Online loans are an alternative for borrowers who prefer the convenience of virtual lending. Just like you can apply for a loan through a traditional financial institution, online loan companies exist to help borrowers looking for an accessible way to borrow. The best loans online boast low fees, low interest rates, great customer support and loans that can do everything from financing a remodel to helping you get out debt. Whether you’re searching for online loans for bad credit or online loans for home improvement, you can find some of the best online loans below, sorted by category.
The 7 best online lenders of 2020
|Lender||APR||Loan Amount||Terms||Key Benefit|
|LightStream||3.49%–19.99%||$5,000–$100,000||2–12 years||Beats any competitor’s rates|
|Marcus by Goldman Sachs||6.99%–19.99%||$3,500–$40,000||3–6 years||Personalized loan term options|
|SoFi||5.99%–18.28%||$5,000–$100,000||2–7 years||Access to expert financial advice|
|Payoff||5.99%–24.99%||$5,000–$35,000||2–5 years||Interactive tools for financial understanding|
|Upgrade||7.99%–35.97%||$1,000–$35,000||3–5 years||Free resources for credit health|
|Avant||9.95%–35.99%||$2,000–$35,000||2–5 years||Refinancing available after 6 months|
|LendingClub||10.68%–35.99%||$1,000–$40,000||3–5 years||Supportive debt consolidation resources|
*Rates accurate as of July 14, 2020
The 7 best online lenders of 2020
How should I choose the right online loan?
To choose from the best personal loans available online, think about the main reason for your loan in the first place. Are you looking for a personal loan to fund a home improvement project? Are you looking to consolidate your credit card debt? Online lenders often specialize in a specific type of loan.
After you know what kind of loan you want or need, evaluate your credit score and history. If your credit score is poor, pause on your loan applications and focus on rebuilding your credit first — otherwise, you’re unlikely to get approved by any lender or you may be stuck with a higher interest rate.
Once you’re ready to apply, gather all documentation required to complete the loan application process. You’ll need an official form of identification, proof of income and other financial paperwork.
What you should know about online loans
Before applying for an online loan, there are a few things you should know. Online loans are similar to traditional loans secured in-person in that lenders will run your credit and some may require you to have a cosigner if you have a less than ideal credit score.
Where they differ is that online lenders tend to allow applicants to prequalify for a loan which is a helpful tool for borrowers shopping around for the best deals. Furthermore, as their name suggests, online loans are originated entirely online — including the application, approval and final document signatures. This is extremely convenient for some borrowers who prefer digital banking.
Paying attention to these pros and cons of online personal loans will make finding the best online lender even easier.
What are the pros of an online personal loan?
Online personal loans are easily accessible and convenient alternatives to traditional loans where one would normally have to walk into a credit union or bank branch to apply. It’s especially advantageous if you’re not a member of a local bank because, with an online lender, you might be able to find lower interest loans online. Depending on your location and credit score, this could be a dealmaker.
Online loans usually have a prequalification process, which involves using a soft credit check to see if you can be approved. This is great because it doesn’t adversely affect your credit score. That way you don’t waste time getting too far into applying for a loan for which you could be denied or do a hard pull on your credit, potentially damaging your credit score. Another bonus is that many lenders offer interest rate discounts if you sign up for automatic payments.
What are the cons of an online personal loan?
While there are plenty of benefits to using online personal loans, borrowers should watch out for the cons as well. The internet is, unfortunately, full of people and groups who want to take advantage of the unwary. This includes online loan scams, such as equity stripping, bait-and-switch schemes, loan flipping, packing a loan with charges you did not request, and hidden balloon payments.
Another con to be aware of is customer support. While it’s convenient to get funding online with a simple application and signature, if you ever run into trouble with your loan, you can’t walk into a bank branch and request in-person help. You’re stuck with online chat or a phone call — which could translate to hold times and shoddy service.
How to get an online loan with bad credit
If you have poor credit but you need a loan to help you get out of debt or money for an emergency, it’s still possible to obtain a loan. Lenders that offer bad credit loans will still evaluate your credit history but will have less strict underwriting requirements. In some cases, these lenders will also consider other factors outside of your credit scores to determine your approval for a loan, such as your income.
Although you might find a lender willing to approve a loan for you, there are some drawbacks to consider. In many cases, you’ll be saddled with a much higher interest rate, typically above 20%. For borrowers, that means it’s much more expensive to borrow money.
Lenders who work with borrowers with poor to fair credit include LendingClub, Avant and Upgrade. You’ll need to research each lender’s requirements before applying.
One note of caution: watch for red flags and predatory loan schemes like payday loans targeted at borrowers on the hunt for bad credit online loans. While they may offer you enticing upfront sums, the terms and conditions associated with them often take advantage of those in vulnerable financial positions.
Things to keep in mind
Before you decide to get an online loan, consider all the different variables involved.
- Soft credit checks versus hard credit checks: If a lender offers pre-qualification, you can get a good idea of whether or not you’ll be approved for a loan without a “hard pull” on your credit. A hard pull can result in a temporary decrease in your credit scores. If the lender doesn’t offer prequalification, you’ll go directly to the “hard pull” stage where the lender conducts a hard inquiry.
- Loan terms: Remember to take the time to parse through the loan terms and conditions, otherwise known as the fine print of your loan. Can you change the payment date? What happens if you lose your job? How long is your loan for? These are all questions you should have an answer to.
- Payment portals: Does the lender offer a user-friendly payment portal laying out the framework of your loan terms and showing you where and how to pay? The ease and convenience of paying your loan is an important consideration.
- Autopay discounts: Many lenders offer interest rate discounts if you opt into auto-pay.
- Fixed-rate versus variable-rate loans: Fixed-rate loans mean your monthly payments and interest rate stays the same over the life of the loan. Variable-rate loans mean your interest rate, and therefore your monthly payments, may fluctuate month to month.
- Fees: Some lenders don’t charge for late payments or even missed payments, but you need to double-check the terms outlined by your lender.
- Early payoff penalties: Paying off your loan early is good, right? Well, in some cases, a lender can charge you a penalty fee for “shortchanging” what they’d make on interest for the time period you’d still be paying the loan.
[ Read: How No Credit-Check Loans Work ]
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