Online lenders, banks, and credit unions all offer personal loans. That means you have plenty of lending options, depending on your needs.
Finding the right lender for you will depend on your unique financial situation and loan preferences. It’s important to determine where you can get the lowest annual percentage rate (APR), which is your interest rate plus any fees.
But APR isn’t the only factor that matters. Be sure to compare a few different lenders to find the best terms for you.
Online lenders
Online lenders are typically financial companies that offer an alternative to traditional banks. These lenders often use a similar approval process to banks and credit unions, but you handle the entire process, from application to funding, online.
Because online lenders have no brick-and-mortar branches, though, they can usually save on overhead costs — which may translate to lower rates or fees for borrowers.
Some online lending marketplaces connect you with several online lenders so you can compare personal loan options side by side. Plus, you can often prequalify for a loan online with a soft credit check. This allows you to see the rates and terms you may qualify for before you apply, without affecting your credit.
The amount you can borrow with an online loan varies by lender, but it can be as low as a few hundred dollars, or as much as $100,000.
Pros
- Convenient application process: Online lenders often have a more streamlined application and approval process than traditional banks and credit unions. You don’t have to worry about meeting with a loan officer in person or printing out documents to submit. This means you can spend less time applying for the loan and waiting for funding.
- Higher borrowing amounts: Some online lenders offer much higher maximum borrowing limits than banks, which can be helpful if you’re financing expensive home renovations or another large purchase.
- Faster funding: You may receive your funds faster from an online lender. Some of them even offer same-day funding. This is an important factor when you’re getting a personal loan to cover an emergency expense.
Cons
- No in-person customer service: If you prefer to speak with someone in person to discuss your loan, a personal loan from a bank or credit union may be the better option. Most online lenders don’t have physical locations.
- Increased risk of scams: Unfortunately, there’s a higher risk of scams online. Beware of any online “lender” that guarantees approval, doesn’t have a physical address, or puts pressure on you to act quickly. Be sure to verify that the lender has legitimate contact information. It’s also a good idea to check if the Better Business Bureau accredits the lender.
- No relationship discounts: Some banks and credit unions offer relationship or loyalty discounts to existing members who take out a loan from them. This typically isn’t an option with online lenders.
Banks
While many banks offer online personal loan options, these financial institutions also generally give you the option to stop by your local branch and ask questions or apply. On the downside, personal loans can be more difficult to qualify for at traditional banks — many online lenders specialize in bad credit loans, but this isn’t usually true of banks. It may also take longer to get approved and funded by a bank.
Pros
- Competitive rates for members: Some banks offer lower rates for existing customers who qualify. This benefit could help you save hundreds to thousands of dollars on interest over the life of the loan.
- In-person customer service: If you prefer a more personal touch, a loan from a bank may be better for you. You can usually meet with a loan officer to discuss your options and ask any questions you may have.
- May have fewer fees: Many banks that offer personal loans don’t charge origination fees or prepayment fees. However, every bank is different, and it’s important to verify if you must pay any fees before accepting a loan.
Cons
- May not be able to prequalify: Many online lenders allow you to prequalify for a loan online — in just a few minutes — before applying. This can give you a better idea of the rates and terms you may qualify for, without affecting your credit. This is a less common option with banks, especially since you may have to apply in person.
- May have stricter eligibility requirements: Some online lenders cater specifically to borrowers with bad credit. Banks, on the other hand, often have higher minimum credit score requirements.
- Longer approval and funding times: Traditional banks may take longer to process and approve your application. You also may not get your funds as quickly as you would with an online lender. While many online lenders can fund your loan within a business day, banks can take 3 to 5 business days or more.
Credit unions
Credit unions are member-owned, not-for-profit financial institutions. Because of this, they often pass savings down to their members in the form of lower rates or cheaper fees. Many credit unions offer a more personal feel with physical branch locations. However, you can often apply for a personal loan from a credit union online.
Pros
- Lower rates: Credit unions may offer better rates on personal loans compared to banks — but this still depends on your credit score and other factors.
- Personalized service: If you’re looking for in-person service, a credit union is a great option, since many are local financial institutions.
- Flexible terms: Credit unions may offer longer terms depending on your loan needs. For example, Navy Federal Credit Union offers repayment terms of up to 15 years for home improvement loans.
Cons
- Must become a member: You’ll be required to join the credit union before moving forward with a personal loan. This may not always be easy, as some credit unions base eligibility on factors like military affiliation or your geographic location.
- May have limited loan options: While online lenders tend to offer a variety of loan options, you may have fewer choices with credit unions.
- Slower funding times: Like banks, it can take longer for a credit union to fund your loan. It could take up to a week after approval to receive the money.
How to compare personal loans
It’s best to shop around and compare rates from various lenders so you can ensure you’re getting the best loan terms for your needs. It’s important to compare several factors when deciding on a lender, such as:
- Loan amounts: You can easily narrow down your search by looking at lenders’ minimum and maximum loan amounts. You may find that some lenders don’t offer high enough loan amounts for your needs.
- Interest rates: Interest rates can vary widely from one lender to the next. And interest plays a significant role in the cost of borrowing money. It’s a good idea to get prequalified with various lenders to get a better idea of the rates you may be offered upon approval.
- Funding times: Some lenders offer same-day funding if your application is approved by a certain time on a business day. Other lenders can take up to a week to disburse funds. If you need the money urgently, it’s important to consider the timing.
- Fees: Fees are another important consideration when comparing personal loan options. Some lenders charge origination fees to process your loan application, and these can be as high as 12% of your loan amount. That amount is immediately deducted from your loan before it’s paid out, affecting the amount you actually receive. Prepayment penalties and late fees are also common among lenders.
- Eligibility requirements: Many lenders have specific credit score and income requirements. Check to see that you meet these guidelines before applying. If your credit score is on the lower side, you may want to look into lenders that place less emphasis on your credit score.
Lender reputation: Look into customer reviews and feedback about each lender. Consider checking if any complaints have been filed with the Better Business Bureau, and if they were resolved. You may also want to look at review sites like Trustpilot to see what other customers have to say about their experience.