Personal Loans
Online personal loans: quick and convenient
Aug 22, 2023
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Reviewed by
Key takeaways:
Online personal loans may be your best bet when you need to borrow quickly.
Technology cuts paperwork and delivers quick decisions.
You may be able to prequalify without impacting your credit score.
Learning how to compare loans can help you level up your financial game and organize your finances.
Shopping for an online personal loan is a great first step. Since online lenders don't have to pay for physical locations, they may be able to give you a better offer than you could get at your local bank branch.
Here's the lowdown on online personal loans and how to get one.
What is an online personal loan?
An online personal loan works a lot like how a regular personal loan works. The main difference is that you apply using a website or app. You can find online personal loans at traditional institutions with branches as well as from online-only lenders.
Advantages of an online personal loan
Most online lenders have automated systems that speed up loan processing. That makes a huge difference to borrowers:
It's convenient to find, compare, and apply for online personal loans from home.
The lender's software analyzes your data and returns a decision in minutes.
Online lenders can often verify your income and accounts directly with your bank and your employer. That means less paperwork for you.
You can track the status of your loan without calling or visiting a branch.
Funding is fast—from same-day to a few days, depending on the lender.
Understanding online personal loan costs: interest rates and fees
It costs money to get a loan. Here's how the costs break down on most personal loans.
Lender fees
Most personal loans come with an origination fee. This is the lender's fee for making the loan, and it typically runs between zero and 10% of your loan amount. When there is no lender fee, expect the loan to have a higher interest rate. You can pay your origination fee out of pocket or wrap it into your loan. When you wrap the fees into a personal loan, that means the lender will deduct the fee before giving you the loan money.
Personal loan fees vary based on the lender's guidelines, your credit score, and the loan you choose.
Other fees listed below are uncommon or easily avoided.
Application fee (uncommon for personal loans)
Late payment charge (avoid by paying on time)
Payment processing fee (avoid by setting up automatic payments)
Prepayment penalty (uncommon for personal loans)
Interest charges
You'll pay interest on what you borrow when you get a personal loan. Loan interest rates vary and range from a low of about 8% to a high of about 36%. The rate you're offered depends on the lender, your credit rating, the loan term, and how much you borrow.
Instead of comparing interest rates when you shop for a loan, compare the annual percentage rate. APR includes the interest and fees and tells you the cost of the loan for a year. Loans with low rates can seem like a better deal, but if they have very high fees, they can actually be more expensive than a loan with a higher interest rate.
Common ways to use an online personal loan
You can borrow with a personal loan for most legal purposes. Some types and uses of personal loans include:
Medical expenses or dental work
Paying for a wedding or other large celebration
Down payment on a second home
Large purchases
Not every lender or loan allows all uses.
Qualifying for an online personal loan
Before applying for a personal loan online, you'll need to prepare. Gather two years of address and employment information and a government-issued photo ID.
Often, an online lender can verify your employment and account balances electronically. Otherwise, you might have to supply copies of bank statements and pay stubs. If you're self-employed or earn commissions, you might need two years of tax returns.
It's important to provide the requested documents right away. You'll be able to upload them through the lender's app or website.
Qualifications to get approved for a personal loan depend on the lender. The minimum credit score for an online personal loan tends to be around 640 to 660. Lenders also want to make sure that your income is high enough for you to cover your payments. It's a good idea to research loans from lenders who allow you to prequalify for your loan with a soft credit inquiry (one that doesn't affect your credit). That way you'll know what you qualify for before you submit a formal application.
Navigating online personal loan repayment terms and options
Once you know your loan amount and interest rate, you'll choose a repayment term. Personal loan repayment terms can range from one year to over ten years.
The longer your loan term, the more interest you'll pay. Also, you might be able to get a lower interest rate if you opt for a shorter repayment term. So if your goal is to pay the least amount of interest, you'll want to choose the shortest term that you can safely afford.
For example, here's a $5,000 loan at 12% interest.
