Personal Loan Lenders: How to Compare Banks, Credit Unions, and Online Lenders
Bills Bottom Line
Personal loan lenders don't all charge the same for the same kind of loan. Banks, credit unions, and online lenders set their own rates and fees. Some add a setup or origination fee of up to 12%, while others charge nothing. Compare loan APRs, which includes the fees. Note that APRs above 36% are widely considered predatory.
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You have two loan offers open in tabs, and the numbers aren’t easy to compare. One lender leads with a low rate and adds a fee. The other quotes a higher rate, but charges no fees.
Chances are, those two offers came from different kinds of lenders. Personal loan lenders come in three primary types, and the type you choose is a big factor in determining the terms and rates of your loan.
You can measure these offers against each other by focusing mostly on APR rather than just the interest rate alone. Prequalifying with a lender shows you potential loan terms. Most lenders offer a “risk-free” or “soft pull” prequalification, which won’t lower your credit score.
Types of personal loan lenders: banks, credit unions, and online lenders
Banks, credit unions, and online lenders all make personal loans. The lender you choose changes what you're offered, and sometimes whether you're approved at all.
Banks
Banks generally save their best terms for people who bank with them. U.S. Bank lends its own customers $1,000 to $50,000, over terms of 12 to 84 months. If you bank elsewhere, the cap is $25,000 and 60 months. Wells Fargo asks for at least 12 months of account history before it will offer a loan.
If you already have a checking or savings account somewhere, start with that institution. That relationship is often worth real money. For the fundamentals of how these loans work, start with our guide to personal loans.
Credit unions
Credit unions are owned by the people who bank there, which is one reason their rates often run lower. Federal law also puts a hard cap on the rate many of them can charge you.
Depending on how a credit union is chartered, its rates are limited by the Federal Credit Union Act, the National Credit Union Administration (NCUA) Board, and/or state laws. Currently, a federal credit union can't charge you more than 18%, regardless of your credit history. Most credit unions are federal, and they’re easy to spot because their official charter name must contain the words "federal credit union."
Borrowing from a credit union means joining it first. Our guide to credit union personal loans covers eligibility, rates, and how to join.
Federally chartered credit unions hold one of three charter types:
- Single common bond, based on a shared employer or an association
- Multiple common bond, covering more than one such group
- Community, based on living, working, worshipping, or attending school in a defined geographic area.
Joining requires buying at least one share in the credit union, which in practice means opening a share savings account with a small deposit set by that credit union. Every credit union writes its own rules, so if you’re considering a credit union loan, first check out the membership page to see if you can join.
Online lenders
Online lenders work with the widest range of credit histories, and they tend to move fastest. Some send the money the same day. Some weigh your education and work history alongside your credit score, which can get you approved when a bank might turn you down. Rely on the APR for comparison so you’re incorporating any setup (origination) fee.
If rate is your main criterion, don't pick a lender type first. Prequalify with one of each type and compare the APRs on the offers you actually get. Check your own bank first if you have an account there. A federal credit union caps what it can charge all-in, which limits your worst case. An online lender is the move when funding speed decides it.
Here's how the three types line up.
| Bank | Credit union | Online lender | |
|---|---|---|---|
| Who it suits | Those who already bank there | Those who are eligible to join, and want a cap on the rate | Those with a thin credit history, or who need the money fast |
| Setup fee | Usually none | None at the credit unions in this comparison | Common, up to 12% |
| What it takes to get in | The best terms and highest limits often go to existing customers | Membership first, and some credit unions ask you to wait 90 days before applying | No relationship needed, and you can apply on the website |
| How fast the money arrives | One to four business days | Varies, but can be the same day | Same day to a few business days |
Personal loan rates and fees: what lenders charge
The cost of a personal loan includes its interest rate and any fees the lender charges. Two lenders can quote you the same interest rate, but their loans would still cost you very different amounts. Personal loan rates vary widely based on credit, income, lender, and current market conditions. As a benchmark, the Federal Reserve publishes the average commercial bank personal loan rate quarterly.
One number is worth keeping in mind when you shop for a loan. The National Consumer Law Center (NCLC) recommends a 36% APR ceiling, including all fees, as the benchmark for affordable lending — the Military Lending Act says the same for active-duty servicemembers. Loans above 36% APR are widely considered predatory.
Personal loan origination fees range from 0% to 12% of the loan amount. Some lenders charge none, including LightStream, Discover, Wells Fargo, and TD Bank. Other lenders charge up to 12%. When there’s an origination fee, it comes out of the loan amount before the money reaches you. Borrow $10,000 with a 5% fee, and you get $9,500 in loan funds. But you still owe the full $10,000.
Some lenders sell their loans on the idea that they charge no fees. But the no-fee loan may have a higher rate. The APR calculation includes both the rate and origination fee, and the loan with the lower APR has the lower overall cost. APR (annual percentage rate) is the total yearly cost of borrowing, including the interest rate plus most lender fees. So the interest rate isn't the number to compare. The APR is.
