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- Best Personal Loans for 2020
Best Personal Loans for 2020
Matt is a Certified Financial Planner® and investment advisor based in Columbia, South Carolina. He writes personal finance and investment advice, and in 2017 he received the SABEW Best in Business Award.
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The personal loan market has exploded over the past several years. There are now dozens of companies that offer streamlined personal lending products. These loans can help borrowers pay off credit card debt, complete home renovations, and more. Here are our favorite personal loans in the market today and what you should know before you apply.
Here are The Ascent's picks of the best personal loan companies for 2020:
- Low APR for borrowers with high income: SoFi
- Borrowers with good to excellent credit scores: Freedom Plus
- Reducing high-interest credit card debt: Payoff
- Little to no credit history: Upstart
- Low APR for borrowers with good to excellent credit scores: LendingClub
- Borrowers with poor credit scores: Avant
- Low overall APR: Marcus
| Lending Partner | Best For | Min. Credit Score | Loan Amounts | APR Range | Next Steps |
|---|---|---|---|---|---|
|
Best For:
Low APR for borrowers with high income |
Min. Credit Score:
660 |
Loan Amounts:
$5k - $100k |
APR Range:
5.99-20.01% |
Check Rate |
|
Best For:
Borrowers with good to excellent credit scores |
Min. Credit Score:
640 |
Loan Amounts:
$10k - $40k |
APR Range:
5.99 - 29.99% |
Check Rate |
|
Best For:
Reducing high-interest credit card debt |
Min. Credit Score:
640 |
Loan Amounts:
$5k - $35k |
APR Range:
5.99 - 24.99% |
Check Rate |
|
Best For:
Little to no credit history |
Min. Credit Score:
620 |
Loan Amounts:
$1k - $50k |
APR Range:
5.69 - 35.99% |
Check Rate |
|
Best For:
Low APR for borrowers with good to excellent credit scores |
Min. Credit Score:
600 |
Loan Amounts:
$1k - $40k |
APR Range:
6.95 - 35.89% |
Check Rate |
|
Best For:
Borrowers with poor credit scores |
Min. Credit Score:
580 |
Loan Amounts:
$2k - $35k |
APR Range:
9.95 - 35.99% |
Check Rate |
|
Best For:
Low overall APR |
Min. Credit Score:
660 |
Loan Amounts:
$3.5k - $40k |
APR Range:
6.99 - 28.99% |
Check Rate |
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 $100k 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 our SoFi review to learn more.
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 our Freedom Plus review to learn more.
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 our Payoff review to learn more.
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 rates and terms for you. Read our Upstart review to learn more.
LendingClub, a pioneer of the peer-to-peer lending space, is a strong overall option for those in the market for a personal loan. LendingClub features some of the looser credit standards in this space, though to earn an APR near 6.95% you'll need to have a strong credit profile. If you're looking for a small personal loan, LendingClub is one of the few lenders on our list that offers loans as low as $1,000. Another nice perk is the ability to apply for a loan with a cosigner, or if you want a joint account. That's not an option for many other competitors.
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 our Avant review to learn more.
With a minimum FICO score of 660, 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 our Marcus review to learn more.
Your Definitive Guide to Personal Loans
When considering a personal loan, the most important factors are finding the lowest rate and choosing a reputable lender. Our experts have identified the lenders above as top choices for factors like avoiding hidden fees and providing good customer service. Interest rates will vary for everyone based on criteria like credit score and income, so make sure you shop around to find the lowest rates for you.
Millions of Americans have used personal loans to refinance high interest credit card debt, pay off household bills, or pay down large expenses in a budget-friendly way.
A personal loan offers more flexibility than virtually any other type of loan because you can use them for just about anything, from medical bills to car repairs, making them a go-to solution for when you simply need cash to make ends meet. Here's what you need to know about personal loans, and how to pick one that fits your financial needs.
Why you can trust me
I’m a Certified Financial Planner with extensive experience reviewing personal finance products and making recommendations to clients, friends, and family. I’m not just a reviewer in this case -- I’ve also used a personal loan myself. I have firsthand experience with these products and the application process.
How we picked the winners
The most obvious factor when choosing a personal lender is the interest rate. So the advertised rates offered by each lender played a major role in our decisions. But that wasn’t the only thing we looked at. In addition to interest rates, we also considered these factors:
- Origination fees: An origination fee is a one-time charge paid to a lender in exchange for setting up a loan. Many personal lenders don’t charge origination fees, but a few do. They can run as much as 5% or more of the loan amount, so they’re worth paying attention to.
- Other fees: Most personal lenders don’t charge prepayment penalties, but they aren’t unheard of. Many charge late fees and these can vary significantly.
- Soft credit check: Most personal lenders allow prospective borrowers to check their loan terms without affecting their credit score. This makes it more practical to compare several different lenders.
- Other features: Personal lenders offer a variety of unique features. Some allow borrowers to see their FICO scores for free. Others offer discounts to borrowers who have other loan or banking products with the same institution. There are too many perks to list individually. The point is that we looked beyond the standard rates and fees when choosing our favorites.
What is a personal loan?
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 won’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, like a credit card or home equity line of credit.
How should I choose a personal loan lender?
Rates and fees can vary dramatically between lenders, even for the same borrower. Applying to several lenders instead of one or two can save you hundreds or thousands of dollars.
A fixed-rate personal loan is the better choice for most borrowers. Market interest rates are still low, so there’s more risk in accepting a variable rate. Many of the top personal lenders don’t even offer variable-rate loans, although a few do.
After the pre-approval process, choose the lender that offers the best terms on a loan that meets your needs. Then it’s time to go beyond the pre-approval process and formally apply for the loan.
When should I get a personal loan?
