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How to shop for personal loans
Use our personal loans marketplace to get a loan for debt consolidation, major purchases, a vacation, or anything else you need. Find out the best rate available to you in three easy steps with SuperMoney's loan offer engine.
- Provide some basic information about yourself and the loan terms you are interested in.
- Compare the offers available. Look out for key features, such as the APR, the origination fee, and the term of the loan.
- Complete the loan application with the lender you choose. If you are approved, you could get your money deposited as soon as the next business day.
If you're considering a personal loan, the more you know about them, the better. Read on to learn everything you need to know.
What is a personal loan?
A personal loan is a type of debt that has a set repayment term and monthly payment. Depending on the lender, you can borrow between a couple hundred to tens of thousands of dollars.
Personal loans are issued by banks, credit unions, and various other financial institutions. There are personal loan options for people with all types of credit, including bad credit.
Types of personal loans
There are two types of personal loans: unsecured and secured. Unsecured personal loans are more common and don't have any collateral backing them. This means that, if you default on your loan, it could hurt your credit, but the lender won't repossess any of your possessions or savings.
Most personal loans are unsecured. This means two things. The borrower doesn't have to put up any collateral for the loan, and the borrower will pay a higher rate than with a secured loan.
Secured personal loans, however, require collateral. The lender can take the collateral funds to pay off the loan if you stop making payments.
A secured personal loan is generally only a function of credit building activities. Many credit unions will offer personal loans that are secured by the money in a savings account.
Rates and fees
Every personal loan is different, so it's important to compare the terms of several personal loans before you apply for one.
Here's a quick breakdown of the major terms to consider.
Interest rates
The average interest rate on a personal loan with a 24-month repayment period is 10.31%, according to May 2018 data from the Federal Reserve. But depending on the lender and your credit and income situation, the rates can vary wildly.
Personal loan companies typically offer fixed interest rates or a mix of fixed and variable interest rates. While fixed rates stay the same throughout the life of your loan, variable rates can change over time as market rates fluctuate. As a result, variable interest rates are typically lower at the start than fixed rates.
But because variable rates come with less certainty, fixed rates are usually better for longer repayment periods. These periods can typically range from one to seven years.
Fees
Fees can vary depending on the lender, but here are some common ones to know about:
- Origination fee: The lender takes this fee out of your loan disbursement to cover the cost of originating the loan. It's more common with lenders that sell loans to other lenders, but that's not always the case. If a lender charges an origination fee, it can be anywhere between 1% and 8%.
- Late fee: If you miss a payment, a lender may charge a flat fee or a percentage of your missed payment.
- Returned payment fee: If your checking account doesn't have enough to cover your monthly payment, it could fail, and you may be charged a returned payment fee.
- Prepayment penalty: If you pay off your personal loan early, you could be charged a fee to make up for the lender's lost profits. This fee is uncommon, especially among top personal lenders.
As you shop around, carefully consider the fees each lender charges. Also, note that some personal lenders don't charge any of these fees.
Current personal loan rates
The median APR for personal loans has increased to 24.63%, up 1.43 points from the previous week, following the latest Federal Reserve rate increase. However, this is just the median, and rates vary dramatically depending on the term, loan amount, and credit score of the borrower. For instance, the average rate for a borrower with very good credit applying for $20K+ was 10.68%. These statistics are based on actual loan offers by lenders on SuperMoney's loan marketplace. The only way to know what rate you qualify for is to apply. Find out how to check your rate without hurting your credit.
Personal loan interest rates by credit score and term
These are the median and average APRs by credit score for personal loans this week. The first thing that may stand out to you is how much higher these rates are than the lowest rates advertised by lenders. Note that these averages are based on all the prequalified loan offers borrowers received on SuperMoney's platform when applying for a loan and providing lenders with the information required to calculate their rate, not the lowest possible rate lenders will typically highlight.| Credit score | Range | Average APR | Median APR |
|---|---|---|---|
| Excellent | 800-850 | 21.29% | 24.11% |
| Very good | 740-799 | 18.12% | 17.74% |
| Good | 670-739 | 24.82% | 24.91% |
| Fair | 580-669 | 26.64% | 28.21% |
| Poor | 300-579 | 24.72% | 24.58% |
| All tiers | 300-850 | 24.20% | 24.63% |
Notice how the average APR is actually higher for borrowers with excellent credit this week, which is surprising. This illustrates well how your credit score is just one factor when it comes to personal loan rates. It may be that borrowers with excellent credit were applying for larger loan amounts and longer terms this week, which can increase the rate offered.