How to compare personal loan lenders
Contact several lenders that offer risk-free (soft credit pull) prequalification. Once you have two or three offers in hand, look them over and the lowest total cost will become clear.
Start with the APR. It's the one number that lets you compare two offers directly, because it already includes most fees.
Ask about the setup fee. Find out whether there is one, how much it is, and whether it comes out of the money you receive.
Check how much you can borrow. Every lender sets its own minimum and maximum, and the spread across the market is wide.
Note how long you'll make payments. Personal loan terms typically run two to seven years, though some lenders offer shorter or longer. A longer term drops your monthly payment, but raises what you pay overall.
Find out how fast the money arrives. Funding times vary by lender, but are often within a week of approval.
Add up the discounts. Setting up automatic payments can sometimes knock as much as 0.25 to 0.50 a percentage point off your rate. Some lenders take more off if they pay your old creditors directly, and some let you combine discounts.
Confirm whether you can apply with a co-signer. Co-signer and joint-applicant rules vary by lender. Some lenders allow joint applications, and others don't, so check the lender's eligibility page.
For a step-by-step walkthrough, see how to compare personal loan rates.
What personal loan lenders look for when you apply
Every lender is answering one question about you to figure out whether to lend to you: Can you pay this back?
To figure that out, they look at your credit score and history, your income, whether you're working, and how much of your income currently goes to debt payments. Some online lenders also weigh your education and work history alongside your credit.
Your credit score sits at the center of that list. FICO sorts scores into five tiers:
- Poor is below 580
- Fair runs 580 to 669
- Good runs 670 to 739
- Very Good runs 740 to 799
- Exceptional is 800 and above
Personal loan providers choose which credit tiers they want to market to. One specializing in borrowers with poor credit typically requires a higher rate and/or fee to compensate for the added risk. Others may only approve loans to top-drawer applicants or mid-range borrowers.
How to apply for a personal loan
Prequalify with more than one lender before you formally apply anywhere. This generally costs you nothing and shows you what terms you’re likely to be offered. Prequalifying means answering a few questions and okaying a credit check before you formally apply.
Prequalifying usually generates a soft credit inquiry, which doesn't affect your credit score. Make sure that’s the case, though, before authorizing a credit check. Prequalifying isn't a promise of approval, and the final offer depends on the lender's full review.
Submitting a full application works differently. It generates a hard credit inquiry, and hard inquiries subtract a few points from your score, because scoring models weigh how often you apply for credit, and how recently you’ve done so.
Lenders typically ask for identification, proof of income, and bank account details. Have those on hand.
Be aware that lenders may run their hard credit inquiry at different points in the application process. When in doubt, ask.
Bills Action Plan
1. Find out which credit unions you can join if you want to consider them as lenders. Start with where you live and where you work. Check the membership page to see whether you're eligible.
2. Prequalify with several lenders. You might pick at least one bank, one credit union, and one online lender. Ask each whether prequalifying generates a soft credit inquiry.
3. Line the offers up by APR, not by interest rate. The lowest APR costs you the least overall, no matter what the fees look like.
Key Terms
APR: The yearly cost of a loan with most fees included. It's the number to compare. Two loans with the same interest rate can cost you very different amounts once the fees land.
Origination fee: A setup charge some lenders add. It usually comes out of the money you receive. Borrow $10,000 with a 5% fee and $9,500 lands in your account when you receive funds.
Prequalification: Asking a lender what it could offer you before you formally apply. This usually generates a soft credit inquiry, which doesn't affect your score. It isn't a promise of approval.
Soft and hard credit inquiries: A soft inquiry is a look at your credit that doesn't affect your score. A hard inquiry happens when you formally apply, and it does affect your score.
Field of membership: The rule that decides who can join a particular credit union. Usually based on where you live, where you work, or who you're related to.
Co-signer: Someone who promises to repay if you don't. Not the same as a joint applicant, who shares the loan with you.
This article is for general education and isn't financial advice. Loan terms, rates, and eligibility differ by lender and are subject to credit approval. Check with the lender for terms specific to your situation.
Do personal loan lenders verify employment?
Lenders check whether you're working when they assess whether you can pay the loan back. Some contact your employer directly, and others accept pay stubs or tax documents. What a specific lender asks for is on its application page.
Which kind of credit score is a personal loan lender likely to use?
Most lenders use a FICO Score, though the version varies and some also pull a VantageScore. FICO tiers run Poor below 580, Fair 580 to 669, and Good 670 to 739. Very Good is 740 to 799, and Exceptional is 800 and above.
Do you have to join a credit union to borrow from it?
Yes. Credit unions lend to their members, so joining comes first. It usually means opening a savings account with a small deposit. Who can join depends on the credit union's rules and charter type.