A wide variety of financial institutions offer personal loans – from banks to credit unions to online lenders – and rates and fees vary from institution to institution. So the pros say it’s important to do your homework, looking at not just the annual percentage rate offered, but also any fees that may be charged by the lender and other terms of the loan. Also ask yourself if a personal loan is really the right option for you (this guide can help you).
Which bank to choose for a personal loan?
It’s a question that doesn’t have a simple answer, say the pros. Because everyone enters the loan buying process with different circumstances, there is no one size fits all institution that will offer you the best loan terms. “It depends on your needs and situation, so shop around and compare,” says Matt Schulz, chief credit analyst at LendingTree. Annie Millerbernd, personal loan expert at NerdWallet, adds, “If your bank or credit union offers personal loans, start there to see if they can offer a lower rate or discounts to customers. And then try to pre-qualify with a few online lenders.
Advantages and disadvantages of credit unions, online lenders and banks for a personal loan
Not sure which type of lender to choose? Here are some pros and cons of each option:
- credit unions tend to have lower interest rates, but you might not qualify to join them, says Schulz. Just note that credit unions generally don’t offer the option to prequalify, which means borrowers actually have to apply to find out if they’re eligible (and it could temporarily lower your credit score).
“Online lenders may work best if you try to get your funds quickly and strictly online,” says Schulz. There is one caveat though: there probably won’t be much in-person customer service if something goes wrong.
- Banks may have discounted rates for existing customers. “Your bank may be convenient and offer in-person service, but not all major banks offer personal loans,” says Schulz.
Bottom line: Look for the lowest rates and fees you can get, while considering the level of customer support you want.
How to get the best rate on a personal loan
Before applying for a personal loan, you’ll want to check your credit score and do what you can to raise it. It can also help you get a better rate if you pay off other debts before applying.
And Kaitlin Walsh-Epstein, senior vice president of growth and marketing at Laurel Road, notes that the term of the loan is also important: “Some lenders offer three-, five-, or seven-year loans with higher interest rates. higher for longer-term options,” says Walsh-Epstein. Keep in mind that the size of a loan can also impact interest rates. The larger the loan, the more the risk is high. McBride says that most of the time it’s not a function of the amount of the loan per se, but of the amount of the loan relative to income and other outstanding debts. “A loan of $25,000 to a borrower making $50,000 is very different from the same lending to a borrower making $150,000,” says McBride.
How to apply for a personal loan
Wondering how to apply for a personal loan? This MarketWatch Picks guide can help. The pros say you should try to get 3-5 quotes from different lenders to make sure you get the best deal on a personal loan.