Repayment term | Monthly payment | Total interest |
|---|---|---|
1-year | $444 | $331 |
2-year | $235 | $649 |
3-year | $166 | $979 |
4-year | $132 | $1,320 |
5-year | $111 | $1,673 |
6-year | $98 | $2,038 |
7-year | $88 | $2,414 |
8-year | $81 | $2,801 |
9-year | $76 | $3,199 |
10-year | $72 | $3,608 |
Taking more years to pay off the loan gets you a lower payment but is more costly in the long run.
Compare the ten-year and five-year options. You would pay $1,935 more interest to lower your monthly payment by just $39. The five-year loan clears your debt twice as quickly and you can probably find a better way to spend that $1,935.
On the other hand, choosing a five-year loan over a one-year loan lowers the payment by $333 a month. It adds $1,342 to your interest cost, but the longer term may be necessary to keep the payment affordable.
How online personal loans affect your credit
Applying for a loan tends to have a negative impact on your credit report at first:
You don't get a rate shopping window for personal loans like you do with car loans or mortgages. You should only apply for a loan once if you can help it. Applying creates a hard credit inquiry, which can lower your score. Choose a loan by shopping around with lenders who do a soft inquiry first.
Part of your credit score is based on how long you've had your credit accounts. A new account can lower the average age of your accounts, and that can have a negative impact on your credit.
Getting and having a loan can help you build good credit:
Paying your loan on time every month adds positive credit history. That's good for your credit standing.
If you pay off credit card debt with a personal loan (one of the more popular uses), you lower your credit utilization. Utilization is just another way of saying "how much of your credit limits are you using?" For instance, if you owe $600 on a credit card that has a $1,000 limit, your utilization is 60%. High utilization and maxed-out cards tend to have a negative impact on your credit. Paying the cards off with a personal loan can improve your credit standing because loan balances aren't scored the same way.
Is it easy to apply for an online personal loan?
It's very easy to apply for a personal loan online. Once you let the lender know why you want the money, how much you need, your name and contact information, and your financial information, you'll probably get a decision in minutes. When the lender has everything they need from you, they can finalize your approval and deliver the funds straight to your bank account.
If you're consolidating debt with your loan, your lender might pay off your accounts directly.
Written by
Gina Freeman has been covering personal finance topics for over 20 years. She loves helping consumers understand tough topics and make confident decisions. Her professional history includes mortgage lending, credit scoring, taxes, and bankruptcy. Gina has a BS in financial management from the University of Nevada.
Reviewed by
Kimberly is Achieve’s senior editor. She is a financial counselor accredited by the Association for Financial Counseling & Planning Education®, and a mortgage expert for The Motley Fool. She owns and manages a 350-writer content agency.
Frequently asked questions
What type of personal loan is easiest to get approved for?
Some personal loan providers focus on borrowers with lower credit scores or income. You can search for those providers online if that's an issue for you.
Another option is to look for secured personal loans, which require collateral. Collateral is something valuable that you offer as a guarantee that you'll repay the loan. It's common to use a savings account as collateral for a secured personal loan. Some lenders will also consider letting you borrow against collectibles, fine art, a vehicle, or other items of value.
Lenders consider secured loans less risky because they can take the collateral if you don't repay your loan.
You could also add a co-borrower with better credit or additional income to strengthen your application. That can help you get approved or get you a better loan. At Achieve, we offer interest-rate discounts if you have a co-applicant— check your eligibility.
Is it better to apply online or in person for a loan?
If you're comfortable with the internet and with filling out forms, applying for a loan online is faster and easier than calling or driving to a traditional branch. And many online lenders will help you with chat, email, or phone support if you get stuck.
It won't affect your loan decision if you choose an online or in-person process.
How long does it take to get approved for an online personal loan?
You can get a preliminary loan decision in minutes. It takes a few hours to a few days to finalize a loan approval and transfer your money. The exact time depends on the lender's policies, how quickly you respond to requests, and how simple or complicated your situation is.
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