The best place to get a personal loan

Mother and daughter embracing in their kitchen Mother and daughter embracing in their kitchen Image:

In a Nutshell

If you’re looking for a personal loan to get the money you need, you have several lender options, including banks, credit unions and online lenders. But with each type of lender, there are pros and cons to consider.

Editorial Note: Credit Karma receives compensation from third-party advertisers, but that doesn’t affect our editors' opinions. Our marketing partners don’t review, approve or endorse our editorial content. It’s accurate to the best of our knowledge when it’s posted.
Advertiser Disclosure

We think it's important for you to understand how we make money. It's pretty simple, actually. The offers for financial products you see on our platform come from companies who pay us. The money we make helps us give you access to free credit scores and reports and helps us create our other great tools and educational materials.

Compensation may factor into how and where products appear on our platform (and in what order). But since we generally make money when you find an offer you like and get, we try to show you offers we think are a good match for you. That's why we provide features like your Approval Odds and savings estimates.

Of course, the offers on our platform don't represent all financial products out there, but our goal is to show you as many great options as we can.

We’ve all been there — whether it’s a medical bill, home improvement or an unexpected car repair, it can be tough to save the cash you might need for big-ticket purchases or emergency situations.

Personal loans can be a great way to help with life expenses or to consolidate debt, but it’s important to know where to turn for this kind of loan — and what pitfalls to avoid.

Personal loans are a way for you to borrow a sum of money that you pay back in monthly installments. The terms of these loans vary. Some personal loans are unsecured, meaning you won’t need to offer collateral — like the title to your car — to get the loan. Others are secured, meaning the lender will require a physical asset — like money in a CD or savings account, a house or car — as a guarantee on the loan.

Both types of personal loans are paid back over a period of time, which usually varies from two to five years. Additionally, personal loans usually range from about $1,000 to $100,000.

You have several lender options — including banks, credit unions and online lenders — when seeking a personal loan. Let’s take a look at some of the pros and cons of seeking a personal loan through each type of lender.


Banks

Personal loans from banks can have some advantages, including competitive interest rates. According to Federal Reserve data, the average interest rate on a two-year personal loan from a commercial bank was 10.7% as of November 2018. In contrast, some online lenders offer interest rates as high as 35.99%, depending on the applicant’s credit.

But to qualify for banks’ competitive interest rates, borrowers may need healthier credit to qualify. For instance, you must have what Citibank calls “excellent” credit among other criteria to get the most competitive rates on certain Citibank personal loans.

In summary:

Pros

Cons

May get a discounted interest rate if you have other accounts with the bank May need to be an existing customer
Competitive interest rates – if you have healthy credit May need good or excellent credit for approval
Banks can often wire funds within a couple of days of approval Not all banks offer personal loans
Some may charge an origination fee

 

Personal loans from banks: 5 things to know

Credit Unions

Credit unions can be another option for a personal loan — if you are a member. Each credit union has varying membership criteria you must meet to join, such as working in a certain industry, living within a certain geographic area or having a family member who is eligible to join. Typically, you join a credit union by meeting membership criteria, and then opening an account.

Credit unions tend to offer lower interest rates and fees because they are nonprofit and member-owned financial institutions. This means that profits are returned to members through their products and services. The maximum interest rate that federal credit unions can charge on personal loans is 18%, while credit unions’ rates on short-term small loans can be up to 28%.

Credit unions are focused on membership and community and may be more willing to lend money to those with lower credit. When you apply for a loan, a credit union may consider additional aspects of your finances, such as employment history and your membership standing.

In summary:

Pros

Cons

Credit unions tend to offer competitive interest rates and lower fees Usually need to be a member of the credit union where you’re applying for a loan
May offer loans to members with lower credit Some credit unions charge origination fees

 

Online Lenders

Online lenders are another possible resource for a personal loan. There are many online lenders in today’s market, and many offer online applications. Many also provide immediate decisions on whether you can qualify for a loan. If you need quick access to funds, an online lender may be the way to go.

Online lenders can also be a strong option to consider if you have low credit scores. Some specialize in working with people with poor credit. Just be sure to pay attention to the interest rate offered. Online lender interest rates can vary widely, so it’s important to compare several loan offers to find the best rate.

An origination fee is what a lender charges to complete a loan. Many online lenders — as well as banks and credit unions — charge origination fees, which could reduce the amount of your loan. For example, let’s say you want to borrow $5,000. The lender could take a 1% to 8% origination fee from that $5,000, which would be $50 to $400 respectively. So rather than getting $5,000, you would get $4,600 to $4,950, depending on the lender.

In summary:

Pros

Cons

Application process can be done from a computer anywhere, at any time Many charge origination fees
Loan decision process is generally fast, with funds sometimes available the next business day Interest rates vary widely from lender to lender

 

Payday lenders

If you have bad credit and need money right away, a payday loan may seem like a quick fix. These loans are usually for a small amount — typically ranging from $100 to $500 — and payment and fees are typically due on your next payday.

Payday lenders may advertise themselves as a fast way to get cash. Some lenders don’t require a credit check and may need only one pay stub and some form of identification to offer you a loan.

But proceed with caution. Payday loans can trap you in a cycle of debt. These loans can have an APR of 400% or more, which can make them costly.

Payday lenders can’t be found in every state. Some states prohibit them, while others have set interest rate caps that are lower than the typical payday loan APR.

In summary:

Pros

Cons

May not require a credit check Not available in some states
Quick way to get cash Amount of loan offered may be smaller than for other types of loans
Repayment cycle is often weeks, not months or years
Interest rates are much higher than for other types of loans

Bottom line

Personal loans can be a good option for getting cash to help you to consolidate debt or pay for emergencies, like home or car repairs. But before you sign up for a loan, do your homework; consider and research your lender options. Look for complaints filed with the Better Business Bureau, read through online reviews, and take the time to shop around for the best personal loan rates for you.