Even though credit cards are still the go-to borrowing vehicle of many Americans, more and more individuals are starting to turn their heads toward other vehicles and especially Personal Loans.
One of the main reasons for this is that application processes have become considerably easier and faster, and also the fact that in most cases the interest rates are much lower.
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How do personal loans work?
Imagine having credit card debt with an interest rate of 32% and being able to take a personal loan to bring down the length of the loan and the interest rate to only 9.2%. This is one of the many scenarios where Americans are trying to flee the credit card market and land in the safe haven provided by personal loans.
It is important to understand that just like with any other type of borrowing instrument, your credit score will have an important impact on the amount you will be charged in interests. Chances are that if you have a very dented credit score you won’t get such a preferential treatment like in the example of above, but in most cases, you would still be able to refinance and consolidated at a much lower rate to what you are currently paying.
Another important aspect of Personal Loans is the fact that applications on most of the firms can be done online, this allows individuals to fill the documents without living the tranquillity of their house or office. Even if it doesn’t sound like a big deal, this has become one of the key elements that make Americans choose personal loans over any other vehicle that would request visiting a branch. It is worth mentioning that this also allows for an overall cheaper experience since these institutions are not incurring overhead or fixed expenses from keeping employees and a branch available. It also allows for individuals from all states to apply, effectively making these products available countrywide.
In this article, we will go through the very best personal loan providers available in 2021. Even though we’ve done a very extensive comparison and a review of the market, it is important for all individuals to perform their deep review and to analyze all available options before making a financial decision. This is a relatively large market and it has many different players, it is very likely that you will find the right type of institution if you take your time.
What are the Pros and Cons of Getting a Personal Loan?
Based on your situation getting a personal loan might be one of the best possible decisions you can make with your finances. Not only will be secure the health of your credit score, but it can also do so while saving you a considerably large sum of money.
Before many any desition, the best advice I can give is to take your time reviewing and analyzing different pros and cons of any personal loan. This will help you understand better if you truly need a personal loan or if you should aim for an alternative borrowing vehicle.
Best 5 Online Personal Loans Providers in 2021: Summary
Best 5 Online Personal Loans Providers in 2021:
1. Sofi | Best for Flexibility
Sofi is one of the most powerful names in the world of student loans, but over the years the firm has ventured into other different products and lending vehicles. Today Sofi is one of the most important and also elite online banks in the US.
We say that Sofi is elite because of their high standards in terms of credit and also because on average their users have an annual income of six figures.
When it comes to personal loans the firm allows for a fully online application of their products. Note that unlike much other firms, Sofi requires that money to be spent in three different things that are house remodeling, health procedures and debt consolidation. If you are interested in a loan to pay for anything else you might need to go with a different option, otherwise look no more and take a quick review of Sofi and their platform.
- Fixed: 5.99% – 16.24% (with autopay)
- Variable: 5.74% – 14.70% (with autopay)
Loan Amount: $5,000 to $100,000
Length: 2 – 7 Years
Minimum Credit Score: 680 FICO
Minimum Annual Income: None
- No Origination Fee
- No Late Fees
- No Overdraft Fees
- Flexibility: Sofi has been known for being one of the only true flexible institutions in the market, specifically because of all the different choice you get if you can’t repay your loan. This is a firm that is truly interested in you paying back your money, instead of keeping hostage to charge you more interest. A particular point to mention is the fact that the company already offers unemployment insurance, this will take care of your payments in case you are laid off. This might not sound like much but it does prove how interested this firm really is in you as a customer.
- Cheap: Due to the fact that the firm focuses on individuals with a considerably better credit score, their average interest rate offered for personal loans is considerably lower than the national average. It is difficult to see products where the best possible option in terms of service and pluses will actually be the cheapest one.
- No Fees: This is another point where Sofi excels at being the best and also the cheapest option in the market. It is difficult to see firms of this caliber waiving fees that could easily make them several if not hundreds of millions every year.
- High Credit Score: This is certainly going to be a deal breaker for many individuals with a lower credit score. Don’t forget that even if you have a really low credit score, the only place it has to go left is up. This might not be an option for you to take right now but it is certainly one you should keep for later in your life.
2. Marcus by Goldman Sachs| Best for Debt Consolidation
As an American, it is very likely that you’ve heard the name of Goldman Sachs when it comes to wall street and the whole investment banking industry. What many people forget or simply don’t know is that Goldman Sachs has their own retail and consumer bank brand call Marcus by Goldman Sachs.
