Top Personal Loan Options in 2023

• By upart.club
• Posted on July 18, 2023
• Likes: 191

In 2023, you have various options to obtain personal loans, including traditional banks, credit unions, and online lending platforms. These loans usually span from $1,000 to $50,000, although a few lenders may provide amounts up to $100,000. It is worth noting that we reveal that over 80% of Americans borrow less than $20,000. Additionally, many personal loans can be approved and funded within a few business days, allowing you to access the necessary funds promptly.

Personal Loan Rate Comparison

Top Personal Loan Options and Current Rates as of June 2023:

1. SoFi - Highly recommended overall personal loan with competitive rates.
2. LightStream - Best choice for low-interest rates on personal loans.
3. LendingPoint - Ideal for fast funding and individuals with below-average credit.
4. Upgrade - Excellent option for those with bad credit.
5. Universal Credit - Offers the convenience of comparing multiple loan offers.
6. Discover - Provides no interest if the loan is repaid within 30 days.
7. Upstart - Perfect for smaller loan amounts starting from $1,000.
8. Avant - Offers a variety of repayment terms to suit individual needs.

Methodology

We thoroughly evaluated 29 popular lenders based on 16 key data points across various categories, including loan details, loan costs, eligibility and accessibility, customer experience, and the application process. We assigned weights to each category to determine the best lenders. Here is the breakdown of the weightings:

• Loan details: 20%
• Loan cost: 35%
• Eligibility and accessibility: 20%
• Customer experience: 15%
• Application process: 10%

Within each category, we considered specific factors such as available loan amounts, repayment terms, APR ranges, applicable fees, minimum credit score requirements, acceptance of co-signers or joint applications, and geographic availability of the lender. Additionally, we assessed each provider's customer support tools, borrower perks, and features that simplify the borrowing process, such as prequalification options and mobile apps.

Partial points were awarded when applicable, based on how well a lender fulfilled each criterion.

For a comprehensive understanding of how we rate lenders and our editorial process, please refer to our Loans Rating & Review Methodology.

Survey Methodology

 It involved 1,000 Americans who have previously applied for personal loans. The data was collected between March 9 to March 23, 2023, and April 12 to 20, 2023. The margin of error is +/- 3.1 points with a 95% confidence level. The OnePoll research team, which is a member of the Market Research Society (MRS) and has corporate membership with the American Association for Public Opinion Research (AAPOR), oversaw the survey. For detailed information on the survey methodology, including sample sizes based on geography and demographics, please refer to the complete survey methodology.

Tips for Comparing Personal Loans

When comparing personal loans, keep the following tips in mind:

1. Prequalify whenever possible: Take advantage of the option to prequalify for a personal loan. This allows you to provide your financial information and get an idea of the loan amounts, rates, and repayment terms you are likely to qualify for. Prequalification usually involves a soft credit inquiry, so it won't negatively impact your credit score.
2. Consider the purpose of the loan: Personal loans have specific limitations on their use, such as debt consolidation, home improvements, vacations, weddings, and other personal expenses. Confirm that your intended use of the loan aligns with the lender's terms and restrictions.
3. Watch out for additional fees: Some lenders offer fee-free personal loans without origination fees, late payment fees, or prepayment penalties. However, it's important to inquire about any potential fees when comparing loan terms. If there are origination fees, clarify whether they are included in the APR or deducted from the loan amount.
4. Evaluate customer support options: Before finalizing a loan agreement, consider the lender's customer support resources. Adequate customer service becomes crucial in case of payment issues or financial hardships during the repayment period. Check customer service options and read reviews from previous borrowers to ensure a positive experience.

By following these tips, you can effectively compare personal loans and find the best option for your needs.

What Is a Personal Loan?

A personal loan refers to a type of financing where borrowers can obtain a lump-sum amount from traditional banks, credit unions, or online lenders. This loan can be utilized for various expenses, including medical bills, auto repairs, home improvements, and debt consolidation. Personal loans typically have repayment terms ranging from two to seven years, and they offer competitive interest rates as low as 3% for borrowers with excellent qualifications.

How Do Personal Loans Work?

