Most banks offer personal loans, but the terms and who qualifies varies widely
Personal loans are available from traditional banks, credit unions, and online lenders. A traditional bank — the kind with a physical branch in your town — will usually offer personal loans to customers who already have a checking or savings account there, though some will lend to people new to the bank. Credit unions often have looser requirements than banks and lower interest rates, but you have to be a member first. Online lenders move faster and require less paperwork, but their interest rates can be higher.
The real difference between these three types is not whether they offer loans, but how they decide whether to lend to you and how much they charge. A bank looks at your credit history and income. A credit union looks at the same things but often weighs membership and history with them more heavily. An online lender may approve you based on income alone, without a credit check, but will charge more interest to cover the risk.
Before you contact any lender, know your own situation: your approximate credit score (if you know it), your annual income, and how much you need to borrow. This takes five minutes and saves you from wasting time on lenders who will turn you down.
Key Takeaways
- Traditional banks require you to have an account with them or meet their credit standards, and they typically offer the lowest interest rates if you have good credit.
- Credit unions often lend to people with lower credit scores than banks will, but you must be a member, which usually means living or working in a specific area or having a family member who is a member.
- Online lenders approve faster and may not require a credit check, but their interest rates are usually higher than banks or credit unions.
- Your interest rate depends on your credit score, income, and how much you borrow — the same lender will offer different rates to different people.
- Comparing offers from at least three lenders takes a few hours and can save you hundreds of dollars in interest over the life of the loan.
How traditional banks decide whether to lend to you
Most large banks — Bank of America, Wells Fargo, Chase, Citibank, and regional banks in your area — offer personal loans. They all follow roughly the same process. You contact them, provide your income and employment information, and they pull your credit report. Based on your credit score and income, they decide whether to lend and at what interest rate.
If you already have a checking account at the bank, the process is faster because they already know some of your financial history. If you do not, they will still lend to you, but they may require a higher credit score or proof of income. Some banks have a minimum credit score — often around 600 to 650 — below which they will not lend at all.
Interest rates at traditional banks usually range from 6% to 36% per year, depending on your credit score and the loan amount. Someone with excellent credit (a score above 740) might get 6% to 10%. Someone with fair credit (a score around 580 to 669) might get 18% to 28%. The bank will tell you the rate before you commit.
Credit unions and why membership matters
A credit union is a nonprofit financial cooperative owned by its members. Unlike a bank, which is owned by shareholders, a credit union returns its profits to members in the form of lower fees and better interest rates. Credit unions typically offer personal loans at lower rates than banks, sometimes 2% to 3% lower.
The catch is membership. You cannot walk into a credit union and borrow money the way you can at a bank. You have to be a member first, which usually means you live in a specific geographic area, work for a specific employer, or have a family member who is already a member. Some credit unions have opened membership to anyone in a county or state, but many are still restricted.
To find a credit union you can join, use the CO-OP Network search tool on the Credit Union National Association website, or search "credit unions near me" and call to ask about membership. Once you are a member, the loan process is similar to a bank's: they check your credit and income, and they decide on a rate. Credit unions often lend to people with credit scores as low as 550, whereas banks may not.
Online lenders and the speed-versus-cost tradeoff
Online lenders like LendingClub, Prosper, Upstart, and Earnin offer personal loans entirely through a website or app. You fill out an process, they make a decision in hours or days, and the money appears in your bank account within a week. No branch visit, no paperwork mailed back and forth.
The downside is cost. Online lenders charge higher interest rates than banks or credit unions — often 10% to 36% per year — because they lend to people with lower credit scores and take on more risk. Some online lenders do not check your credit at all; instead, they look at your income and bank account history. This means you might get approved when a bank would turn you down, but you will pay more for it.
Online lenders are useful if you need money fast and have a lower credit score, or if you want to avoid a branch visit. They are not the cheapest option if you have good credit and can wait a few weeks for a bank or credit union to process your loan.
What you need to know before you contact a lender
Lenders will ask for the same basic information: your name, address, Social Security number, income, employment, and the amount you want to borrow. Have this ready before you call or explore online. You will also need to know whether you want a secured loan (backed by collateral, like a car or savings account) or an unsecured loan (backed only by your promise to repay). Most personal loans are unsecured.
When a lender checks your credit, it creates a small dent in your credit score that goes away in a few months. If you explore to multiple lenders within a short window — say, two weeks — the damage is minimal because credit scoring systems treat multiple inquiries as one shopping trip. If you space out applications over months, each one counts separately and hurts your score more.
Before you borrow, understand the total cost. A $10,000 loan at 15% interest over five years costs you about $4,000 in interest. The same loan at 25% interest costs about $6,800. Ask each lender for the total interest you will pay, not just the monthly payment. The monthly payment is easier to afford, but the total cost is what matters to your wallet.
Comparing offers from different lenders
Once you have narrowed down to two or three lenders — say, your bank, a local credit union, and one online lender — ask each one for a written offer. The offer should include the loan amount, the interest rate, the monthly payment, the number of months to repay, and the total interest you will pay. This is called a loan estimate, and lenders are required to provide it for free.
Compare the total cost, not just the monthly payment. A loan with a lower monthly payment might have a longer term and cost you more overall. A loan with a higher monthly payment but a shorter term might cost less in total interest. The loan estimate shows both, so you can decide what matters more to you: lower monthly payments or lower total cost.
Once you have chosen a lender and accepted their offer, they will ask you to sign documents and verify your income. This usually takes a few days. The money will then be deposited into your bank account, usually within a week.
Banks and lenders that commonly offer personal loans
| Type of Lender | Examples | Typical Interest Rate Range | Speed |
|---|---|---|---|
| Traditional Banks | Chase, Bank of America, Wells Fargo, Citibank, regional banks in your area | 6% to 36% | 1 to 2 weeks |
| Credit Unions | Local credit unions (search CO-OP Network or call your employer's credit union) | 6% to 18% | 1 to 2 weeks |
| Online Lenders | LendingClub, Prosper, Upstart, Earnin, Elevate | 10% to 36% | 1 to 7 days |
Frequently Asked Questions
Do I need a credit score to get a personal loan?
Most banks require a credit score of at least 600 to 650. Credit unions often lend to people with scores as low as 550. Some online lenders do not check credit at all and instead look at your income and bank account. If you have no credit score or a very low one, a credit union or online lender is more likely to work with you.
What is the difference between a secured and unsecured personal loan?
A secured loan is backed by collateral — something you own that the lender can take if you do not repay, like a car or savings account. An unsecured loan is backed only by your promise to repay. Unsecured loans have higher interest rates because the lender takes on more risk. Most personal loans are unsecured.
Can I get a personal loan if I just started a new job?
Most lenders want to see at least two months of income from your current job, though some will accept a job offer letter or a statement from your employer. Online lenders are often more flexible about this. Call the lender and ask before you explore.
Will explore for a personal loan hurt my credit score?
Yes, but only slightly and temporarily. Each process creates a small dent that fades in a few months. If you explore to multiple lenders within two weeks, credit scoring systems treat it as one shopping trip and the damage is minimal. Spacing applications out over months makes the damage worse.
What happens if I cannot repay the loan?
If you miss payments, the lender will charge you late fees and your credit score will drop. If you miss several payments, the lender may send the debt to a collection agency. You can contact your lender to discuss a hardship plan or loan modification before you fall behind. Do not ignore the problem.