- The Ascent
- Best Personal Loans for 2020
Best Personal Loans of July 2020
By: Dana George
We are committed to full transparency in our mission to make the world smarter, happier, & richer. Offers on The Ascent may be from our partners - it's how we make money - and we have not reviewed all available products and offers. That transparency to you is core to our editorial integrity, which isn’t influenced by compensation.
The personal loan market has expanded, changed, and thrived in recent years. Consumers who once had to visit a brick-and-mortar bank to get a loan, now have access to funds through credit unions, online banks, and peer-to-peer lending groups. Personal loans are used for a variety of things, from consolidating debt to finishing basements or paying for weddings. The advantage of so many new lenders in the game? Borrowers have access to the best personal loans with competitive interest rates and terms that fit their needs.
The Ascent's picks of the best personal loan companies:
- Low overall APR: Marcus
- Low APR for borrowers with high income: SoFi
- Borrowers with good credit: LightStream
- Reducing high-interest credit card debt: Payoff
- Borrowers with poor credit scores: Avant
- Reducing high interest debt: Upstart
- Borrowers with good to excellent credit scores: FreedomPlus
- Debt consolidation: Discover Personal Loan
Ratings Methodology
| Lending Partner | Best For | Min. Credit Score | Loan Amounts | APR Range | Next Steps |
|---|---|---|---|---|---|
Marcus |
Best For:
Low overall APR |
Min. Credit Score:
680 |
Loan Amounts:
$3.5k - $40k |
APR Range:
6.99 - 19.99% |
Check Rate
On Secure Website. |
SoFi |
Best For:
Low APR for borrowers with high income |
Min. Credit Score:
660 |
Loan Amounts:
$5k - $100k |
APR Range:
5.99% to 16.19% (with AutoPay) |
Check Rate
On Secure Website. |
LightStream |
Best For:
Borrowers with good credit |
Min. Credit Score:
660 |
Loan Amounts:
$5,000-$100,000 |
APR Range:
4.99% - 19.99% (w/AutoPay*) |
Check Rate
On Secure Website. |
Payoff |
Best For:
Reducing high-interest credit card debt |
Min. Credit Score:
640 |
Loan Amounts:
$5k - $35k |
APR Range:
5.99 - 24.99% |
Check Rate
On Secure Website. |
Avant |
Best For:
Borrowers with poor credit scores |
Min. Credit Score:
580 |
Loan Amounts:
$2k - $35k |
APR Range:
9.95 - 35.99% |
|
Upstart |
Best For:
Reducing high interest debt |
Min. Credit Score:
620 |
Loan Amounts:
$5k - $30k |
APR Range:
6.18 - 35.99% |
|
FreedomPlus |
Best For:
Borrowers with good to excellent credit scores |
Min. Credit Score:
640 |
Loan Amounts:
$7.5k - $40k |
APR Range:
6.99 - 29.99% |
|
Discover Personal Loan |
Best For:
Debt consolidation |
Min. Credit Score:
660 |
Loan Amounts:
$2.5k-$35k |
APR Range:
6.99%-24.99% |
|
Your loan terms are not guaranteed and are subject to our verification of your identity and credit information. To obtain a loan, you must submit additional documentation including an application that may affect your credit score. The availability of a loan offer and the terms of your actual offer will vary due to a number of factors, including your loan purpose and our evaluation of your creditworthiness. Rates will vary based on many factors, such as your creditworthiness (for example, credit score and credit history) and the length of your loan (for example, rates for 36 month loans are generally lower than rates for 72 month loans). Your maximum loan amount may vary depending on your loan purpose, income and creditworthiness. Your verifiable income must support your ability to repay your loan. Marcus by Goldman Sachs is a brand of Goldman Sachs Bank USA and all loans are issued by Goldman Sachs Bank USA, Salt Lake City Branch. Applications are subject to additional terms and conditions.
Marcus:
Best for Low overall APR
Minimum credit score: 680
With a minimum FICO score of 680, Marcus (a division of Goldman Sachs) targets its products to those with good credit scores and those that have credit histories. Marcus offers a best-in-class fee structure which features no prepayment, origination, or late fees. Add flexible loan terms on top of that, and it's easy to see that Marcus is a great option. Read the full review to learn more.
SoFi:
Best for Low APR for borrowers with high income
Minimum credit score: 660
One of the top lenders for those with good credit scores and high income, SoFi stands out on our list for having by far the lowest APR ceiling and the highest potential loan amount. This is because they're very selective with who they approve -- average borrowers have over 700 credit score and over $100,000 in income. On top of its low APR rates, we like that SoFi has no origination fees and features a fast online application process. Combine all this and you get one of the top lenders in the industry, for those that can get approved at least. Read the full review to learn more.
