Where to get a personal loan

If you need some extra cash and are wondering where to get a personal loan, you have several options. Find out the pros and cons of each. (Shutterstock)

You might be considering a personal loan for a number of reasons. Maybe your car broke down and you need to cover repair costs. Or perhaps you’d like to consolidate high-interest debt or pay for a home improvement project.

No matter the reason, you can find a personal loan through online lenders, banks, and credit unions. Keep reading to learn how to find the right personal loan for you, what you need to qualify for one, and some personal loan alternatives.

• Online lenders
• Banks
• Credit unions
• Find the right personal loan for you 
• What you need to qualify for a personal loan
• How to apply for a personal loan
• Alternatives to personal loans

Online lenders

Online lenders allow you to apply for a loan entirely online. If you’re comfortable with a digital approach, you can typically receive money quickly through an online lender if you’re approved for a loan. 

You can see your prequalified rates from multiple online lenders using Credible.

Pros

• Chance to prequalify — Many online lenders offer prequalification tools on their websites that you can use to check potential loan offers without affecting your credit.
• Potentially lower fees — Online lenders don’t have to pay to operate physical locations. As a result, they might charge lower fees (or no fees), which can save you money on your total loan costs.
• Fast funding — In most cases, online lenders will distribute your funds shortly after approval. Depending on the lender, you may receive your money the same day you apply, within 24 hours, or in a few business days.

Cons

• May pay more in interest — Depending on your credit score, online lenders may charge higher interest rates. A higher rate can cost you hundreds or even thousands of dollars more over the life of the loan.
• Need to beware scammers — Legitimate online lenders typically employ a range of security measures to keep your application information safe. But scammers often try to trick borrowers into thinking they’re applying with a real personal loan company. It’s important to be sure you’re dealing with a legitimate loan company and not a personal loan scam.
• No face-to-face customer service — If you choose an online lender, you won’t have the option to visit a brick-and-mortar location and speak to a customer service representative in person. You’ll need to rely on phone or email support instead.

Banks

Banks usually have physical branches you can visit to apply for and manage a personal loan. If you’re an existing customer with a certain bank, it may make sense to explore its personal loan options first. 

Pros

• Potential discounts — Some banks offer relationship discounts on interest rates that you can take advantage of if you’re a customer. This can help you save some money on your total loan costs.
• Higher loan amounts — Banks may lend more money than other types of lenders. If you need to borrow a large sum of money to cover a major expense, you may qualify for it through a bank.
• Option to apply in person — Many banks allow you to apply for a loan in-person with the help of a loan specialist. This might be a huge perk if you don’t feel comfortable with an online application.

Cons

• Will likely need good credit — In general, banks have strict credit requirements. If you don’t have good credit, you might have trouble qualifying for a personal loan through a bank.
• The application may be extensive — While each bank has its own application process, some banks have long applications that often require you to submit a lot of supporting documents.
• May take longer to get approved than online lenders — Banks may take slightly longer than online lenders to approve applications and disburse your loan funds. It could take anywhere from one to seven business days to receive your money, though every bank is different.

Credit unions

Credit unions are not-for-profit institutions owned and controlled by members who use their services, rather than shareholders. If you’re a member of a credit union or are able to join one, it may be a good place to turn to for a personal loan.

Pros

• Lower rates — Since credit unions are member-owned, they tend to offer lower rates than other lenders. The maximum interest rate credit unions can charge for loans is 18% for longer-term loans or 28% for shorter-term loans, according to the National Credit Union Administration.
• Flexible qualification requirements — Credit unions typically have lower credit score requirements. If your credit is fair or poor, a credit union may look beyond it and work with you on a loan.
• Personalized service — Credit unions are usually local or regional, meaning they offer more individualized service. A customer service representative at a credit union may take the time to get to know you and your unique needs.

Cons

• Must be a member — You have to join a credit union to take out a personal loan from one. Most credit unions are made up of members who share something in common, such as an industry or workplace, so you’ll need to find one that you qualify for.
• Potentially smaller loan amounts — Compared to banks, credit unions may offer smaller loan amounts because of the increased credit risk they face by working with borrowers across the credit spectrum.
• Limited physical branches — Credit unions are typically local to a specific community, so they have a limited number of physical locations. This can be an issue if you live in a small town and have to drive far to visit a branch.

