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This article was reviewed by Brad Stevens, a member of the Finder Editorial Review Board and 30-year veteran of the credit industry who specializes in rehabilitating struggling banks.
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Will my loan purpose affect my application?
It may. Specific loan purposes may be seen as more risky than others. For example, if you’re applying for debt consolidation, you may already appear to be higher risk than someone who’s buying an asset like a car.
However, being approved for a loan will depend more on how the lender assesses your risk than what you plan on using your loan for. Ultimately, your eligibility will come down to whether you meet the lender’s eligibility criteria and if you can afford the amount you’re looking to borrow.
What rates can I expect on a personal loan?
Personal loan annual percentage rates (APR) — the loan’s interest rate, plus fees — can range from 4% to 36%. The average interest rate for a 24-month personal loan was 9.58% in the second quarter of 2021, according to the Federal Reserve.
The rate you get depends on the following factors:
- Credit score. With most lenders, you need an excellent credit score of 760 or higher to qualify for the lowest advertised interest rate.
- Income. Lenders look at your annual and monthly income to check if you have enough regular cash flow to afford monthly repayments.
- Debts. Lenders also look at your bills and other monthly expenses. The lowest interest rates go to borrowers with a debt-to-income ratio (DTI) below 20%.
- Collateral. Securing your loan with an asset makes it less risky to the lender and gets you lower rates.
- Term. Lenders tend to to offer higher interest rates the longer you take to repay the loan.
- Amount. Often, the lowest available rates are only available on the highest loan amounts.
- Use. How you plan to use a personal loan can affect your rate. For example, if you use a loan for debt consolidation, your lender might offer a lower rate than if you wanted funds to pay for a vacation.
Your monthly payment depends on the loan term and your rate. You can figure out the monthly cost of a loan by using our payment calculator.
What goes into a personal loan APR?
The APR tells you how much you’ll pay in interest and fees on your personal loan over one year. This makes it the easiest way to compare the cost of loans with the same term.
It often includes an origination fee, which lenders charge after you sign your loan contract. But it doesn’t include penalties like late fees, nonsufficient funds (NSF) fees or prepayment penalties.
1. Determine the amount
Crunch some numbers to figure out how much you need to borrow and how much you can afford to pay back each month. Also, compare different types of loans to find the one that suits your needs best.
2. Shop around
Look for lenders that offer the type of loan you need and eligibility requirements you can meet. Then compare factors like rates, fees and terms.
After you narrow down your choices, fill out a quick preapplication with a few different lenders to learn which rates and terms you might get. This usually doesn’t affect your credit score.
4. Finish the application
After you decide on a lender, follow the steps to complete the full application and submit documents like pay stubs to verify your income.
Where can I get a personal loan?
You have a variety of personal loan providers to pick from. However, you’ll typically have more loan options if you have a stronger credit score. Depending on the type of provider you choose, you can apply for a personal loan in person, online or over the phone.
- Direct online lenders. Online lenders have more flexible lending criteria and offer a straightforward application process. If approved, your personal loan can be deposited into your bank account as soon as the next business day — but it may take up to a week.
- Banks. Personal loans from a bank are often the least expensive option out there — many also offer interest rate or origination fee discounts to current customers. But it can be harder to get approved at a bank, and new customers can expect to wait weeks to get approved.
- Credit unions. Personal loans from a credit union are usually easier to qualify for than a bank, but often have higher interest rates and fees. You also must become a member to apply — which is often limited based on where you live or your profession.
- Peer-to-peer platforms. Peer-to-peer platforms connect borrowers with investors who fund the loan. They usually offer loans that are be easier to qualify for than a bank or credit union, but tend to charge high origination fees — even compared to direct online lenders. And it can take weeks to get your funds.
- Brokers and connection services. Brokers and connection services take your personal information to help you compare providers. Brokers often charge a fee for their service but offer assistance with the application. Connection services are automated and don’t make lending decisions themselves.
- Cryptocurrency lenders. Crypto lenders offer loans that use crypto as collateral that help you access the value of these assets without having to sell and pay capital gains taxes. But because the value of crypto assets is so volatile, there's a high risk of default.
What are the requirements for a personal loan?
There’s a personal loan for almost any type of borrower. But you have to meet the following criteria to qualify with most lenders:
- Good credit. The credit score cutoff is often around 670 — and usually higher if you want a low rate.
- Steady income. You typically need to bring in at least $24,000 a year.
- Employment. Some lenders will only work with borrowers who are employed full time.
- Low debt-to-income ratio. Most lenders require your monthly expenses to be no more than 43% of your monthly income, though the lower the better.
