The best personal finance loans for 2021

septiembre 10, 2021

Many personal loans can be used to fund common family expenses like home improvement projects, wedding expenses, vacations and, in some cases, even the purchase of land. Borrowers also turn to personal loans for debt consolidation, because interest rates are often lower for personal loans than for credit cards—especially for applicants with good to excellent credit.

These loans are available from traditional banks, credit unions and online lending platforms that make it easy to apply online—without having to visit a bank branch. What’s more, many personal loans can be funded within a few business days so you don’t have to wait to get the money you need. The best personal loans offer low interest rates for well-qualified borrowers, flexible loan amounts and repayment terms and limited fees.

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    Tips for Comparing Personal Loans

    Consider these tips when comparing personal loans:

    • Where possible, prequalify. Many personal loan providers offer prospective borrowers the ability to prequalify for a loan. This means the applicant can submit details about their financing needs, income, housing situation and other relevant information to find out what kind of loan amounts, rates and repayment terms they are likely to qualify for. Even better, this process typically only requires a soft credit inquiry so you can shop around without hurting your credit score.
    • Consider the purpose of your loan. While personal loans can be used for a pretty broad range of purposes, they are limited to things like consumer debt consolidation, home improvements, vacations, weddings, funerals, large purchases and other personal expenses. For that reason, lenders often restrict the use of personal loans for postsecondary education expenses, business purposes and illegal activities, at a minimum. When considering a lender, confirm that your intended use of the loan is permissible under its borrower agreement.
    • Keep an eye out for additional fees. Some lenders offer fee-free personal loans that don’t require borrowers to pay origination fees, late payment fees, prepayment penalties or any other common loan costs. However, this is more the exception than the rule, so it’s important to ask about fees when shopping for the best loan terms. And, if a lender charges an origination fee, find out whether it’s built into the APR or taken out of the loan amount prior to funding, as this may impact the loan amount you need to request.
    • Evaluate the lender’s customer support options. If you’ve found a lender that’s prepared to offer the money you need at acceptable terms, there’s one more thing to consider before signing the loan agreement. While customer support may not seem like a big deal in the honeymoon phase of your loan, it can make a huge difference if you encounter issues with payments or face a financial hardship during your repayment period. Review the lender’s customer service resources and read reviews from past and current borrowers to make sure it’s a good fit.

    Methodology

    We reviewed 15 popular lenders based on 16 data points in the categories of loan details, loan costs, eligibility and accessibility, customer experience and the application process. We chose the 10 best lenders based on the weighting assigned to each category:

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

    Within each major category, we also considered several characteristics, including available loan amounts, repayment terms, APR ranges and applicable fees. We also looked at minimum credit score requirements, whether each lender accepts co-signers or joint applications and the geographic availability of the lender. Finally, we evaluated each provider’s customer support tools, borrower perks and features that simplify the borrowing process—like prequalification options and mobile apps.

    Where appropriate, we awarded partial points depending on how well a lender met each criterion.

    What Is a Personal Loan?

    personal loan is a type of lump-sum financing borrowers can get from a traditional bank, credit union or online lender, which they can use for a variety of expenses. Common uses include medical bills, auto repairs, home improvement projects and debt consolidation. Personal loans typically have repayment terms between two and seven years and offer interest rates as low as 3% for high-qualified borrowers.

    Average Personal Loan Interest Rates By Credit Score

    Here are the average estimated interest rates for personal loans based on VantageScore risk tiers, according to Experian. Please note that interest rates are determined and set by lenders. The rates provided are estimations.

    Vantage V4 credit scoreAverage interest rate
    Deep subprime (300-499)15.30%
    Subprime (500-600)15.91%
    Near prime (601-660)15.56%
    Prime (661-780)10.93%
    Super prime (781-850)6.59%

    While lenders determine and set rates, as an applicant, you can increase your chances of receiving favorable terms.

