What is a Personal Loan?
A personal loan is an unsecured loan that provides borrowers with a lump sum of money that is repaid in fixed monthly installments over a predetermined period. Unlike secured loans such as mortgages or auto loans, personal loans don't require collateral, making them accessible to a wider range of borrowers. These loans typically have fixed interest rates, set repayment terms and can be used for almost any purpose.
How do personal loans work? Keep reading to learn about top providers, how to apply and what qualifications you need to meet for approval.
Top Personal Loan Providers in the US
1. LightStream
LightStream, the online lending division of Truist Bank, offers personal loans with competitive rates and minimal fees. They're known for their "Rate Beat" program, where they'll beat a competitor's rate by 0.10 percentage points if certain conditions are met.
- Loan amounts: $5,000 to $100,000.
- APR range: 7.49% to 25.99%.
- Loan terms: 2 to 12 years.
- Minimum credit score: 660.
2. SoFi
SoFi provides personal loans with no origination fees, prepayment penalties or late fees. They also offer unemployment protection, which can temporarily pause payments if you lose your job.
- Loan amounts: $5,000 to $100,000.
- APR range: 8.99% to 25.81%.
- Loan terms: 2 to 7 years.
- Minimum credit score: 680.
3. Marcus by Goldman Sachs
Marcus offers fee-free personal loans with the option to defer one payment after 12 consecutive on-time payments without accruing additional interest.
- Loan amounts: $3,500 to $40,000.
- APR range: 9.99% to 29.99%.
- Loan terms: 3 to 6 years.
- Minimum credit score: 670.
4. Discover
Discover personal loans come with no origination fees and next-day funding for qualified borrowers. They also offer a 30-day money-back guarantee.
- Loan amounts: $2,500 to $40,000.
- APR range: 7.99% to 24.99%.
- Loan terms: 3 to 7 years.
- Minimum credit score: 660.
5. Upstart
Upstart uses artificial intelligence and alternative data to evaluate borrowers, making it a good option for those with limited credit history.
- Loan amounts: $1,000 to $50,000.
- APR range: 6.70% to 35.99%.
- Loan terms: 3 to 5 years.
- Minimum credit score: 300 (but other factors are considered).
How to Apply for a Personal Loan
- Check your credit score. Before applying, review your credit report and score. Most lenders have minimum credit score requirements, and better scores typically qualify for lower interest rates.
- Compare lenders. Research multiple lenders to find the best rates and terms for your situation. Consider factors such as interest rates, fees, loan amounts and repayment terms.
- Prequalify if possible. Many lenders offer prequalification with a soft credit check, which won't affect your credit score.
- Gather necessary documents. Typically, you'll need:
- Government-issued ID.
- Proof of address.
- Proof of income (pay stubs, tax returns).
- Employment verification.
- Bank account information.
- Complete the application. Submit your application online or in person, depending on the lender.
- Accept loan terms and receive funds. Once approved, review the loan agreement carefully before accepting. After acceptance, funds are typically deposited into your bank account within 1-5 business days.
Qualifying for a Personal Loan
Lenders evaluate several factors when considering personal loan applications:
- Credit score. Most traditional lenders prefer scores of 670 or higher, though some cater to lower scores.
- Debt-to-income ratio. This compares your monthly debt payments to your income. A lower DTI (ideally below 36%) improves approval chances.
- Income stability. Lenders want to see steady income that's sufficient to repay the loan.
- Employment history. Stable employment history demonstrates reliability.
- Existing debt. High levels of existing debt may reduce your chances of approval.
Typical Loan Amounts and Interest Rates
Personal loan amounts generally range from $1,000 to $100,000, though most borrowers take loans between $5,000 and $25,000. The amount you qualify for depends on your creditworthiness, income and the lender's policies.
Interest rates typically range from about 6% to 36%, with the average rate around 11% to 15%. Borrowers with excellent credit (740+) can often secure rates in the single digits, while those with fair or poor credit may face significantly higher rates.
When a Personal Loan Makes Sense
Debt Consolidation
Combining multiple high-interest debts into a single loan with a lower interest rate can save money and simplify payments. This is one of the most common uses for personal loans.
Home Improvements
For homeowners without sufficient equity or who don't want to use their home as collateral, personal loans provide quick funding for renovations or repairs.
Major Purchases
Personal loans can be appropriate for large necessary purchases when you need to spread payments over time but want fixed terms rather than revolving credit.
Medical Expenses
When facing significant medical costs not covered by insurance, a personal loan can offer more favorable terms than medical credit cards or payment plans.
Wedding Expenses
Rather than putting wedding costs on high-interest credit cards, a personal loan with a fixed repayment schedule can be a more structured approach.
Emergency Expenses
For unexpected costs like car repairs or emergency travel, personal loans can provide quick access to funds at better rates than credit cards or payday loans.