These rates also only show the averages for lenders that cap their rates at 36%. The average rates are higher in the lower credit tiers when you include lenders with higher rate caps. These averages also aggregate loan offers for a wide range of loan amounts and terms which are also important factors when determining a borrower's rate.
Average personal loan rates for 24-month loans
This is what the rates look like for borrowers applying for a 24-month loan before and after filtering for loan amounts above $20K| Credit score | Range | Average APR | Median APR | Avg 24-month & $20K+ |
|---|---|---|---|---|
| Excellent | 800-850 | 11.74% | 11.40% | 11.73% |
| Very good | 740-799 | 12.75% | 11.53% | 10.68% |
| Good | 670-739 | 22.22% | 16.15% | 14.55% |
| Fair | 580-669 | 32.45% | 34.69% | 21.84% |
| Poor | 300-579 | n/a | n/a | n/a |
| All tiers | 300-850 | 22.48% | 16.79% | 13.36% |
As the graph below shows, the interest rates on personal <loans tend to vary considerably over time depending on several factors, such as the federal funds rate, lender policies, and market conditions. Notice the difference when you aggregate all terms and loan amounts and when you only include loans for more than $20,000 and 24-month terms.
What can you use personal loans for?
You can use a personal loan for just about anything. But some lenders may have some restrictions.
For example, you can't use your loan funds for anything illegal, and you may not be able to use a personal loan to refinance student loan debt or pay for college costs.
Also, some personal lenders have loans designed specifically for one purpose, such as consolidating credit card debt.
Here are some general ideas for how to use your personal loan funds:
- Consolidate high-interest credit cards or other debt.
- Cover medical expenses.
- Take a vacation.
- Renovate your home.
- Purchase a car.
- Pay for moving expenses.
- Start a business.
- Boost your credit.
- Cover emergency expenses.
When not to use a personal loan
While it's possible to use a personal loan for just about anything, that doesn't mean you should. In general, you should avoid borrowing with a personal loan in cases where you can get better terms with a different loan type, or it's better not to borrow at all.
Using a personal loan for an unnecessary purchase will only increase the cost of the item and limit your monthly budget for the term of the loan.
For example, you can use a personal loan to finance a dream vacation, but it might be a good idea to save up for it instead. And if you're buying a car, you might get a lower interest rate through an auto loan that's secured by the vehicle as collateral. Different personal loans come with different rates, fees, and requirements, but you can check out the pros and cons of each to ensure that you choose the best personal loan for you.
Five reasons to consider a personal loan
Even for borrowers with poor credit, personal loans can be an affordable alternative to payday loans, title loans, and cash advance loans. Never considered a personal loan before? Here are five reasons you should give them a second look.
1. Fixed interest rate
Although personal loan interest rates vary depending on how good your credit is, they have the advantage of fixed interest rates. Some loans, think home equity lines of credit and credit cards, change your interest rate depending on an underlying index rate, such as LIBOR or the Wall Street Journal prime interest rate.
A small change in your interest rate can quickly increase your monthly payments, which can mess up your budget in a heartbeat. With personal loans, once the loan agreement is signed, the interest rate does not change for the duration of the loan.
2. Don't require collateral
While unsecured personal loans are not always the cheapest option, they are the safest, at least from the borrower's perspective. For example, with an auto title loan, you transfer ownership of your vehicle to the lender until the loan is repaid. In the case of pawnshops, you don't only transfer ownership but also the possession of the security until you repay the loan.