It is important to mention that when doing business with Marcus you are receiving the expertise and the treatment from one of the titan brands in the world. While the company started operating under a traditional banking structure, the firm has been improving its model and have invested in an online platform that permits most processes and requests to be performed online. This might not be the best online bank in the market, but it is certainly an option that is worth paying attention to.
Marcus is a name that has become known for its refinancing products and also their consolidation vehicles. If you are interested in refinancing your credit card debt or simply to consolidate your debt, you should pay extra attention to this company and their fully online banking platform. Your request will certainly be handled by some of the very best institutions in the country and the world.
- 5.99% – 28.99% Variable
Loan Amount: $3,500 to $40,000
Length: 36 to 72 Months (3 – 5 Years)
Minimum Credit Score: 600 FICO
Minimum Annual Income: $40,000
- Soft Credit Inquiry: This is a great benefit as it ensures that your credit score will not be affected with a hard inquiry, it also protects the user in case he/she gets rejected. Take into consideration that even though credit inquiries will only affect a score temporarily, it may still affect the qualification and the ranking if you are tight in your bracket.
- Application Fully online: While this firm has branches in the US, the company has taken a fully online approach in which the entire process to request any type of loan could be managed from your cellphone. Please note that if you get rejected but you still believe with a proper review you could be approved, I would recommend going to one of the closest branches and ask for a manager to review the case. The reason for this is that in most cases the algorithm is too strict and tight that you might be left out for small things that an agent might let go.
- No Prepayment Penalty: Prepayment penalties have become a widely used method to recoupe from the missing revenue in loans that get paid before it was initially expected. Keep in mind that in most cases the tenure of the loan will have an impact on the pricing of it. This opens space for discussion as most financial institutions would argue against prepaying while it is a right of the borrower to do so.
- Only Unsecured Loans: Individuals who are looking for a cheaper interest rate tends to prefer a secured loan where collateral would ensure the debt. Since the overall risk exposure is lower, so are the rates.
- Not offered to self-employed individuals: The firm focuses on individuals who have received a constant salary for a period of at least 6 months in a row. Anyone that does not falls into this category, this includes self-employed individuals, will be rejected.
- Pre-Approvals are meaningless: This firm has become known for sending pre approval letters that in reality they are simply a marketing tool. Don’t let yourself be fooled into believing that you have a credit line or a personal ready to take home.
3. Avant | Best For Dented Credit Scores
This Chicago based firm was one of the first fully online lending institutions to completely focused on individuals with a damaged credit score. According to the firm, their target is to help the typical middle-class American consumers improve their finances and their life.
While you might be able to apply for a fully open personal loan, this firm is typically used by individuals who are actually trying to consolidate their debt into one single payment. For most instances the company will provide two options:
- You lower your interest rate in exchange for a higher payment, this will help you amortize more to your loan can pay it in full faster
- You lower your interest rate in exchange for a smaller payment spread across a longer tenure. This is a great tactic if all you are looking for is to clear some cash out of your wallet.
It is important to mention that even though it is a mid-size firm, you are still going to be dealing with a company that has fewer resources in terms of problem-solving. If you have any situation with your application or your loan, you can easily find yourself spending hours if not days trying to get somebody to help you with it.
- 9.95% – 35.99% Variable
Loan Amount: $2,000 to $35,000
Length: 2 – 5 Years Minimum Credit Score: 580 FICO
Minimum Annual Income: $20,000
- Administrative Fee 4.9%
- Late Fee $25
- Unsuccessful Payment $15
- No Prepayment Fee
- Transparent Fees: It is always good to see a firm that is open about their fee structure and that you won’t have to deal with hidden fees after signing the contract. Fees might be high but you can get a full invoice with the cost of the loan before fully committing with it, this will help ensure you will know exactly how much will get to your hand.
- Low Credit Score Requirement: As mentioned above, this firm has focused on lending money to individuals with a dubious credit score. While this means that most Americans would be able to get a loan from Avant Credit, you should keep in mind that a full analysis of your profile will be done and it might be even more detailed than a traditional credit check.
- Grace Periods: The firm knows that like is not static, things break and things happen. They are in business to get paid but they understand that it is better to give some grace period than starting to attack their borrowers after the first strike. Take your time to understand the policies and also the fine print in terms of grace periods.
