Personal loans are the fastest-growing debt category in the last decade. That’s due in part to the rise of fintech and peer-to-peer lending companies, which make accessing these loans cheaper and easier than ever before.
A form of installment credit, personal loans must be paid back in regular increments over a set period of time. Many see them as an affordable alternative to credit cards, because personal loans often have lower interest rates than credit cards, and consumers can use them to finance nearly every kind of expense, from home renovations to relocation costs and sometimes even paying off student loan debt. But that doesn’t mean they’re free money. Personal loans APRs average 11.23%, according to the Fed’s most recent data. Meanwhile, the average credit card interest rate is around 19.07%.
When compiling our list of the best personal loans, CNBC Select evaluated dozens of lenders. We looked at key factors like interest rates, fees, loan amounts and term lengths offered, plus other features including how your funds are distributed, autopay discounts, customer service and how fast you can get your funds.
The best personal loans
- Best overall: LightStream Personal Loans
- Best for debt consolidation: Happy Money
- Best for refinancing high-interest debt: SoFi Personal Loans
- Best for smaller loans: PenFed Personal Loans
- Best for next-day funding: Discover Personal Loans
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Compare offers to find the best loan
As you begin to search for a personal loan, it can be helpful to compare several different offers to find the best interest rate and payment terms for your needs. This comparison tool asks you 16 questions, including your annual income, date of birth and Social Security number in order for Engine by MoneyLion to determine the top offers for you. The service is free, secure and does not affect your credit score.
Best for debt consolidation
A Happy Money personal loan is a good choice if you’re looking to consolidate your credit card debt and pay it down over time at a lower interest rate.
Happy Money’s mission is to help consumers get out of credit card debt once and for all, which is why its loans are geared specifically toward debt consolidation. You can’t use a Happy Money loan for home renovations, major purchases, education, etc.
Borrowers can take out loan amounts between $5,000 and $40,000, and the loan terms range from 24 to 60 months. There’s a soft inquiry tool on its website, which allows you to look at possible loan options based on your credit report without impacting your credit score.
Happy Money doesn’t charge late payment fees, or early payoff penalties if you decide to pay off your debt faster than you initially intended, but there is an origination fee of up to 5% based on your credit score and application. The higher your score, the lower your origination fee and interest rates are likely to be.
Unlike some lenders, Happy Money allows you to deposit the money you borrow into your linked bank account or send it directly to your creditors. Another perk you get from taking out a Happy Money loan is access to various financial literacy tools, such as free FICO score updates, a team that performs quarterly check-ins with you during your first year of working with Happy Money and tools to help members improve their relationship with money through personality, stress and cash flow assessments.
Best for refinancing high-interest debt
SoFi got its start refinancing student loans, but the company has since expanded to offer personal loans up to $100,000 depending on creditworthiness, making it an ideal lender for when you need to refinance high-interest credit card debt.
If you have high-interest debt on one or more cards, and you want to save money by refinancing to a lower APR, SoFi offers a simple sign-up and application process, plus a user-friendly app to manage your payments.
Another unique aspect of SoFi lending is that you can choose between a variable or fixed APR, whereas most other personal loans come with a fixed interest rate. Variable rates can go up and down over the lifetime of your loan, which means you could potentially save if the APR goes down (but it’s important to remember that the APR can also go up). However, fixed rates guarantee you’ll have the same monthly payment for the duration of the loan’s term, which makes it easier to budget for repayment.
By setting up automatic electronic payments, you can earn a 0.25% discount on your APR. You can also set up online bill pay to SoFi through your bank, or you can send in a paper check.
Once you apply for and get approved for a SoFi personal loan, your funds should generally be available within a few days of signing your agreement. You can both apply for and manage your loan on SoFi’s mobile app.
While taking on a sizable loan can be nerve-wracking, SoFi offers some help if you lose your job: You can temporarily pause your monthly bill (with the option to make interest-only payments) while you look for new employment. You may still incur interest, but your payment history will remain unharmed.
Best for next-day funding
Discover Personal Loans can be used for consolidating debt, home improvement, weddings and vacations. You can receive your money as early as the next business day provided that your application was submitted without any errors (and the loan was funded on a weekday). Otherwise, your funds will take no later than a week.
While there are no origination fees, Discover does charge a late fee of $39 if you fail to repay your loan on time each month. There’s no penalty for paying your loan off early or making extra payments in the same month to cut down on the interest.
If you’re getting a debt consolidation loan, Discover can pay your creditors directly. Once you’re approved for and accept your personal loan, you can link the credit card accounts so Discover will send the money directly. You just need to provide information such as account numbers, the amount you’d like paid and payment address information.
Any money remaining after paying your creditors can be deposited directly into your preferred bank account.
How do personal loans work?
Personal loans are a form of installment credit that can be a more affordable way to finance the big expenses in your life. You can use a personal loan to fund a number of expenses, from debt consolidation to home renovations, weddings, travel and medical expenses.
Before taking out a loan, make sure you have a plan for how you will use it and pay it off. Ask yourself how much you need, how many months you need to repay it comfortably and how you plan to budget for the new monthly expense.
Most loan terms range anywhere from six months to seven years. The longer the term, the lower your monthly payments will be, but they usually also have higher interest rates, so it’s best to elect for the shortest term you can afford. When deciding on a loan term, consider how much you will end up paying in interest overall.
Once you’re approved for a personal loan, the cash is usually delivered directly to your checking account. However, if you opt for a debt consolidation loan, you can sometimes have your lender pay your credit card accounts directly. Any extra cash left over will be deposited into your bank account.
Your monthly loan bill will include your installment payment plus interest charges. If you think you may want to pay off the loan earlier than planned, be sure to check if the lender charges an early payoff or prepayment penalty. Sometimes lenders charge a fee if you make extra payments to pay your debt down quicker, since they are losing out on that prospective interest. The fee could be a flat rate, a percentage of your loan amount or the rest of the interest you would have owed them. None of the lenders on our list have early payoff penalties.
Once you receive the money from your loan, you have to pay back the lender in monthly installments, usually starting within 30 days loans
When your personal loan is paid off, the credit line is closed and you can no longer access it.
What is a good interest rate on a personal loan?
Most personal loans come with fixed-rate APRs, so your monthly payment stays the same for the loan’s lifetime. In a few cases, you can take out a variable-rate personal loan. If you go that route, make sure you’re comfortable with your monthly payments changing if rates go up or down.
Personal loan APRs average slightly above 10%, while the average credit card interest rate is nearly 20%. Given that the average rate of return in the stock market tends to be around 10% when adjusted for inflation, the best personal loan interest rates would be below 10%. That way, you know that you could still earn more than you’re paying in interest.
However, it’s not always easy to qualify for personal loans with interest rates lower than 10% APR. Your interest rate will be decided based on your credit score, credit history and income, as well as other factors like the loan’s size and term.
How much do personal loans cost?
Some lenders charge origination, or sign-up, fees, but none of the loans on this list do. All personal loans charge interest, which you pay over the lifetime of the loan. The lenders on our list do not charge borrowers for paying off loans early, so you can save money on interest by making bigger payments and paying your loan off faster.