Personal loans, on the other hand, do not require collateral or security. If you fail to repay, the lender will report you to the credit reporting bureaus. However, your bank accounts will not be levied, and you won't lose your car.
3. Fixed installments and a set end date
Unlike credit cards and payday loans, personal loans have fixed payments and a set end date on which the loan is paid. This makes it much easier to stick to a monthly budget. With credit cards, the monthly minimum payment may change depending on the balance on your card; and because it's so easy to withdraw more and more money until you reach the card's limit.
4. Better interest rates
Although the interest rates of personal loans vary depending on the borrower's credit history, they are cheaper than payday loans. This is not always obvious because of the way payday lenders market their loans. Let's say you borrow $350, pay the $50 fee, and manage to repay the $350 by the end of the two weeks period. The annualized interest rate will be 372.45%, more than double the APR of most personal loans. Keep in mind that most borrowers are stuck paying for a payday loan for much longer than two weeks, which can quickly push the APR rate into four figures. Different personal loans come with different rates, but you can check out the pros and cons of each to ensure that you choose the best personal loan for you.
5. Can help rebuild your credit history
Most personal loan providers will report your payments to credit bureaus. If you make regular and on-time payments on your personal loan, it can improve your credit score.
Think your credit is not good enough to qualify for a personal loan? You may be surprised. Not all personal loans require excellent or even good credit. Personal loans are a flexible credit option available for borrowers with all types of credit scores.
Are personal loans always the best loan for you? No. Your personal circumstances and preferences determine what the best choice for you is. However, personal loans can offer people who have suffered financial setbacks in the past an affordable source of credit, and a way to rebuild their credit score.
Are personal loans a good idea?
Personal loans can be a great way to make a big purchase or consolidate your debts into a single fixed monthly payment at a lower rate. Unlike mortgages and auto loans, unsecured personal loans don't require an asset as collateral, such as a car or a house. If you don't make payments, the lender can't immediately seize your property. Although defaulting on your loan payments will damage your credit score. On the other hand, transferring credit card debt to an installment loan can improve your credit score because it lowers your credit utilization ratio and diversifies the types of credit on your credit report.
However, the terms of a personal loan can vary greatly between companies and depending on your credit score, income level, loan amount, and other factors.
How to borrow to get out of debt?
Don't fall into a cycle of taking out small loans to pay for everyday living expenses. Although debt consolidation loans can be helpful, they are worthless without a realistic budget. If you are spending more than you earn, a debt consolidation loan only prolongs the inevitable. Find ways to increase your income, if you can't afford to pay your debts. If that is not an option, you may need to consider other debt-relief options besides debt consolidation loans, such as debt settlement programs.
How do you qualify for a personal loan?
Most personal loan companies will pull your credit history and ask you for your income and debt before offering you a loan. Your credit history and ability to repay the loan will determine how much you can borrow and the rates lenders offer you. Most lenders require you to be 18 or older, a legal U.S. resident, have a checking account, and not currently in bankruptcy.
What is a good credit score to get a personal loan?
FICO credit scores can range from 300 to 850. The higher the number, the better your chances of qualifying for a low-interest loan. Typically, if you are shopping for a personal loan you'll want a credit score of 660 or higher to qualify for competitive interest rates.
However, there are lenders that specialize in borrowers with poor credit or even no credit. Use the loan comparison tools below to filter lenders by your credit score. Not sure what your credit score is? Check our list of credit monitoring and reporting companies. Some will allow you to check your credit score for free.
Do personal loans affect your credit score?
They certainly do. Personal loans can both hurt or help your credit scores depending on how you manage them but paying your bills on time is critical to help it.
Depending on your credit profile, a personal loan may help your credit and your credit scores. Why? Personal loans add variety to your credit profile, lowers your credit utilization ratio, and helps you establish a solid payment history. All of which are key ingredients for a solid credit score.
Personal loans are particularly good for your credit if you use tem to pay down higher-interest rate debt. A personal loan can also help you reduce your monthly payments, which will make it easier to follow the golden rule of credit—paying your bills on time every month.
What rates can I expect from a personal loan?