- High Admin Fee: An administration fee of almost 4.9% is simply absurd in my opinion. Even if it looks like you can get over the price of the fee, it is still an incredibly large penalty towards your loan. While the firm offers a relatively “ok” service, it is not worth spending and paying the Management Fee.
- Bad Reviews: While most lending companies are full of bad reviews online, it caught my attention to see too many individuals complaining about the exact same mistake. Imaging authorizing the firm to automatically withdraw from your account and then realize they charged you twice! And being told that they can’t cancel it or give your money back, out of the blue you paid two months in one for their “mistake”. If you have a buffer of cash you might go over this but if you are living paycheck to paycheck this is simply aggression that can not be forgiven.
4. Lending Club| Best P2P Lending
Lending club is a disruptive company that operates in its own category, while it offers access to traditional methods of borrowing, the entire structure is backed by a peer to peer lending. Instead of acting as a final lender who is giving you their money in exchange of interest, the firm connects multiple individuals who are interested in being the lender.
P2P Lending is not a new thing but it has become mainstream as more and more firms digitalize their platforms. Keep in mind that due to the fact that there is an intermediary involved in the whole process, you might actually have to pay a higher rate for your loan.
While the firm openly says that their minimum credit score is 600, it has become known to the public that individuals with an even lower number have been approved. Remember that there is someone backing your loan, chances are that if they are in the market with a higher risk appetite they will be interested in lending you for a higher rate.
- 6.95% – 35.89% Fixed Rates Only
Loan Amount: $1,000 to $40,000
Length: 3 – 5 Years
Minimum Credit Score: 600 FICO
Minimum Annual Income: None
- Origination Fee 1% – 6%
- Late Fee $15 or 5% of payment after 15 days grace period
- No Prepayment Penalty: It is good to know that if things get better you will be able to pay your loan in full without having to pay a penalty for it. Due to the P2P structure, if you pay your loan early, the money lost in interest rates will be a hit for the lender and not for you.
- No Hard Credit Inquiry: It is always upsetting to see firms hitting credit scores just for opening your profile With Lending Club you can be certain that the firm will only use a soft inquiry until you signed the contract for the loan.
- Fixed Rate: In a market as volatile as the one we have today, it is great to see that you will be able to fix your rates without having to pay extra. This is a mechanism that due to the P2P lending structure, will protect both borrowers and lenders.
- Origination Fee: As mentioned before this is another tax to your money and your loan. With today’s models, you should not be paying up to 6% just to get the money that you will have to pay back in full.
- Liquidity: This is a particularly odd problem but due to the fact that the firm is not using their money to back your loan, your eligibility will depend on the current liquidity and appetite of the platform. This means that at any point you might want to request a loan without even getting a quote because there are no lenders interested at the moment.
5. Discover | Overall Best for Debt Consolidation
Discover might be known for their payment network and their vast range of credit and debit cards. But in silence, the firm has become one of the most important and fully operational online banks in the US. If you are in need of a personal loan and you have a good credit score, this might be an option that should not miss.
Keep in mind that in a market full of companies offering sketchy products and taking advantage of individuals with a low credit score, names like Discover act as safe havens and heroes for individuals in need. While the problem might always occur with any type of institution, it is comforting to know that you are doing business with a mature and reputable company.
There are only a handful of names in the financial markets where I can truly say that the firms best interest is the client best interest, and Discover is one of them. If you don’t want to lose your sleep over a personal loan you might want to review Discover as your best possible option.
- 6.99% – 24.99% Variable
Loan Amount: $2,500 to $35,000
Length: 3 – 7 Years
Minimum Credit Score: 660 FICO
Minimum Annual Income: $25,000
- No Fees
- Direct Payment to Creditors: The fact that in case of debt consolidation you can get your creditors paid directly by Discover takes a lot of pressure of your shoulders. If you are consolidating it means that you really want to get over everything and get rid of everything with your previous lender, don’t take your chances by getting the money and then go pay your previous debt. This is one of those situations where it is better having another financial institution fighting for you.
- No Closing or Origination Fees: Finally a lender that won’t steal your money in management fees. Even though it is the common practice in the market, it does not mean you have to be ok with it.