Personal loans are commonly available from banks, credit unions, and online lenders. Prospective borrowers can apply for a personal loan either through an online application or by visiting a physical branch. After applying, they await a decision on their loan application, which can either be an approval or denial. If the loan is approved, borrowers receive the loan amount as a lump-sum payment deposited into their bank account. Interest begins accruing from the first month. Personal loans require fixed monthly payments over the entire loan term, typically ranging from one to seven years. Many personal loans can be funded within a few business days, allowing borrowers to access the required funds promptly.

Popular Personal Loan Terms

Based on our survey of 1,000 U.S. adults who have applied for personal loans, consumers opt for various loan amounts and term lengths. The survey revealed that 44% of respondents borrowed between $1,000 and $4,999, while 21% and 13% borrowed $5,000 to $9,999 and $10,000 to $19,999, respectively. In terms of loan duration, 34% of respondents chose a one-year loan, 26% preferred a two-year loan, and 16% selected a three-year loan.

What was the loan amount you borrowed?

The loan amount available to you is determined by your creditworthiness and the offerings of a particular lender. For instance, personal loans generally span from $1,000 to $50,000, although some lenders may provide loans as high as $100,000. Larger loan amounts are generally reserved for exceptionally qualified applicants as these transactions pose higher risks for lenders.

Considering that you will be charged interest on the entire loan amount, it is essential to borrow only the necessary sum and refrain from borrowing more.

What was the duration you selected when obtaining your most recent personal loan?

Similar to the loan amount, the duration of a personal loan significantly impacts your monthly payments and interest expenses. Loans with shorter terms require larger monthly payments but result in lower overall interest charges. Conversely, longer-term loans offer smaller monthly payments but involve higher interest costs throughout the loan's lifespan.

For instance, let's consider a scenario where you borrow $3,000 with an 11% interest rate. If you choose a one-year term, your monthly payment would be $265, and the total interest paid would amount to $182, resulting in a total repayment of $3,182. However, if you extend the same loan to three years, your monthly payment would reduce to $98, but the total interest paid would increase to $536, making the total repayment $3,536. This demonstrates the potential for savings by selecting shorter loan terms, assuming you can afford the higher monthly payments.

The interest rates on personal loans vary based on credit scores, with different rates corresponding to different credit score ranges. Here is an overview of the average personal loan interest rates categorized by credit scores:

• Excellent Credit (720 and above): Individuals with excellent credit typically enjoy the lowest average interest rates for personal loans.
• Good Credit (680 to 719): Borrowers with good credit scores generally receive slightly higher interest rates compared to those with excellent credit.
• Fair Credit (640 to 679): Average interest rates for personal loans tend to be higher for individuals with fair credit scores.
• Poor Credit (below 640): Borrowers with poor credit scores usually face the highest average interest rates on personal loans.

While lenders are responsible for determining and setting interest rates, as an applicant, you have the ability to enhance your chances of obtaining favorable loan terms.

According to Rod Griffin, senior director of consumer education and advocacy at Experian, "Consumers with higher credit scores generally qualify for lower interest rates. To improve your credit scores, it is important to make timely payments and strive to maintain low balances. Missed payments and high credit utilization rates, which refer to the ratio of your credit card balances to their limits, are the two most significant factors affecting your credit scores. If possible, I recommend checking your credit report and scores three to six months prior to applying for a personal loan. This will provide you with sufficient time to address any areas that require improvement in your credit standing."

Here are five reasons to consider getting a personal loan:

1. Emergency expenses: Personal loans can provide immediate funds for unexpected costs like medical bills, funeral expenses, car repairs, or any other urgent financial needs.
2. Debt consolidation: Personal loans offer an opportunity to consolidate high-interest debt into a single loan, allowing you to save money on interest payments and simplify your repayment process.
3. Home improvements and repairs: If you have upcoming home improvement projects or need to cover unexpected repair or maintenance expenses, a personal loan can be a convenient option to finance these costs.
4. Auto financing: While auto loans are commonly used for vehicle financing, personal loans can also be utilized. Personal loans provide more flexibility in car choices, but they typically come with higher interest rates compared to traditional auto loans.
5. Moving costs: The expenses associated with moving can accumulate quickly. If you require financial assistance for relocation, personal loans can help cover the costs when you don't have immediate cash available.

