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A personal loan can be a great way to finance large expenses or cover emergency costs. However, it’s important to know your credit score and shop around before you apply.
You should also consider the minimum requirements and fees when choosing a lender. Bankrate’s top picks include lenders that accept applicants with fair credit and a minimum credit score of 620.
1. Requirements
Generally, lenders want to see creditworthiness and verifiable income as the top requirements for personal loans. They also prefer a low debt-to-income ratio, and a stable living situation that includes employment and property ownership. Lenders typically require proof of address, such as utility bills, a copy of your lease or rental agreement, property tax statements or voter registration cards. Many online lenders have secure portals that make it easy to upload these documents.
A lender’s application process may include a credit prequalification, which involves a soft inquiry that doesn’t affect your score. You can use these offers to compare loan rates and terms before you submit an official application.
Having good or excellent credit improves your chances of getting the lowest personal loan rates. However, you can still qualify for a personal loan with fair or poor credit, though you’ll likely pay higher interest rates and fees. You can also apply with a co-applicant to increase your chances of approval. Some lenders offer unique perks, such as rate discounts for autopay or extended grace periods.
2. Fees
Many lenders charge various fees, including application, origination and other fees. It is important to understand these charges and factor them into your planning process. In addition, some lenders may have limitations on loan amounts and repayment terms. Be aware of these limitations before you apply for a personal loan.
Credit scores are the largest determining factor for personal loan rates, but factors like income, debt-to-income ratio and other financial information can also affect the final rate. In general, borrowers with good to excellent credit will qualify for the lowest rates and best terms. Borrowers with fair and bad credit can still obtain personal loans, but they will likely pay higher interest rates.
Banks best personal loans for fair credit reddit offer a variety of financial products, including checking and savings accounts, consumer loans and credit cards. They tend to have lower rates than credit unions and online lenders. In addition, they may offer additional perks, such as a rate discount for automatic payments or extended grace periods for existing customers.
3. Interest rates
The interest rate you pay is the biggest factor in how much a personal loan will cost. However, it’s not the only factor to consider. Some lenders also charge fees like loan origination fees, prepayment penalties and late payment fees, so make sure you understand the full cost of a personal loan before you take one out.
The best personal loans come with low interest rates, which help keep monthly payments as manageable as possible. Lenders usually base their rates on creditworthiness, but it’s important to shop around and compare rates to find the right deal for your situation.
Investopedia’s 2024 Best Personal Loans rankings are based on user ratings of top lenders, as well as research into the lender’s terms and conditions, such as fees, repayment terms and more. These rankings are updated frequently.
4. Repayment terms
Besides interest rates, consider the loan amount and repayment terms when selecting a personal loan. Borrowers often use loans for debt consolidation, home improvement projects or large purchases. Look for lenders that offer reasonable annual percentage rates (APRs), transparent fee information and flexible repayment periods.
Many traditional banks, credit unions and online lenders offer personal loans for borrowers with excellent, good, fair or bad credit. Those with the best credit scores typically qualify for the lowest rates and most generous loan amounts. For borrowers with less-than-perfect credit, options like Prosper, Sezzle, Upstart and Credible lend to borrowers with scores below 600.
When reviewing lender options, check whether they offer lump-sum personal loans that are deposited directly into your bank account. Also compare loan term lengths, as the longer the repayment period is, the lower your monthly payment will be. Lastly, find out whether each lender charges a prepayment penalty or if they allow you to pay off your loan early without any extra fees. Make sure to take the time to thoroughly research lenders and choose one that fits your unique financial profile.
5. Flexibility
Whether you’re looking to finance a large purchase or pay off debt, the best personal loans provide flexibility to meet your needs. A good personal loan lender offers a wide range of loan amounts and competitive interest rates based on your credit profile, income and employment situation. Additionally, you’ll want to look for lenders that offer minimal fees and repayment terms that work within your budget.
Personal loans are available through banks, credit unions and online lenders. Banks typically have the highest rates and strictest requirements for borrowers, while credit unions offer lower rates and easier qualifying criteria. Online lenders are also growing in popularity, offering a convenient and flexible application process and funding times.
Depending on the lender, you’ll usually need to provide copies of documents that prove your identity (government-issued photo ID and pay stubs) and your income and finances (recent tax returns or W-2s). Then, they’ll run a soft credit check to determine if you’re likely to qualify before running a hard check that could impact your score. If approved, you’ll complete the full loan application and receive a detailed breakdown of your rates, terms and fees.