- Competitive Interest Rates: This might not be the cheapest option in the market, but once you consider the service, the platform and the fact that you won’t pay any fees then it certainly becomes probably one of the best. While much individual focus too much on the interest rate that they are being charged for, they missed the fact that in reality, they would be better off with a higher rate but with no fees.
- Unsecured Loans only: If you were planning on using your house or some securities as collateral for a loan then you might want to look somewhere else as this firm only offers unsecured loans. The main reason for this is all the infrastructure needed to manage custody of assets in an upscale.
- Low Max Loan: At only $35,000 many individuals will have to pass if they are looking for a larger loan. Keep in mind that the average debt consolidation in certain states is considerably higher than that.
- No Personal Attention: Even though you don’t expect an online bank to have branches around the country, it is always good to know that if things go south you would have somewhere to sit down with an executive. With discover, all communications will be done via phone call or simply via email. It is important to understand that not all individuals feel comfortable with this method and it can easily become a deal breaker for some.
What different types of loans are there?
There are a number of different loan types. If you are looking for a specific type of loan, browse our list below which contains detailed guides about each type of loan
Before even thinking about choosing one provider over the other it is important to have a clear picture of why you need the loan in the first place. The main reason for this is to be able to have an objective perspective, maybe you want to get the cheapest loan in terms of interest and make bigger payments or actually the opposite and what you want is to free some cash from your wallet every month.
This is a very big market and it gets even bigger once you understand that most of these institutions will give you several different options to choose from.
A personal loan will not solve all your problems, but it will certainly help you regain control of your finances if you’ve lost it or one reason or another. After knowing and understanding how easy it truly is to request a loan online, there isn’t really a reason or an excuse to justify procrastinating it.
Our best advice is to weight the necessity of the loan and to deeply understand the structure of the borrowing in order to be on the same page with the lender. The idea of getting a personal loan should be to improve your life and not to impact your credit score because you did not have the capacity to repay the money.
Glossary of Loan Terms
What's the Minimum Credit Score for a Personal Loan?
On average most financial institutions would expect a FICO credit score of at least 580 or Fair. Keep in mind that while this is the average in the country, it does not mean that other scores would be received as well. Any institution from this list will review your credit score and based on that they will assign your interest rates, the lower your score the higher the rates. If you have a really damaged credit score you might want to look for a secured loan. This structure would require collateral to cover for the loan, but since it reduces the level of risk taken by the firm, it is almost certain that you might get approved for your loan.
What is the Origination Fee?
Origination fees usually represent the cost of processing a loan and setting up an agreement. This fee covers the cost that the lender incurs of underwriting a loan and also the cost associated with the verification of documents (including the credit score). Even though it may sound unfair, many institutions will calculate the origination fee based on the creditworthiness of the individual. In reality, the fee might not be too high but is another point that proves that having a proper credit score will save you a lot of money down the road. In 2019 the average origination fee is between 1% and 5%.
What are prepayment penalty Fees?
Even before a personal loan is granted the financial institution has the knowledge of what's the minimum profit they would make considering the length and also the different fees and interest rates. Chances are that things are going better for you and you decide to repay your loan, this would mean that the firm that issued the loan would get their money back sooner but would lose the profit from the interest. These penalty fees and fines are used to cover for the loss in terms of fees, the bank is certainly not going to lose money but you will get fined anyway. Take your time to review if your institution offers a free prepayment or if there is any fee or fine associated with it.
How long does it take to get the money in my account?
In most cases, the entire process is very straightforward and easy. Once approved you should receive the funds in 1 business day. Many financial institutions explicitly ask their customers to proceed with this type of requirement online if their are looking to get their funds as soon as possible, mainly because the review would be done by artificial intelligence and not by an agent inside a branch. This is another great reason why to proceed online and not in a physical branch.
Secured vs Unsecured Personal Loans
Secured Personal Loans: A secured personal loan means that you have offered the bank some sort of collateral that would take the fall in case you don't pay for your loan. In synthesis, you would be providing some insurance or coverage for default. There are many different types of assets that can be used as collateral but the most common are properties, cash, CDs, and even cars. It is important to understand that if you fail to meet your payments you will lose your collateral. Unsecured Personal Loans: Unsecured loans are completely the opposite. Under this category the institution would be taking the risk for your default, meaning that it would be their loss if you don't pay back. This is a perfect example where your creditworthiness will determine if a bank is willing to take the risk with lending you money and if so, at what price.