This doesn’t mean that personal loans are the best way to borrow for every expense. Three cases when it makes sense to look elsewhere are buying a home, buying a car, and paying for educational expenses.
Since personal loans are unsecured, they generally come with higher interest rates than secured forms of borrowing like mortgages and auto loans. If you don’t pay your mortgage, the lender can foreclose on the home and sell it to recoup its money. That means the loan is a relatively low risk to the lender. A personal loan isn’t secured by a specific asset, even if it’s used to buy one.
How will a personal loan affect my credit score?
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 paid down your loan balance, it can adversely affect the “amounts you owe” category. That 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 long-term.
Can I get a personal loan if I have bad credit?
There are some personal lenders who specialize in making loans to borrowers with bad credit.
However, it’s important to realize that if you get a personal loan with bad credit, you’ll probably get a significantly higher interest rate. You might pay higher fees than a good credit borrower, too. 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 making the payments on your loan. They’re essentially letting you borrow their credit history for your loan qualification.
There’s a lot to know about applying with a cosigner. But the main thing is this: Doing so can help borrowers with bad credit qualify for better loan terms than they otherwise would.
Is a personal loan right for me?
It depends. Personal loans can be an excellent way for many people to borrow money. They often have reasonable and fixed interest rates, especially for borrowers with strong credit histories. And they make sense for debt consolidation and funding large purchases.
One alternative you might consider is a credit card balance transfer or 0% APR offer. There are several credit cards on the market with 0% APR periods of 18 months or longer for new cardholders. If you’re confident you can pay back the debt in that amount of time, it could be a better option.
Like any personal finance product, personal loans aren’t right for everyone. However, competition is high among personal lenders, and that means that it could be a great time to find a good deal. Explore a few of your loan options to see if it could be a smart move for you.
How much can you save with a personal loan?
Let's say you have a balance of $5,000. The below table breaks down your interest savings with a personal loan vs. a typical credit card.
| Credit card APR | Personal loan APR | Interest saved over 3 years |
|---|---|---|
| 18% | 6% | $1,031 |
| 18% | 8% | $867 |
| 18% | 10% | $699 |
| 18% | 12% | $529 |
As you can see, personal loans can save you a relative fortune in interest compared to the typical credit card, even on a relatively small balance of $5,000. The advantage of a lower APR is that more of your payment goes toward paying down your debt, which means you'll make more progress toward being debt-free every single month.
Here are few things you should know before you start shopping for an online personal loan:
- Origination fees matter -- Technically, an origination fee isn't interest, but it does add to the cost of the loan. An origination fee of 0% to 5% is common, which means you can expect to pay a fee of up to $250 on a $5,000 loan, which will be added to the balance, or subtracted from the loan proceeds. Luckily, the APR you see quoted for a loan includes interest and fees. So, a loan with an APR of 7% is less expensive (interest and fees included) than a loan with an APR of 8%. You may be eligible for a no-origination-fee personal loan if you have a prime credit score (720 or better).
- Rates vary -- The same person could apply for a personal loan from two different lenders and get two vastly different quotes. Likewise, the same bank may quote different rates for the same applicant depending on when they apply. The point is that it can pay to shop around, as lenders are constantly adjusting their rates and terms. A lender that has the lowest APR today might not have the lowest APR a month from now.
- It pays to shop around -- Many people fear that shopping around for rates will hurt their credit scores when the inquiries start showing up on their credit reports. But shopping for a lower rate can only help you by finding a better deal, not hurt you. As Experian explains on its website, “generally, credit scoring models will count multiple hard inquiries for the same type of credit product as a single event as long as they occur in a short window of a few weeks.” In short, if you condense your shopping into a short period of time, you won’t be penalized for it.
Get our latest tips and uncover more of our top picks to help you conquer your money goals
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 APR for borrowers with high income |
Min. Credit Score:
660 |
Loan Amounts:
$5k - $100k |
APR Range:
5.99-20.01% |
Check Rate |
|
|
Best For:
Borrowers with good to excellent credit scores |
Min. Credit Score:
640 |
Loan Amounts:
$10k - $40k |
APR Range:
5.99 - 29.99% |
Check Rate |
|
|
Best For:
Reducing high-interest credit card debt |
Min. Credit Score:
640 |
Loan Amounts:
$5k - $35k |
APR Range:
5.99 - 24.99% |
Check Rate |
|
|
Best For:
Little to no credit history |
Min. Credit Score:
620 |
Loan Amounts:
$1k - $50k |
APR Range:
5.69 - 35.99% |
Check Rate |
|
|
Best For:
Low APR for borrowers with good to excellent credit scores |
Min. Credit Score:
600 |
Loan Amounts:
$1k - $40k |
APR Range:
6.95 - 35.89% |
Check Rate |
|
|
Best For:
Borrowers with poor credit scores |
Min. Credit Score:
580 |
Loan Amounts:
$2k - $35k |
APR Range:
9.95 - 35.99% |
Check Rate |
|
|
Best For:
Low overall APR |
Min. Credit Score:
660 |
Loan Amounts:
$3.5k - $40k |
APR Range:
6.99 - 28.99% |
Check Rate |
About the Author
Matt is a Certified Financial Planner® and investment advisor based in Columbia, South Carolina. He writes personal finance and investment advice for The Ascent and its parent company The Motley Fool, with more than 4,500 published articles and a 2017 SABEW Best in Business award. Matt writes a weekly investment column ("Ask a Fool") that is syndicated in USA Today, and his work has been regularly featured on CNBC, Fox Business, MSN Money, and many other major outlets. He’s a graduate of the University of South Carolina and Nova Southeastern University, and holds a graduate certificate in financial planning from Florida State University.
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