Look at these factors to choose the right online loan for your financial situation:
- APR range. Whenever you can, prequalify to check your odds of approval and to receive an estimated APR, monthly payment and loan amount. Then compare prequalified offers before you apply, which will trigger a hard credit inquiry that may cause a temporary dip in your credit score. Your loan’s APR should not exceed 36%, which is considered predatory.
- Loan amount. Check the lender’s minimum and maximum loan amounts, but keep in mind that how much you can borrow will depend on your creditworthiness. Borrow only what you need and can afford to repay. Many lenders have online payment calculators to help you determine the monthly cost of different loan amounts.
- Repayment period. How much time you have to repay a loan, or the loan term, varies based on your lender, your creditworthiness and your loan type. Choose an online lender with the shortest repayment terms you can afford, which pays off the loan quickly and accrues less interest.
- Speed of funding. If you need money quickly, compare lenders based on their standard funding speed. Some may offer same-day or next-day funding, and others take several business days to process your loan.
- Application process. How involved is the application? Does it require phone calls or visits to a branch? Make sure you meet the lender’s minimum requirements before you apply.
- Lender reputation. Check ratings and reviews from the Better Business Bureau and Trustpilot, and ask family members and friends about lenders. You can get feedback about approval, customer service and rates.
- Online loan features. An online loan may come with flexible payment dates as well as options to add a co-signer or co-borrower, to pay off the balance or pay ahead without penalty, and to refinance.
Personal loan interest rates decreased this week for both the 36-month and 60-month loan terms. Here are the average personal loan rates offered to well-qualified applicants with a credit score of 720 or greater, as of July 3:
- Three-year personal loan term: 19.37% (up from 21.73% a week ago).
- Five-year personal loan term: 20.08% (up from 21.76% a week ago).
Personal loan rates vary widely based on creditworthiness. Borrowers with very good or excellent credit scores will see much lower interest rates than those with fair or poor credit. Often, borrowers with bad credit will apply for a secured personal loan that uses an asset as collateral in order to achieve lower rates:
Pros
- Convenience. You can complete the entire loan process from your computer or your phone. Application, approval and funding times are faster than traditional lenders.
- Prequalification. Many online lenders allow you to prequalify with a soft credit inquiry that does not hurt your credit score and estimates your interest rates. Prequalification can help you comparison shop for the best loan offers without damaging your credit.
- Quick comparison shopping. Online loan comparison services or websites can show you loan options and APRs based on your financial situation to help you find the right loan.
- Flexible approval criteria. An online lender could be a good option when you need a loan but are new to credit or have a low score. Some lenders may also look at your bank transactions; consider your education or occupation; or use alternative credit data, such as rent and utility payments, which credit reports typically don’t include.
Cons
- No in-person service. You may not have the option to speak to someone face-to-face if you have an issue.
- Better offers elsewhere. If you have good or excellent credit, your bank could offer a lower rate than online lenders, and even credit unions may offer good rates on loans if you have less-than-perfect credit. Compare rates from both online lenders and traditional financial institutions to make sure you’re getting the best deal.
- Loan minimums. If you need a small loan of $1,000 or less, you might struggle to find it at a good rate. A credit union could be a better choice.
Follow these steps when choosing an online loan:
Decide how much you need, and budget for monthly payments. First, can the lender give you the minimum loan amount you need and can reasonably afford to pay on each month?
Compare online loan companies. Read full reviews of online lenders at U.S. News to find out what to expect.. Make sure you consider lender ratings from the Better Business Bureau, and search for negative reports in the Consumer Financial Protection Bureau’s Consumer Complaint Database.
Prequalify for loan offers. Prequalifying is a no-risk way to understand the rates you can afford because it does not affect credit scores.
Review costs. Compare rates, terms, loan amounts and other factors. The online lender should disclose loan costs, including interest charges and origination and late fees. Make sure loan terms are clear.
Most online loans are safe, but scams – and bad deals – are out there. Here are signs that you’re dealing with a predatory online lender:
- The offer seems too good to be true.
- Loan costs aren’t clear, or information is limited.
- The lender imposes high interest rates (above 36%) or fees well above average.
- No credit check is required.
- Payments aren’t reported to credit bureaus.
If you’re not certain you want an online loan, explore these options:
- Loan from a family member or friend. Make sure the terms of the loan are clear to avoid relationship problems.
- 0% introductory APR credit card. Pay off the amount you charge before the rate expires.
- Loan with a co-signer who has good credit. The co-signer also assumes liability for the payments, but you have to hold up your end of the bargain in paying the balance.
- Credit union or community bank loan. You might find more flexible credit requirements.
- Payday alternative loan. Some federal credit unions offer these small, short-term loans.
One main benefit of online loans compared with traditional loans is speed. You can obtain online loans fast because application, approval and review happen quickly.
Some online lenders say they can approve your online loan application in five minutes or less. You might be able to get funds as soon as the next business day or even the same day in some cases.
Many types of lenders let you borrow money online: traditional banks, credit unions and financial technology, or fintech, companies. The latter issues almost half of all unsecured personal loans, according to the most recent data from the credit bureau Experian.
Some of the largest online loan companies for personal loans include SoFi, LightStream, Prosper and Upstart. Like traditional lenders, they require a hard credit check and have minimum annual income and other eligibility criteria, such as good to excellent credit.
Online lenders use automated underwriting for quick and easy loan approval. Chances are you won’t have to visit a bank branch or make a phone call to get a loan.
Look for online lenders that work with bad-credit borrowers. You can also try online lending networks that connect borrowers with lenders specializing in bad credit.
Online loan lenders fall into two camps: companies that rely on credit checks before they approve your loan and no-credit-check lenders. A no-credit-check loan is risky for the lender because your credit history is unknown, and that means paying high interest rates.
A consumer will pay much higher interest rates for not going through a credit check, says Pete Klipa, director of loan servicing for Boston’s Stride Funding, an education funding startup. “As much as the consolidation loans have been growing, the payday lenders have also been growing,” Klipa says.
If an offer seems too good to be true, such as fast funding with no minimum credit score, it probably is.
Getting a no-credit-check loan online is rarely a good choice because the cost of borrowing can quickly become overwhelming. Maybe your loan is a few thousand dollars, but you have to pay it off in several weeks or months and struggle to make the payments.
Plenty of online lenders accept borrowers with bad credit and may look at not only credit history but income and employment to approve your loan. Don’t limit yourself to no-credit-check lenders.
U.S. News selects the Best Loan Companies by evaluating affordability, borrower eligibility criteria and customer service. Those with the highest overall scores are considered the best lenders.
To calculate each score, we use data about the lender and its loan offerings, giving greater weight to factors that matter most to borrowers. Personal loan companies are evaluated based on customer service ratings, interest rates, maximum loan term, minimum and maximum loan amounts, minimum FICO score, online features, and origination fees.
The weight each scoring factor receives is based on a nationwide survey on what borrowers look for in a lender.
To receive a rating, lenders must offer qualifying loans nationwide and have a good reputation within the industry. Read more about our methodology.