LightStream:
Best for Borrowers with good credit
Minimum credit score: 660
Lightstream might be the most flexible personal loan provider on this list. The lender offers a wide array of loan terms and no fees or prepayment penalties. Even better that it has a low rate and customer experience guarantee. Read the full review to learn more.
Payoff:
Best for Reducing high-interest credit card debt
Minimum credit score: 640
Payoff is a peer-to-peer lender that issues loans for people looking to get out of credit card debt. A unique feature is their personalized recommendation service that helps encourage you on your journey out of debt. Additionally, Payoff stands out for offering payment flexibility during events such as a job loss. Instead of charging a late fee, Payoff will work with you on a new payment schedule. This may be a good option for you if you have high-interest credit card debt and have exhausted balance transfer credit card options. Read the full review to learn more.
Avant:
Best for Borrowers with poor credit scores
Minimum credit score: 580
Featuring the lowest minimum credit score on our list, Avant is an option for borrowers that might struggle to be approved at other lenders. Avant sports a fast approval process, getting most borrowers an answer within 15 minutes of submitting their application. We're also fans of Avant's late fee forgiveness policy - if you miss one payment but then make the next three, you get your $25 late fee back. Overall, this can be a solid option for those with poor to fair credit. Read the full review to learn more.
Upstart:
Best for Reducing high interest debt
Minimum credit score: 620
Started in 2012 by former Google employees, Upstart stands out with a unique underwriting process that is not solely dependent on credit score. Young people with little credit history but strong future earning potential can be particularly helped by Upstart's innovative approach. As always, we at The Ascent encourage you to shop around and find the best personal loan rates and terms for you. Read the full review to learn more.
FreedomPlus:
Best for Borrowers with good to excellent credit scores
Minimum credit score: 640
Known for their fast application process, Freedom Plus will let you know quickly whether you're approved or not. While they do look at factors beyond just credit score, Freedom plus still plays it close to the vest with an average borrower credit score of 720. But if you get approved, their quick funding times and no hidden fees are certainly a plus. Read the full review to learn more.
Discover Personal Loan:
Best for Debt consolidation
Minimum credit score: 660
The combination of no origination fee, long repayment periods, and a low minimum income requirement make it a solid pick for debt consolidation, among many other personal loan needs.
What to look for in a personal loan
Before you start shopping for a personal loan, be aware that rates vary. The same person could apply for a personal loan from two different lenders and get two vastly different quotes. Not only that, but lenders continually adjust their rates and terms. A lender that has the lowest APR today might not have the lowest APR a month from now.
All in all, it pays to shop around. But many people fear their credit score will be hurt by multiple hard credit checks if they do so. This is not the case, as credit bureaus recognize rate shopping as normal behavior. As long as you do your comparisons within a short period of time, your score should only take one hit.
When you do shop around, here are three things to look for:
1. Low-interest rate
The amount of interest you pay for a loan makes all the difference. Let's say you find a great contractor who will turn your ordinary kitchen into a chef-worthy haven for $28,000. The first lender you check offers an interest rate of 7.25% for five years. Your monthly payment would be $561, and you'll pay $5,660 in interest over the course of the loan.
Another lender offers an interest rate of 6% for five years. Your monthly payment would now be $541, and you'll pay a total of $4,460 interest. Although the monthly payments are only $20 apart, the lower interest rate saves you $1,200 in interest payments, money you can keep in your savings account.
2. Reasonable loan terms
There's a "sweet spot" when it comes to personal loans. You're looking for the best interest rate, but also for a reasonable amount of time to repay the loan. When you extend your repayment timeline, you'll get a lower monthly payment but you'll pay more overall.
Using the same scenario as above, if you chose to repay the $28,000 loan in three years as opposed to five, your monthly payment at 6% interest would be $851 per month rather than $541. That's a difference of $310 a month. But taking out a shorter-term loan will save on interest -- in this case, you'd pay $1,824 less overall.
You need to be honest with yourself about how much you can afford to pay each month without missing payments. Your sweet spot is an affordable monthly payment combined with the shortest possible repayment period.
3. Low fees
Lenders often charge an origination fee that covers the cost of processing and distributing your loan. The fee can range from 1% to 8% of the amount you borrow. Again, using the scenario above, you could pay between $280 and $2,240 in origination fees on a $28,000 loan. Typically, the origination fee is deducted from the loan amount, meaning that you'll need to borrow more if you need the full $28,000 to pay the contractor.
