There is no one “best place” to get a personal loan. Personal loan vendors tend to serve specific groups of clients, so what’s right for your neighbor might not be the best for you. To increase your chances of finding the best personal loan for your situation, review the personal loan provider pros and cons below.
Banks
Bank personal loans can be an excellent choice for applicants with good-to-excellent credit. They offer higher loan amounts (up to $100,000) and longer repayment terms (over 10 years). Many support online applications, so you don’t have to visit a branch in person to start the process.
Pros
Bank personal loan interest rates tend to be lower than those of other sources. In May 2021, the Federal Reserve put the average bank personal loan interest rate at 9.58%. And their maximum loan amounts tend to be higher than those of other providers. If you already have a relationship with a bank, the process can be faster than for other providers.
Cons
Bank personal loans can take longer to get if you’re not already a customer. In fact, some banks like Wells Fargo and US Bank will only lend to existing customers. You usually need excellent credit to qualify for a personal loan with a traditional bank.
Lending Match Services
Lending match services are not lenders. They work by taking information that you provide – credit rating, desired loan amount, loan purpose, and location – and prequalifying you for loans with providers offering what you want. AmOne.com is a lending match service.
Pros
Lending match services can save you time and money. Personal loan vendors tend to specialize in offering certain loan amounts for designated purposes to people with specific credit profiles. Matching services help you avoid lenders that don’t have what you want or approve loans with your credit score. And they help you compare prequalified offers to find the best rate and terms.
Cons
Matching services provide your information to lenders, so the service you get is only as good as the lender you select. And you might still be fielding calls from lenders after you close your loan. To ensure a good experience, check sites like Trust Pilot or Consumer Affairs before providing your personal information to any lending match service.
Online and smartphone app lenders
Online lenders are alternatives to traditional banks. The entire application, approval, and funding occur online – either through a website or mobile app. You complete an application online, and you may be able to submit your pay stubs and other documents simply by uploading photos.
Pros
Online lenders use technology to speed up the underwriting process and reduce their costs. They can be very convenient. Most online lenders offer prequalification without harming your credit score. In addition, you can usually see an array of rates and programs for which you qualify before authorizing a “hard pull” of your credit report.
Cons
You must be comfortable conducting your business online from start to finish. If you are not comfortable filling out forms online and prefer to have a personal contact to help you choose and apply for a loan, getting a loan online might not be your best bet, especially if credit or income issues require explanation.
Credit Unions
Credit unions are non-profits that make personal loans to qualified members. You must be a member to access credit union products. Fortunately, most people qualify for membership in at least one local credit union. Credit union loan interest rates are capped at 18%.
Pros
Credit unions, because they are non-profits, usually charge less for loans than banks. And they can be more forgiving of applicants with little-to-no previous credit experience or lower credit scores. Credit unions underwrite with humans and look for ways to approve applicants as long as they can afford to repay the loan.
Cons
Credit unions offer fewer products than larger banks. And they take longer to process loans than online lenders. While they do approve borrowers who need a little “help,” they are less likely to take on risker applicants because they can’t charge a high enough interest rate to justify the gamble.
Peer-to-Peer Lenders
Peer-to-peer (P2P) lenders are not technically lenders. They are marketplaces that connect borrowers to lenders. Borrowers upload a request for money and their income information, P2P platforms prequalify them and facilitate the loan, while lenders provide the actual funding.
Pros
The main advantage of P2P loan platforms is that individuals lend to individuals. You may be able to get a better deal from an individual than a mega-bank. P2P lenders accept many credit grades and underwriting.
Cons
Terms for P2P loans tend to be shorter, and loan amounts lower than those of big banks. Some only work with institutions now and have stopped doing business with individual investors. P2P loans can take longer to get because the platform is an intermediary.
Paycheck Cash Advance Place
Payday loans or check advance loans provide fast cash regardless of your credit score. You write the lender a post-dated check for the loan amount plus the loan fees, and the lender cashes it at the end of the loan term. Terms for payday loans range from seven to 30 days.
Pros
The main pro for payday loans is their speed and that virtually anyone with a job and checking account can qualify for one.
Cons
Fees for these loans can be very high, translating to an average national annual percentage rate (APR) of nearly 400%. And it’s easy to get trapped into renewing these loans when they come due, and you can’t repay them. According to the Consumer Financial Protection Bureau, the average payday loan borrower pays $520 in fees for a $375 loan because every renewal comes with a new fee. If you need a short-term loan and are sure you can pay it off right away with your next paycheck, this could be a way to do it, but you should exhaust other loan options first.
Finding the Best Personal Loan
To find the best personal loan source, define your most pressing need — is it speed? The highest loan amount? The lowest interest rate? Then determine your profile — are you a prime candidate with great credit and income? Or someone who needs a little extra help?
Look for a provider that offers what you want and is likely to approve your application. Personal loan matching services like AmOne.com can speed up the process and help you find a better interest rate
About the Author
Gina Freeman writes about personal finance and has been featured on MoneyRates.com, The Mortgage Reports, MSNMoney, Fox Business, Forbes, The Motley Fool, and other fine websites. Her background includes tax accounting with Deloitte, over 20 years in mortgage sales and underwriting, systems consulting for Experian, and several years in bankruptcy law. Gina enjoys helping consumers make confident and intelligent financial decisions.