    Rod Griffin, senior director of consumer education and advocacy at Experian, says, “Consumers with higher credit scores generally will qualify for lower interest rates. To increase your credit scores, make sure you make your payments on time and try to keep your balances low. Missed payments and high [credit] utilization rates, or balance-to-limit ratios, on your credit cards are the two most heavily weighed factors in determining your credit scores. If possible, I recommend checking your credit report and scores three to six months before you apply for a personal loan. This will give you time to take steps to improve your credit standing if necessary.”

    Best Place to Get a Personal Loan

    You can get personal loans from three types of institutions:

    • Online lenders. These are often technology-based non-bank companies that offer a small range of lending products, including personal loans. Online lenders typically offer low interest rates, loans that are available nationally and can provide funds within 24 to 48 hours.
    • Banks. Many local and national banks offer personal loans in addition to other financial products, such as checking and savings accounts. If you have an existing relationship with a bank, you may want to consider opening your personal loan through that bank.
    • Credit unions. These are local to your community and tend to offer applications both online and in person. Credit unions require membership, so be sure to check if you’re eligible.

    The best place to get a personal loan is where you can access the most favorable terms and loan limits that fit your needs.

    How to Apply for a Personal Loan

    While the process varies by lender, follow these general steps to apply for a personal loan:

    • Check your credit score. Start by checking your credit score for free through your credit card issuer or another website that offers free scores. This will give you an understanding of your creditworthiness and your qualification chances. Aim for a score of at least 610; however, a score of at least 720 will yield the most favorable terms.
    • If necessary, take steps to improve your credit score. If your score falls below 610 or you want to boost your score to receive the best terms possible, take time to improve your score before applying, such as lowering your credit usage or paying off unpaid debts.
    • Determine how much you need to borrow. Once you check your credit score, calculate how much money you want to borrow. Remember, though, you’ll receive your money as a lump sum, and you’ll have to pay interest on the entire amount—so only borrow what you need.
    • Shop around for the best terms and interest rates. Many lenders will let you prequalify prior to submitting your application, which lets you see the terms you would receive with just a soft credit inquiry. Prequalifying lets you shop around for the best rates without hurting your credit score.
    • Submit a formal application and await a lending decision. After you find a lender that offers you the best terms for your situation, submit your application online or in person. Depending on the lender, this process can take a few hours to a few

    How Hard Is It to Qualify for a Personal Loan?

    Borrower qualifications for personal loans vary by lender. In general, an applicant will need at least a fair credit score (580 to 669) to qualify—although it is possible to get a personal loan with bad credit. That said, borrowers with good to excellent scores will qualify for the lowest interest rates, larger loan amounts and more flexible repayment terms.

    Many lenders offer a prequalification process that lets you find out which loans and terms you qualify for based on a soft credit inquiry. This is a great way to shop for the most favorable personal loans without negatively impacting your credit score.

    Survey: Common Personal Loan Uses During the Pandemic

    A recent Forbes Advisor survey asked Americans whether or not they took out a personal loan during the pandemic (from the beginning of 2020 to present) and, if so, how they used the funds. The survey found the following uses to be the most common:

    • Home improvement. With people spending more time at home during the pandemic, the home improvement industry saw a spike in activity. Research shows that 70% of Americans tackled home improvement projects during the pandemic.
    • Medical bills. It’s not often you can anticipate medical expenses, so you may be in a pinch when you find out you’ll need to fork up some cash. Personal loans are a handy way to help you finance the costs so you can get the treatment you need when you need it.
    • Debt consolidation. As before the pandemic, Americans took advantage of personal loans to try to get their expenses in order. When you consolidate debt, you’re able to pay off high-interest debts and move multiple debt obligations under one loan—which means you’ll only have one payment to manage.
    • Financing a vehicle. While auto loans are typically the most common way to finance a car, people also can use personal loans. Although personal loans may come with higher interest rates, they tend to offer fewer restrictions compared to auto loans when it comes to the type of car you can buy.
    • Auto repairs. Similar to medical bills, auto repair expenses can also come at unexpected times, and you may not have the cash on hand to pay for them. People who are hit with auto repair expenses can rely on personal loans to help them finance the cost.

    SOURSE > forbes.com

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