In a nutshell: You're looking for a loan with a low interest rate, repayment terms that hit your budgetary sweet spot, and low fees. You should also take lender's requirements into account, such as minimum credit score, so you apply for loans you can qualify for.
What are the advantages of a personal loan?
One of the things that make personal loans so attractive is their versatility. Not only can they be used for anything, from home improvement to debt consolidation, the terms can be adjusted to fit the needs of the consumer. Here are some of the other advantages of the best personal loans on the market:
- Frequently the easiest way to consolidate high-interest debt and save money
- When used to consolidate debt, a personal loan can simplify your life by giving you one bill to pay each month rather than several
- Loans may offer a higher borrowing limit than a credit card
- Predictable due date each month
- Fixed-rate loans have fixed monthly payments
- Available from a variety of lenders, giving you plenty of options
- Usually provide quick approval and funding
What are the disadvantages of a personal loan?
Like everything in life, personal loans are not without their drawbacks. Here are some of them:
- Origination fees can take a bite out your budget
- Some lenders charge a fee for paying the loan off early
- If a personal loan is used to consolidate other debts, the temptation may be to run those debts up again, leaving you in worse shape than before
- Partial payments are not allowed
- If your credit score is weak, the interest rate on a personal loan can be quite high
- Those with lower credit scores are also more likely to be offered stricter repayment terms
What are the alternatives to personal loans?
Two alternatives worth considering are:
Credit card with 0% balance transfer. If your credit score is high enough, you may qualify for a balance transfer credit card with a 0% promotional interest rate. Here's how it works: You transfer debt from high-interest credit cards and typically have 12 to 18 months to repay the debt at 0% interest. Let's say you owe a total of $5,000 on a credit card charging 17% interest. You're paying $300 a month as you want to pay it off as quickly as possible. At the rate you're going, it will take you 20 months to pay the card off and you will pay a total of $744 in interest.
If you can transfer that debt to a card with a 0% promotional rate for 18 months, you would probably have to pay a balance transfer fee of 3%-5%. Let's say it's a 3% fee, taking the total amount to $5,150 ($5,000 balance + $150 transfer fee). You could pay the entire balance off by making 18 equal payments of $286, and save $744 in interest.
Credit card balance transfers work best if you pay them off before the promotional period expires, because at this point the interest rate typically takes a huge jump.
Secured line of credit. A secured line of credit involves using an asset, such as your home, auto, boat, investments, fine art, or other property of value as collateral for a loan. The interest rate charged for a secured line of credit usually is lower because the lender knows that it's guaranteed by an asset. However, if you don't make payments on time, the lender has the right to repossess the collateral.
If you're not sure how much you're going to need to borrow to finish a project, a secured line of credit allows you to take more out as needed, provided there is enough equity. Lenders will typically lend a percentage of what your collateral is worth.
One of the most common secured lines of credit is a home equity line of credit or HELOC, where you would use your home as equity. For example, if you have $50,000 equity (the amount your home is worth minus the amount you owe on your mortgage), a lender may agree to loan you 80% of that. You would then be able to borrow up to $40,000 across a certain amount of time.
Is a personal loan right for me?
It depends on your situation. The best personal loans offer low interest rates that allow you to do the things you want to do, like consolidate high-interest debt, start a business, or make improvements to your home. That said, it's borrowers with good to excellent credit scores who will benefit most from personal loans because they'll be offered the best interest rates.
That's not to say that borrowers with average, or even poor, credit scores cannot benefit from taking out a personal loan. But like any financial decision, you should explore all the options to find the right one for you.
FAQs
-
Personal loans have two defining characteristics:
- First, personal loans are unsecured loans. This means that they aren’t backed by an asset. When you get an auto loan, the car backs the loan; if you stop paying the loan, the lender can repossess the car. A personal loan isn’t asset-backed. If you buy a boat with a personal loan and stop paying, the lender can send your loan to a collection agency or even sue you. But they can't show up at your house to haul the boat away.
- Second, personal loans are installment loans. This means you make payments for a specified length of time. At the end of that time, the loan’s balance will be zero. This is in contrast to a revolving loan such as a credit card or home equity line of credit.
-
Personal loans can generally be used for anything you want, from repaying other debt to making home improvements to funding a wedding or large purchase. Some lenders impose restrictions, though, such as prohibiting you from using a personal loan to pay for school.
