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The best personal loans get borrowers their money quickly and at the lowest rates. But with personal loan rates on the rise, learning how to find the best personal loans, vet personal loan lenders, and score affordable monthly payments is key. In this guide, we’ll take a look at how personal loans operate and how you can find one that you qualify for and that fits your needs.

Learn more: What is a personal loan?

Personal loan pros and cons

Pros: The benefits of a personal loan

• Versatility. The best personal loans come in a variety of lump-sum amounts, and the loan funds can be used for many financial goals. Repayment terms may be fine-tuned to your monthly cash flow.

• No collateral required. Usually, unsecured personal loans are the most attractive to borrowers. Qualifying for an unsecured loan means you won't have to put up your home, vehicle, or other personal property to guarantee the loan.

• Lower interest rates than credit cards. With good credit, you'll likely earn an interest rate lower than you'll see on credit cards. And credit cards and home equity lines of credit usually have variable rates that have been moving higher recently. Personal loans often have fixed interest rates that don't change.

• Easier to qualify for. The best personal loans have lower eligibility standards than major loans like a home mortgage. Lenders qualifying borrowers with a wide range of credit scores are a bonus.

• Quick approval: The best personal loan lenders can turn around your approval and put cash in hand as soon as the next day. That kind of speed for loan approvals is unique to personal loans.

Cons: The drawbacks of personal loans

• Your interest rate might be higher than expected. Because many personal loans are unsecured, your interest rate might take a toll on your budget. Consider the pros and cons of secured versus unsecured personal loans.

• There are sometimes fees: Depending on your lender, you’ll sometimes face multiple charges and fees, including origination fees or prepayment penalties. Read the fine print before you sign during the application process.

• More debt. Let's face it. Personal loans can be just one more thing to pay off. If you have a good to excellent credit score and manage debt well, you're fine. But for those struggling in their current financial situation with a low credit score, think it through before taking on more debt.

Read more: 4 types of home renovation loans and how to choose

Factors to consider when choosing a personal loan

Good personal loans come with a competitively low fixed rate, providing a loan amount that aligns with your financial objectives and comes with repayment terms that are manageable for you. But the best personal loan providers go the extra mile by minimizing unnecessary fees, providing flexibility in credit score requirements, and ensuring responsive customer support.

Let's explore the loan options that exemplify the qualities of the best personal loans.

Dig deeper: Is a personal loan right for me?

Interest rates and APR

Interest rates charged for personal loans have been rising recently, a byproduct of the higher rates instituted by the Federal Reserve's effort to tame inflation. However, while the trend for personal loan rates has been moving higher, the rate you receive is based on your credit profile. The best personal loan lenders will offer borrowers the most competitive loan offers.

Lenders consider your credit score, which is a measure of your creditworthiness based on your history of repaying debt, such as credit card debt, vehicle loans, and a home mortgage, if you have one.

They will also review your debt-to-income ratio. That compares how much you owe on existing debt to your pre-tax earnings.

Lenders call this risk-based pricing. They charge more interest (and fees) to borrowers with poor credit that seem to be at a higher risk of nonpayment. Excellent credit borrowers earn lower personal loan rates. The lower your interest rate, the less you pay to borrow money, and the easier it is to afford your monthly payment.

You'll often see an interest rate quoted as an APR. The annual percentage rate is your yearly cost of borrowing money and includes any fees or other charges. Looking at the APR ranges offered to you is an excellent way to compare lenders and find your best borrowing deal.

Loan amount and terms

Your best personal loan choice will be based on your needs and the repayment terms from the lender who meets your financing goals.

• Borrow what you need, no more. Lenders who identify a qualified borrower are anxious to offer the maximum loan amount they believe the customer can afford. That can be more than you need and put you on the hook for higher debt. For example, if you need $7,000 and the lender gives you a loan approval of $10,000 because of your good credit, stick with the $7,000. The average amount of an unsecured personal loan was $7,100 in the first quarter of 2023, according to TransUnion.

• Consider what monthly payment you can really afford. The loan terms are the amount you'll pay each month and the number of months those payments will be required. The best personal loan will feature payment options with the shortest term length that allows a monthly installment payment you're comfortable with.

Personal loan fees and charges

As with borrowing any debt, the interest rate, fees, and other charges are the differences that separate lenders.

Take your time during the application process. You can save yourself hundreds, maybe thousands of dollars over the loan term. Personal loan fees and charges to look for can include:

A prepayment penalty. A fee is levied if you pay the loan off early. In effect, you're being penalized for reducing debt. Avoid a prepayment penalty if you can.

Origination fee. An extra charge to pad the lender's profit. It is usually a percentage of the total loan, for example, 1% or 5%.

Application fee. Another nuisance fee. It's usually around $25 to $50 but can be as high as $500. You’re actually paying to submit a loan application.

Document fees. A fee for processing the paperwork of your loan application. It shouldn't be much, but again, another junk fee.

The best personal loan lenders won't charge most of the fees above.

Late payment fee. You can't avoid this one. If you don't pay on time, you'll get hit with a late fee. Getting behind on monthly payments will also negatively impact your credit score.

Ask questions before you get a loan offer. There may be a lot of paperwork involved in the application process for your personal loan. If there's something you don't quite understand before loan approval, take time to get an answer from the lender.

Credit score and eligibility

You will want to know your credit score and credit history well before qualifying for a personal loan. That way, you can correct any errors or try to clean up any blemishes.

