person to afford. When insurance won’t cover certain medical bills, you’re going to need some help. To avoid ending up with medical debt, you can choose to find a medical loan that works for you. The good news about medical loans is they’re typically unsecured, meaning you don’t have to offer anything up as collateral. As long as your credit is good, you’re likely to qualify for a personal loan to cover medical costs. A lender like Lightstream is a good option, with 5.99% APR available for medical financing loans.

Loans for Smaller home renovation projects

Homeownership is an impressive milestone, but maximizing your enjoyment of your new living space can get become pretty expensive. If you need new furniture or appliances, want to re-do the landscaping or make some technological “smart home” upgrades, a personal loan for home improvements fits your needs. Home improvement loans are specifically for renovations and home repair, while home equity loans are for large remodeling projects.

Loans for special occasions

Weddings, vacations, luxury products — no matter what it is, you can get money through a personal loan. You can borrow anywhere from $2,000 to $35,000 from lenders such as Prosper; although it does check your credit score before approving you.

Last Thoughts/What to do next

Choosing the right type of personal loan and lender can be a confusing process. Once you decide what your needs are through research and the right tools, you’ll be one step closer to getting the money you need. To learn more, check out the SuperMoney loans database. SuperMoney, which includes user reviews and loan comparisons, has everything you need to know about the best lending companies all in one place.

Featured lenders for personal loans

Lending PartnerMinimum FICO scoreEstimated APR 
60015.49% – 34.99%*Apply
6802.19% – 17.49% (with AutoPay)*Apply
650Fixed:
5.49% – 14.24% APR (with AutoPay)*
Variable:
4.99% – 11.14% APR (with AutoPay)*
Apply
6605.99% – 35.89%*Apply
6204.93% – 29.99%*Apply
5809.95% – 35.99%*Apply
7005.25% – 12%*Apply