- US citizen or resident. If you don’t have a green card or citizenship, your options are limited to the few lenders that work with nonresidents.
- Age of majority. In most states, you must be 18 to borrow. But the age of majority is 19 in Alabama and Nebraska, and 21 in Mississippi.
What other credit options do I have?
While a personal loan can be used several ways, you also have other financing options to consider.
- Home equity loans. If you’re undertaking home renovations, using the equity from your home may be an option. Since you’re using your home’s equity as collateral, you may be eligible for a lower interest rate.
- Business loans. If you need a large loan for business purposes, compare business lenders offering financing up to $5 million.
- Credit cards. These can be a good source of ongoing credit and can come with high limits – between $1,000 and $100,000 – that you can use when you don’t have the savings to make a purchase. However, many tend to have higher interest rates than personal loans.
- Balance transfer credit card. If you have debt across a few credit cards or even a few personal loans, you may want to consider a balance transfer credit card. These let you pay 0% interest on the debt for an extended period of time.
Frequently asked questions about personal loans
Read more about personal loans with these answers to common questions.
What is the best place to get a personal loan?
The best place to borrow depends on your priorities. If you need money fast, an online lender can get you funds as soon as the next business day. But if you’re looking for a low interest rate or origination fee, banks tend to offer the least expensive option.
Can I get a personal loan with a credit score of 550?
You can qualify for personal loan with a credit score of 550. But your options are limited if you have bad credit — or a credit score under 580. If you need money quickly, you might consider a bad-credit lender, which often offers funding as soon as the next business day.
But you could end up paying a higher interest rate and origination fee than you would with a bank or online lender that offers personal loans to those with good credit scores. If you have the time, you might be eligible for personal loans from a credit union or local bank. These which often have lower credit requirements than big national banks and offer relatively low interest rates.
Can I get a personal loan for $100,000?
While most lenders offer funding between $2,000 and $50,000, it’s possible to find a $100,000 personal loan. But not everybody can qualify. Generally, you’ll need to have a credit score of at least 760, a debt-to-income ratio under 20% and enough income to support monthly payments for the loan term you choose.
What is the easiest loan to get approved for?
Online lenders tend to have higher approval rates than other providers and often offer some of the easiest personal loans to get approved for. But going for a lender with a high approval rate often means you’ll land a higher interest rate and origination fee than you might pay with another provider. Consider prequalifying with a few lenders with minimum credit score, debt-to-income ratio and other requirements that you meet.
When should I use a credit card instead?
Credit cards can be a better choice if you can repay the amount you need to borrow within a month or two. While your credit card likely has a higher interest rate than a personal loan, you could end up paying no interest at all if you can pay it back over a short period of time. A personal loan is helpful when you want to pay off a large purchase or refinance credit card debt with a low monthly payment.
How long can I take out a personal loan for?
Most lenders offer personal loan terms that range from three to seven years. However, it’s possible to find a loan term as short as one year. Your loan term determines your monthly payment and total loan cost. To strike a balance between monthly payments and total loan cost, go for the shortest term you can afford.
How do personal loans affect my credit score?
Personal loans can improve your credit score by adding to your history of on-time payments and diversifying the types of credit in your name.
When you apply, it can temporarily hurt your credit, however, since lenders run a hard credit check which dings your score. And if you miss a payment or default, it can damage your credit.
Can I take out a personal loan to invest?
You can, but it might not end well. Investing itself is incredibly risky and taking out a personal loan increases that risk even more.
Some experienced investors take out personal loans after they’ve gotten the hang of weighing the risks, but it takes a while to get to their level. And even they don’t always win.
What is a prime borrower?
Prime borrowers typically have credit scores above 720, no delinquencies on their credit report and a minimum six-year credit history.
Can I get a loan with no origination fee?
Yes, many lenders offer loans with no origination fee — and several offer loans with no fees at all. Compare no-fee personal loans and find the best option for your needs.
How do I get an unsecured loan?
Unsecured loans, or otherwise known as signature loans, are loans that don’t require any collateral. They are based on your creditworthiness. Keeping your credit score at good or excellent and a clean credit history will get you a better rate. Usually you need to have proof of income, be a resident of the US and have a Social Security number to apply for an unsecured loan.
What happens if I use my loan for a different purpose than I applied for?
Often, nothing will happen — unless the lender finds out. But if you violate the contract of your loan, your loan goes into default.
Your lender could also take legal action if it finds out that you used the money for something other than what you agreed to. This would be on the grounds that you falsified information on your application.
Can I buy a house with a personal loan?
No. To purchase a home you’ll need a mortgage. Mortgages work differently than personal loans and are a bit complicated. To learn more about how home loans work, read our guide to mortgages.
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