The higher your credit score, the better your personal loan terms and the lower your monthly payment will be. Credit scores generally range from 300 to 850. Experian data reported the average FICO score in the U.S. was 714 in the third quarter of 2022.

Learn more: How to get a personal loan with bad credit

Current interest rates from a major lender, PenFed Credit Union, range from an annual percentage rate of 7.99% to 17.99%. That's just one example. Top-tier credit scores will earn the most favorable interest rate.

Some lenders will consider issuing personal loans to borrowers with bad credit. Of course, your repayment terms will be less favorable, and the interest rate will be higher. The installment payments may be out of your reach.

Lender customer service and reputation

Your lender choice is important. You want to find a provider with a good reputation, the services and perks you prefer and the most favorable loan terms. Shady, predatory lenders can put on a good front, but you want to peek behind the curtain and lower your risk of dealing with a "bait and switch" lender. That’s when you’re promised a tempting loan offer that turns out to have a much higher interest rate than you expected and requires monthly payments that you might not be able to afford.

For the best personal loan:

• Look for lenders that allow prequalification. That means you'll get a solid loan offer with detailed repayment terms before you make a borrowing commitment. You can compare personal loan interest rates among multiple lenders before starting the official application process.

• Investigate customer support. Does the lender offer an autopay option, allowing monthly payments to be drafted from your checking account? If so, does that provide you with an autopay discount and a slightly lower interest rate? Is there phone and email support during the hours you'll most likely need assistance?

• Read customer reviews. Real-life reviews offer the best view of a lender's reputation. Sort the reviews by "most recent," if possible, to see the latest issues or complaints. Red flags can include last-minute changes to a borrower's interest rate or loan terms just before document signing, disbursement or installment payment processing glitches, or issues with the functionality of a mobile app or website.

Best place to get a personal loan

Ultimately, the best personal loan provider will understand your needs and financial objectives. They'll also offer favorable loan terms tailored to your creditworthiness, and you can expect to be treated with utmost consideration and respect during the whole process.

You might choose an online lender for a wide variety of payment options and delivery of loan funds the next business day. A financial institution where you keep a bank account may be eager to expand its financial relationship with you and offer the lowest APR. Or, a credit union may provide the best combination of service and loan terms.

Learn more: Can you get a personal loan fast and in an emergency?

It's all a matter of shopping lenders and loan offers. If you think about your largest purchases, say a vehicle or big-screen television — a personal loan can rank right up there with the biggest financial decisions you'll make.

Sure, you'll have the money in your hands for a moment. But then the monthly payments begin, with the loan amount mushrooming with fees and interest.

How to apply for a personal loan

Here's what you need to do to apply — and give yourself the best chance of getting approved for a personal loan.

First, know your credit score. That's the credit profile that helps determine your interest rate. An excellent credit score earns the best rates. Credit bureaus often offer free FICO credit scores through financial providers.

Consider the amount of money you want to borrow. Be realistic. Get what you need. A smaller loan typically has a shorter term length. Maximum loan amounts require monthly payments for a longer time and may impact your creditworthiness for future borrowing.

Prequalify with two or three lenders. For a prequalification, you'll want to ask for a soft credit check that won't affect your credit score. See how the initial loan offers shake out. Keep an eye out for the lowest rates.

Don't rush your decision. Once you have two or three loan offers in hand, sit down and do a side-by-side comparison of each. Which lender gives you the best payment options and combination of loan terms and service? How much will you save over the life of the loan from the lowest APR offer compared to the least favorable? How quickly will the loan funds be available?

Apply with the best personal loan lender for you. With an online application, the lender will order a full credit report, including your credit score. That may affect your creditworthiness, so be sure this is the lender you want to work with. Once you’ve completed the approval process and received loan approval, the disbursement should be issued in days, with some lenders offering next-day funding. Monthly payments will soon begin.

Dig deeper: How long does it take to be approved for a personal loan?

Personal Loan FAQs

Can I use a personal loan to pay off credit card debt?

Absolutely. It's one of the most common purposes for a personal loan. Called a debt-consolidation loan, it requires a personal loan with an interest rate significantly lower than the annual percentage rates you're paying on outstanding credit card debt. Paying off high-interest rate debt with a debt consolidation loan can have a long-term positive effect on a borrower's credit score.

Can I apply for a personal loan with no credit check?

A no-credit-check lender will likely offer smaller loans, shorter repayment terms, and high interest rates. A secured loan with collateral may be an eligibility requirement. It can be a risky financing option. Payday lenders and buy-here-pay-here car lots are examples of no-credit-check lenders. Borrowers should know that such loans are best used for emergencies — and only if they have bad credit and few other loan options.

Can I get a personal loan with bad credit?

Yes, there are personal loan lenders with flexible credit score requirements that cater to borrowers with bad credit. However, you'll likely pay at least an above-average interest rate. Or, the lender may require a cosigner, joint application, or a secured loan guaranteed by collateral. The term length may be longer, as well.

How does a personal loan work?

A personal loan is a lump-sum installment loan issued by a bank, credit union, or online lender; the best personal loans most often require only your signature, proof of steady income, and a review of your credit history. You'll make monthly payments for the loan term. You can use a personal loan for a variety of uses, but are generally prohibited from using one to pay off student loans, put a down payment on a home, or for investing purposes.