How People Are Using Personal Loans

Based on our survey, consumers utilize personal loan funds for various purposes. Among the 1,000 U.S. adults who applied for a personal loan, the survey revealed that 22% of respondents used the funds for debt consolidation, while 21% and 20% allocated the funds towards monthly living expenses and home improvements, respectively.

How did you primarily utilize the funds from your personal loan?

If you are planning to use personal loan funds for monthly living expenses, debt consolidation, home improvements, or any other eligible expense, it is important to ensure that you can comfortably afford the monthly payments. 

When you borrow a personal loan, you are responsible for repaying the loan amount along with any applicable interest and fees. This means that the total expense will exceed the initial loan amount. For instance, let's say you require $2,000 for auto repairs and you take out a one-year loan with an 11% interest rate. In this scenario, you would also owe $121.16 in interest, resulting in a total balance of $2,121.16.

If you wish to avoid interest and fees, you might consider borrowing money from friends or family, which was reported by 21% of survey respondents. However, even with a family loan, it is advisable to create and sign a formal agreement that outlines the terms, including the repayment schedule. This ensures a clear understanding and a successful arrangement for all parties involved.

Personal Loans Pros and Cons

Pros:

• Personal loans typically come with fixed interest rates and monthly payments, providing stability throughout the loan term.
• Personal loans often have fewer qualification requirements compared to other financing options, making them accessible to individuals with lower credit scores.
• Personal loans can be used for various purposes, allowing flexibility in addressing financial needs.

Cons:

• Borrowers are obligated to repay the full loan amount, even if they end up not needing the entire sum.
• Interest is charged on the entire loan amount, which can increase the overall cost of borrowing.
• Origination fees, ranging from 1% to 8% of the loan amount, may be charged, adding to the total expense.

When it comes to obtaining a personal loan, there are three main types of institutions you can consider:

1. Online lenders: These are non-bank companies that operate primarily through online platforms. They often leverage technology to offer a streamlined application process and may have a limited range of lending products, including personal loans. Online lenders typically provide competitive interest rates, nationwide availability, and the convenience of quick funding, often within 24 to 48 hours.
2. Banks: Many local and national banks offer personal loans alongside their other financial products, such as checking and savings accounts. If you already have an established relationship with a bank, it may be worth considering applying for a personal loan through them. Banks offer the advantage of stability, established reputations, and the potential for personalized customer service.
3. Credit unions: These are community-based financial institutions that require membership. Credit unions often offer personal loans both online and through in-person branches. They may provide competitive rates and personalized service. If you are eligible for membership, exploring personal loan options at a credit union can be beneficial.

The best place to get a personal loan ultimately depends on your specific needs, including favorable terms, loan limits, and the overall suitability of the lender. It is advisable to compare offers from different institutions and choose the option that aligns with your requirements.

Apply for a personal loan

You can follow these general steps, although the process may vary slightly depending on the lender:

1. Check your credit score: Start by checking your credit score, which can be done for free through your credit card issuer or other websites offering free scores. Knowing your creditworthiness will help you understand your qualification chances. Aim for a credit score of at least 610, but a score of 720 or higher will give you the most favorable terms.
2. Improve your credit score if needed: If your credit score is below 610 or you want to secure better terms, take steps to improve your credit before applying. This may include reducing your credit utilization or paying off outstanding debts.
3. Determine the loan amount: Calculate how much money you need to borrow. Keep in mind that you'll receive the funds as a lump sum, and you'll be responsible for paying interest on the entire borrowed amount. Only borrow what you truly need.
4. Compare terms and interest rates: Shop around and compare different lenders to find the best terms and interest rates. Many lenders offer prequalification, allowing you to see the terms you qualify for with a soft credit inquiry. This way, you can assess rates without affecting your credit score.
5. Submit your formal application and wait for a decision: Once you've found a lender offering favorable terms, submit your application either online or in person. The time it takes to process your application may vary, ranging from a few hours to a few days, depending on the lender.

Remember to carefully review the loan terms and conditions before accepting an offer.