Interest rates on unsecured personal loans vary widely from one lender to another. Rates typically range between 5% and 36%. Although banks and credit unions will offer competitive rates, they often have stringent eligibility requirements. Some of the lowest rates you can find are from online lenders, especially those that cater to borrowers with prime credit.
If you have poor credit, you will also have more luck with online lenders as some will accept borrowers with scores as low as 580, or even lower. However, your interest rates will be much higher if you have bad credit. Expect rates ranging from 36% to 200% if you have subprime credit scores.
How to get approved for a personal loan
While some lenders design their loans for borrowers with bad credit, that's not the case with every lender.
So, you'll want to know your credit score to make sure you have the best chances of getting approved. Based on that score, determine whether it's best to apply with a lender for bad, fair, good, or excellent credit.
Next, make sure you have a steady income source — you're unlikely to get approved if you don't have a job. You'll also want to ensure you have a good debt-to-income ratio. This means that a relatively low percentage of your monthly income goes toward debt payments.
Many personal lenders allow you to get prequalified before you officially apply. This process allows you to see if you have a good chance of getting approved and, if so, what your interest rate might look like. All of this will be finalized when you officially apply. But it's good to get some ballpark figures before you commit.
If you're having a hard time getting approved for a personal loan or you're afraid you might get denied, consider asking someone with great credit to cosign your loan. Just be sure to pay off the loan on time, or you may damage your relationship.
What if I have bad credit?
Only a few lenders approve borrowers who have poor or bad credit. Lenders consider borrowers with damaged credit as risky and charge high interest rates to compensate for higher default rates.
However, don't assume your credit is not good enough to qualify for a loan. You may be surprised. Just make sure you apply with lenders that perform a soft credit inquiry. Our loan offer engine allows takes the guesswork out of shopping for loans by letting you compare prequalified offers side by side. You'll see what rates, loan amounts, and monthly payments each lender offers without damaging your credit.
How should you compare personal loans?
Not all personal loans are made equal. If you're not careful you can get sucked into a loan with high rates and terrible repayment terms.
It is important to compare lenders before you accept a loan offer. This doesn't have to take long. Use the free comparison tools available on this page to get a clear picture of the rates and terms you qualify for based on your credit, current debt obligations, and income.
Investing just five minutes of your time could save you thousands over the lifetime of a loan.
If you're comparing personal loans, the annual percentage rate (APR) on the loan is the most important thing to look at. The APR is a percentage that reflects how much a loan costs on an annual basis, including interest and fees. Some lenders highlight the interest rate of their loans. But the interest rate alone doesn't tell you the whole story of a loan because some lenders may sneak in expensive fees. Comparing personal loan APRs is the best way to compare two loans on an apples-to-apples basis. In the United States, lenders are required to provide an APR when making a loan offer by the Truth in Lending Act (TILA) of 1968.
However, the APR of a loan is not the only thing you should consider. You should also look for:
- Lenders that don't hurt your credit score. Look for lenders that perfrom a soft credit pull when checking your rates.
- Repayment terms. Try to get the lowest repayment term you can afford. The longer the term, the more interest you will pay.
- Don't forget cosigners. Some lenders allow you to include a cosigner on your loan. A cosigner promises to pay the loan if you default. This reduces the risk for the lender. If you have a friend or relative with excellent credit who is willing to cosign your loan, you may qualify for much better rates and terms.
- Origination fees. Lenders are required to include origination fees in the APR but you still need to consider them when deciding how much you should borrow. This is because lenders deduct the origination fee from the loan amount. So if you borrow $10,000 and there is a 5% origination fee, you will only receive $9,500.
SuperMoney's loan comparison tools make it easy to filter lenders by these and many other features.
What site is the best for comparing personal loans reviews?
SuperMoney is the best tool available to compare personal loan companies and read personal loan reviews. Period. You can use SuperMoney to find the best lenders, compare personal loan rates and terms, or check what other borrowers have to say in our personal loans reviews. If you just want to skip to the list of best lenders check out our list of best personal loans.