Some personal loan lenders also market loans for specific purposes. They may advertise "home improvement loans" or "wedding loans." These are generally marketing gimmicks; you can apply for any general personal loan and borrow from the bank, online lender, or credit union that provides you with the best rate.
-
Using a personal loan can sometimes help you to repay your debt. It can make debt payoff easier if you qualify for a low-interest personal loan that you use to repay higher-interest debts.
But if you can't commit to paying off your loan on time and avoiding additional borrowing, it won’t help you become debt-free. In fact, you could end up in deeper debt if you use a personal loan to repay credit cards, only to max out your cards again.
You should take out a loan for debt consolidation only if you can qualify for a loan at a lower rate than you’re currently paying and you’re serious about responsible debt repayment.
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Please note that the FICO credit scoring formula is a well-guarded secret, and personal loans can have different effects on borrowers’ credit.
When you apply for a new loan, a credit inquiry will appear on your credit report. That affects the “new credit” category of the FICO formula, which makes up 10% of your score. The new loan itself also affects the new credit category. And because you haven’t yet paid down your loan balance, it can adversely affect the “amounts you owe” category, which makes up 30% of your score.
Again, assuming you pay down your loan balance with on-time payments, you should see your credit score improve in the long term.
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There are some personal lenders who specialize in making loans to borrowers with bad credit.
The best personal loans for bad credit offer reasonable terms, and the lender may consider factors besides your credit score when deciding your interest rate. However, if you get a personal loan with bad credit, you’ll probably get a much higher interest rate and potentially higher fees than a borrower with good credit. In fact, there are personal lenders whose APR ranges go as high as 35.99% as of this writing. That’s higher than most credit cards.
One possible solution is to apply for a personal loan with a cosigner. Not all personal lenders allow cosigners, but a handful of the best lenders do. A cosigner is a creditworthy person who agrees to accept legal responsibility for your loan. They’re essentially letting you borrow their credit history for your loan qualification.
There’s a lot you need to know before asking someone to cosign a loan. But the main point is this: Doing so can help borrowers with bad credit qualify for better loan terms than they otherwise would.
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It is sometimes possible to get a personal loan with no credit. There are personal loan lenders that consider other criteria, such as your income, education level, and employment status. Unfortunately, the interest rate is generally much higher on personal loans if you have no credit history or have poor credit. Be sure to understand the terms of the loan and consider applying with a cosigner if you’re looking for the most affordable rate.
To recap, here are the best personal loans for 2020:
| Lending Partner | Best For | Min. Credit Score | Loan Amounts | APR Range | Next Steps |
|---|---|---|---|---|---|
|
|
Best For:
Low overall APR |
Min. Credit Score:
680 |
Loan Amounts:
$3.5k - $40k |
APR Range:
6.99 - 19.99% |
Check Rate
On Secure Website. |
|
|
Best For:
Low APR for borrowers with high income |
Min. Credit Score:
660 |
Loan Amounts:
$5k - $100k |
APR Range:
5.99% to 16.19% (with AutoPay) |
Check Rate
On Secure Website. |
|
|
Best For:
Borrowers with good credit |
Min. Credit Score:
660 |
Loan Amounts:
$5,000-$100,000 |
APR Range:
4.99% - 19.99% (w/AutoPay*) |
Check Rate
On Secure Website. |
|
|
Best For:
Reducing high-interest credit card debt |
Min. Credit Score:
640 |
Loan Amounts:
$5k - $35k |
APR Range:
5.99 - 24.99% |
Check Rate
On Secure Website. |
|
Avant |
Best For:
Borrowers with poor credit scores |
Min. Credit Score:
580 |
Loan Amounts:
$2k - $35k |
APR Range:
9.95 - 35.99% |
|
|
Upstart |
Best For:
Reducing high interest debt |
Min. Credit Score:
620 |
Loan Amounts:
$5k - $30k |
APR Range:
6.18 - 35.99% |
|
|
FreedomPlus |
Best For:
Borrowers with good to excellent credit scores |
Min. Credit Score:
640 |
Loan Amounts:
$7.5k - $40k |
APR Range:
6.99 - 29.99% |
|
|
Discover Personal Loan |
Best For:
Debt consolidation |
Min. Credit Score:
660 |
Loan Amounts:
$2.5k-$35k |
APR Range:
6.99%-24.99% |
|
About the Author
Dana has been writing about personal finance for more than 20 years, specializing in loans, debt management, investments, and business. Her work has appeared on San Jose Mercury News, The Detroit News, Oakland Tribune, and Dun & Bradstreet. After moving around the globe, she's thrilled to be living in her hometown of Kansas City.