Find the right personal loan for you 

These tips can help you find the ideal personal loan for your unique situation:

• Check your credit. Some lenders have stricter credit requirements than others. If you check your credit before you shop for a personal loan, you’ll have a better idea of which lenders may approve you and what rates and loan terms you might qualify for. You can request free copies of your credit report from the three main credit bureaus — Equifax, Experian, and TransUnion — by visiting AnnualCreditReport.com. Be sure to report any errors or inaccuracies that you find on your reports, as they can bring down your score.
• Explore your options. Look into personal loans at online lenders, banks, and credit unions. While it may be tempting to just go to your bank or credit union or choose the first online lender you find, shopping around and comparing rates and terms from at least three to five different lenders can save you a lot of money in the long run.
• Get quotes. Once you’ve found several lenders with personal loans that pique your interest, request quotes from them so that you can compare your options. You can usually do this online or over the phone. Applying for prequalification typically involves a soft credit inquiry, which won’t affect your credit.

With Credible, you can easily compare personal loan rates from various lenders in one place, and it won’t affect your credit score.

What you need to qualify for a personal loan

While personal loan requirements vary by lender, you’ll typically need to provide the following documentation to qualify: 

• Loan application — A loan application is a formal document you’ll need to submit when you apply for a personal loan. It’ll ask you for basic personal information like your name and birth date, as well as financial details such as your monthly income and housing costs. While most lenders offer online applications, some will give you the option to apply over the phone or in person.
• Proof of identity — You’ll likely need to share government-issued IDs to show you’re at least 18 years old and a U.S. citizen. A driver’s license, passport, birth certificate, certificate of citizenship, military ID, or any other federal or state ID are usually acceptable.
• Employer and income verifications — Lenders want proof that you’ll be able to repay what you borrow, so they’ll often ask you to submit documents that show your employment history and current earnings. These might include pay stubs, tax forms, and bank statements.
• Proof of address — Most lenders also look for a stable living situation. To show this, you might have to provide your proof of address, such as a recent utility bill, a voter registration card, or a copy of your lease and rental agreement.

How to apply for a personal loan

Once you’re ready to apply for a personal loan, follow these steps: 

1. Decide how much you want to borrow. First, determine your ideal loan amount. This may be $500, $5,000, or even tens of thousands of dollars. It all depends on what you plan to do with the loan funds. Generally, it’s best to only borrow what you actually need. 
2. Prequalify and compare offers. Once you know how much you need to borrow, shop around and compare rates and terms from various lenders. Many lenders will let you prequalify to get an idea of what types of offers you might be eligible for. Since prequalifying won’t hurt your credit, it’s a great way to compare your options.
3. Collect documents and apply. When you decide on a loan, gather the documents you’ll need to apply. Then, move forward with the formal application process online, over the phone, or in person. Be sure to double-check your application and look for errors that can cause delays.
4. Wait for approval. Now, you’ll need to wait for the lender to review your application and make a decision. Depending on the lender, you may find out whether you’re approved right away or within a few hours or days. Upon approval, you should receive an agreement that outlines the terms and conditions of your personal loan. You’ll sign your loan agreement and receive your loan funds, which can take anywhere from one or two business days to several weeks.

Alternatives to personal loans

If you decide that a personal loan isn’t the best option or you’re unable to qualify for one, consider these alternatives: 

• Home equity loan or home equity line of credit (HELOC) — Home equity loans and lines of credit are flexible, so homeowners can use them to cover virtually any expense. And since these products are secured to your home, you may land a lower interest rate than you would with an unsecured personal loan that doesn’t require collateral. But if you aren’t able to make your payments, the lender can take your home.
• Credit card — Many different types of credit cards are available, including ones that come with a 0% introductory APR on purchases or balance transfers for a certain period of time (you’ll typically need good credit to qualify). If you opt for a 0% balance transfer credit card, be sure you’ll be able to pay off the balance before the promotional period ends and the interest rate resets to a higher APR.
• Payday alternative loan — A PAL may make sense if you need a small amount of cash to cover sudden expenses. Some credit unions offer loans which allow you to borrow anywhere from $200 to $1,000 with repayment terms of one to six months. Note that you’ll need to be a credit union member to take advantage of this option.
• 401(k) loan — If you have a 401(k) retirement account, you may be able to borrow against it as long as your plan allows you to. You’ll need to pay yourself back with interest over a set time frame. But this should be a last resort option: If you fail to repay the loan on time, you may face a tax penalty, and you’ll also have less money in your account to grow over time.