Whether facing a financial emergency, fantasizing about your latest dream purchase, or hoping to consolidate debt, you may be considering taking out a personal loan if you need an influx of cash.
While there’s no shortage of personal loan options, each has its pros and cons. From banks and credit unions to online companies and peer-to-peer lenders, deciding which is the best place to get a personal loan can seem overwhelming. Here’s what to consider before you apply.
7 best places to get a personal loan
1. Major banks
For many borrowers, a major national bank seems like a logical first place to apply for a personal loan.
Some banks offer certain benefits for existing account holders, including lower interest rates, no loan origination fees, and larger loan limits. Citibank, for example, offers personal loans of up to $50,000 for good credit borrowers who have an eligible Citibank deposit account.
While a major bank can be a good option, some, such as Chase and Bank of America, don’t offer personal loans, so even if you’re an account holder with impeccable credit, you’re out of luck.
2. Credit unions
Credit unions are not-for-profit financial organizations that serve members who work, live, or study in the community in which they’re based. If you’re a member of a credit union, it could be a great place to apply for a personal loan.
“Not only do credit unions have lower interest rates for personal loans, but they also deliver highly personalized service that could prove useful if your situation for getting a loan might require a deeper dive and additional assistance,” says Nathan Grant, credit industry analyst with Credit Card Insider.
And because credit unions cater to their members as opposed to shareholders, they may be a bit more flexible than major banks. They tend to look at a borrower’s complete financial picture, so if your credit is less than stellar but you’re a member in good standing, you may still be approved.
That said, membership is key. If you don’t meet a credit union’s eligibility requirements, you’ll need to look elsewhere. To find a credit union in your area, visit the National Credit Union Locator.
3. Online lenders
One of the biggest benefits of borrowing from an online lender is convenience, as you can research loan terms and compare rates without ever leaving your home.
Some online lenders also do soft credit checks (as opposed to the hard inquiries that banks often conduct), so you can compare rates without impacting your credit score. Borrowers can find out quickly how much they can borrow and at what interest rate. Processing time can be speedy as well, with online lenders like Upstart depositing money in borrowers’ account as soon as the day after approval.
Online lenders also offer competitive interest rates. SoFi, for example, offers fixed-rate personal loans with no loan origination fees or penalties for paying off your loan ahead of schedule.
“Because they have so little overhead, [online lenders] are able to deliver a more attractive rate,” Grant points out.
But the lack of brick-and-mortar building also means borrowers don’t have access to face-to-face customer service. While online lenders are typically user-friendly, some people who are less tech-savvy may find the application process challenging ,depending on the website or app interface.
4. Peer-to-peer lenders
Peer-to-peer lending is exactly as it sounds: A borrower fills out an online application and is connected with someone else who is willing to lend them money. So instead of receiving money from a bank or other major institution, your loan is funding by one or more individuals.
While the application process is simple and straightforward, there are typically no physical branches to visit, which lowers costs but limits personal interaction.
Prosper is one peer-to-peer option which offers fixed-rate loans of $2,000 to $40,000, with loan terms as long as 5 years. LendingClub is another popular choice, offering loans up to $40,000 with no prepayment penalties.
5. Use a 0% credit card
If you’ve ever received an offer for an introductory 0% APR on a new credit card, you may have wondered if it’s a good alternative to a more traditional personal loan. This can be a solid choice if certain conditions are met, but there is some risk involved.
Typically, 0% intro APR offers are short-lived, usually only lasting between 9 to 18 months. If you still have a balance after the normal APR kicks in, you could be stuck paying a lot more in interest than you would on a regular personal loan.
Even worse, if you fail to make the minimum monthly payments, the issuer may cancel your offer and you could be stuck with a high interest rate sooner than you planned.
Before going this route, do some careful planning and be sure you’ll be able to pay off your balance within the intro offer’s guidelines.
6. Borrow from your retirement plan
Some 401k plans offer participants the opportunity to borrow against their balance. If you have a plan that allows you to take a loan, you can do so without completing a lengthy application or submitting to a credit check. You’ll essentially pay yourself back (with interest) over the course of five years, the maximum term in most cases.
You will, however, be limited in the amount you can borrow, as the IRS caps it at 50% of your vested balance, up to $50,000. Additionally, you’re losing interest on the amount you borrow because you’re removing it from your account, and potentially jeopardizing your nest egg if you stop making regular contributions while you repay the loan.
Should you lose your job and be unable to repay the loan, the remaining balance could even be treated as a distribution. If you’re under 59 ½ years old, that means you’d have to pay the IRS a 10% penalty for early withdrawal.
7. Other options
Some borrowers may consider asking for a loan from a friend or family member. In these situations, it’s best to discuss the details and loan terms up front before any money changes hands. Spell out everything and put it in writing.
Even when dealing with family, it’s wise to talk with an attorney, accountant, or local tax advisor who can speak to the ins and outs of loans and their implications. In some cases, if interest rates are too low, the loan may be deemed a “gift” that would require a gift tax be paid.
Personal loan lenders to avoid
Even if you’re feeling desperate due to a low credit score or you’re in a hurry to get your hands on cash, there are some types of lenders you’ll likely want to avoid.
- Payday lenders: These companies offer loans at an extremely high interest rate for a short period, essentially to tide the borrower over until the next paycheck. Some states have set laws capping a maximum amount for payday loan fees ranging from $10 to $30 for every $100 borrowed, according to the Consumer Financial Protection Bureau.
- Title loan: If you take out this type of loan, a lien is placed against your car title so the vehicle is used as collateral. If the borrower fails to repay according to the loan terms — which typically includes sky-high interest rates — the lender may seize the car.
To ensure you’re working with a reputable lender, look up potential companies using the Better Business Bureau's website. Because lenders are required to register within the state where they do business, you can also check with your state attorney general’s office.
When faced with a decision about where to borrow money, you want to weigh your options carefully as the choice you make could save or cost you plenty.