If you need to borrow money for an emergency or an unexpected bill, a personal loan is a great option. These loans offer you fast cash for personal expenses such as car repairs, medical bills, or home improvements.
Various banks, credit unions, and state-licensed lenders offer personal loans. But which kind of financial institution will be the best place for you to take out a loan? How do you decide?
Key takeaways:
- There are three typical lenders for personal loans: banks, credit unions, and state- license lenders. Each type has benefits and drawbacks.
- There are many factors to consider when comparing lenders for personal loans. You’ll want to look at credit score requirements, loan amounts, monthly payments, fees, and more.
- If you have a low credit score or no credit history at all, you can still find affordable personal loan options that match your budget.
Here’s what we’re going to cover:
- Where can I get a personal loan?
- Loans issued by banks
- Loans issued by credit unions
- Loans issued by state-licensed lenders
- What should I look at when comparing lenders?
- How do I decide which lender is right for me?
- Oportun: Affordable personal loans for hardworking people
Where can I get a personal loan?
Personal loans are available from credit unions, state-licensed lenders, and some banks. The type of lender you choose depends on your needs. Each lender has its own requirements and conditions.
Below, we’re going to review the benefits and drawbacks of taking out personal loans from banks, credit unions, and state-licensed lenders. Having this information can help you make the best decision about where to take out a loan.
Loans offered by banks
A bank is the safest place to keep your money, whether it’s in a checking or a savings account. Most banks will lend money to people who have accounts with them. However, not all banks offer personal loans. Check with your bank directly to see if it offers personal loans.
The benefits of taking out a personal loan from a bank include:
Locations across the United States
Most major banks have branches throughout the country. If you prefer to make your loan application in person, this can be convenient for you.
Larger loan amounts
Some banks offer personal loans in amounts of $100,000 or more. If you need a large loan to cover your personal expenses, a bank may be your best option.
There are also drawbacks to taking out a personal loan from a bank. These include:
Strict eligibility requirements
You may need documentation to prove your eligibility. Also, banks often require you to have a high credit score to be approved for a personal loan.
Fewer options
Most banks don’t give you the option to take out a secured personal loan. With a secured loan, you provide the lender with collateral, such as your house or car. If you don’t make payments on time, the lender can take this collateral to cover your debt.
Loans issued by credit unions
Credit unions are nonprofit organizations that serve specific groups of people. Credit unions work like banks, but they focus on the best interests of their members.
Here are some reasons to consider taking out a personal loan from a credit union:
Easier eligibility requirements
If your credit score is low, you may have a better chance of getting a personal loan from a credit union than from a traditional bank, if you qualify as a member.
Lower interest rates and fewer fees
Credit unions may offer lower interest rates than banks. Your interest rate will still be based on your personal credit history and financial background, but it may be lower than what a bank would offer.
Personalized service
Credit unions are community focused, so they usually provide great customer service. Employees will often take time to understand your financial goals and work with you to achieve them.
The main drawback to credit unions is that you must be a member in order to qualify for a loan. To join a credit union, you may have to:
- Be related to an existing member
- Be eligible for membership through your employer
- Be part of a specific organization or school
- Live in a certain area
If you don’t meet the credit union’s eligibility requirements, you won’t be able to apply for a personal loan.
Loans issued by state-licensed lenders
State-licensed lenders are the third category of typical businesses offering personal loans. Unlike banks and credit unions, these financial organizations focus solely on providing loans.
Why would you want to choose a state-licensed lender?
Fast application process
With a state-licensed loan company, you can often receive your money within a day or two of getting approved for a personal loan.
Flexible eligibility requirements
Many state-licensed lenders focus on helping specific groups of people, such as those with little or no credit history. It can be much easier to get approved for a personal loan from a state-licensed lender who is dedicated to improving the community.
However, some state-licensed lenders charge higher interest rates than banks or credit unions.
What should I look at when comparing lenders?
As you compare lenders, you’ll want to pay attention to these factors:
Credit score requirements
Some lenders have minimum credit score requirements. If your credit score is below that minimum, you’ll have to look for another lender.
Loan amount
Some lenders offer small loans between $50 and $1,000. Other lenders offer loans of $100,000 or more. Make sure to choose a lender who offers the amount of money you need.
Application process
If you need money right away, choose a lender with a fast online application process.
Annual percentage rate (APR)
The APR is made up of the loan’s interest and fees. A lower APR usually means it will be less expensive for you to borrow the money you need.
Loan term
The loan term is the amount of time you have to pay back your personal loan.
In general, a longer loan term means your monthly payments are lower. But with longer terms you may pay more in interest.
Payment amount
Make sure that the amount you have to pay fits comfortably within your budget. It’s important to find a lender who offers affordable payments.
Fees
There are many types of loan fees. Some common ones are origination fees (to cover the cost of processing your personal loan) and prepayment penalties (if you pay off your loan early). Ideally, you want to find a lender who charges fewer fees and smaller amounts for each fee.
How do I decide which lender is right for me?
When you’ve reviewed all these factors, you’ll see that some lenders meet your needs better than others.
Next you can compare the specific loans you’re offered. Take your time looking over the loan agreements and ask any questions you may have.
Have you found what you’re looking for? Great! You can sign the loan agreement and get your money. If not, you may want to keep looking until you find a lender and a loan agreement you feel comfortable with.
Oportun: Affordable personal loans for everyday people
If you have a limited credit history and want to take out a personal loan, Oportun could be the right resource for you. As a state-licensed lender and a partner with Pathward, Oportun provides access to affordable personal loans.
Through Oportun, you can get:
- Personal and secured personal loans
- Loan amounts from $300 to $20,000
- APRs that never go over 35.99 percent (APR varies by state)
- Affordable payments
- Hundreds of locations across the United States
- No prepayment penalties or balloon payments
See if you prequalify for a personal loan through Oportun today.
Sources:
Federal Trade Commission. Credit scores
National Credit Union Administration. What is a credit union?
The information in this site, including any third-party content and opinions, is for educational purposes only and should not be relied upon as legal, tax, or financial advice or to indicate the availability or suitability of any Oportun product or service to your unique circumstances. Contact your independent financial advisor for advice on your personal situation.
Personal loans through Oportun subject to credit approval. Terms may vary by applicant and state and are subject to change. If you refinance, you may pay interest over a longer period of time or at a higher rate and the overall cost of your loan may be higher. Loans in NM and WI are originated by Oportun, Inc. California loans made pursuant to a California Financing Law license. NV loans originated by Oportun, LLC. In AL, AK, AR, AZ, CA, DE, FL, GA, HI, ID, IL, IN, KS, KY, LA, MI, MN, MO, MS, MT, NC, ND, NE, NH, NJ, OH, OK, OR, PA, RI, SC, SD, TN, TX, UT, VA, VT, and WY loans are originated by Pathward®, N.A.. Terms, conditions, and state restrictions apply.
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