The 5 Best Alternatives to Personal Loans - Skip the Bank and Check These Out Instead

Papers with the words "loan agreement" on a desk next to glasses and a calculator.Photo byHadayeva Sviatlana via Shutterstock

With the rise in fintech companies and online financial institutions, consumers no longer need to rely on traditional banks for financial services like loans.

Many companies offer alternatives to personal loans with better rates than traditional lenders.

Here are the best and worst loan options (in our opinion). Be advised that we are affiliated with some of these companies, so if you click a link and go on to apply for a loan, we may receive a small commission. However, we included the companies because we think they’re good options, whether we make money with them or not.

The Best Alternatives to Personal Loans

Here are the five best alternatives to traditional banks for all your personal loan needs.

Credit Union

Credit unions serve as fantastic alternatives to big banks for all your financial needs, including personal loans. They typically run as non-profit organizations, with their members - not big business executives - running the show.

Because they’re not concerned about profits, credit unions typically offer better interest rates than their big bank counterparts. However, you must be a member to reap the benefits.

Upstart

Upstart is a fantastic personal loan alternative because it takes a holistic approach to lending.

The company recognizes that some people may not have had time to build credit, and others may have fallen on hard times, so they try to take a whole-person approach when deciding whether or not to fund a loan. In addition to your credit score, they look at your job history and education to better understand who you are as a person.

The whole-person approach allows Upstart to offer lower rates than competitors and fund loans traditional lenders wouldn’t.

Earnest

Earnest is similar to Upstart in that it considers more than just your credit score when determining your creditworthiness. Its primary focus is on student loan consolidation, but it also offers competitive rates on personal loans.

The biggest hindrance to using Earnest is its high bar for entry.

Borrowers need a minimum score of 650 to be considered, unless you're borrowing with a cosigner who meets that requirement. Earnest might not be a good choice if you are looking for an alternative to personal loans because your credit isn’t the best. But if you are looking for an alternative because you are looking for a better interest rate, it might be a good option for you.

SoFi

I like SoFi because they’re far more than a loan company. They offer social integration with their loans. If you become a member (through getting a loan funded with them, opening an investment account, or using them as a stand-in for your checking account), you automatically gain access to their social network.

SoFi's social network includes career counseling, access to networking and money events (and happy hours!), and essential financial services (advice and access to financial planners). Another cool thing about Sofi is its referral program. If you refer a friend to join the same program that you are in, you get a pretty sweet referral bonus.

SoFi doesn’t list minimum eligibility requirements. They claim they look at numerous factors when deciding whether to fund a loan. If your credit score is above 670, you have a good chance of getting your loan funded. If you have a lower score, it will be harder to qualify.

Prosper

Prosper offers personal loans funded by regular people just like you. The last standing true peer-to-peer lending platform allows you to ask regular folks to fund your loans.

The company uses a proprietary system that considers numerous factors to determine which loans to fund at which rates. Borrowers with credit scores as low as 600 may find success getting a loan through Prosper.

The only drawback to peer-to-peer lending for borrowers is that their loans may not be fully funded. Your loan gets placed on the market, and investors decide whether to invest small amounts. Many loans do get fully funded, but some do not.

What Can be Used as Collateral for a Personal Loan?

Many personal loan options discussed don’t have any collateral -that’s great! Although unsecured loans tend to have higher interest rates, you don’t have to risk losing your car or house if something goes wrong and you can’t pay.

Loan products like home equity loans and title loans require collateral. In a home equity loan, you pull the money out of your house, and with a title loan, you secure the loan with your car.

These options help many people get through difficult financial times, but I don’t recommend using them unless you really need the money.

What is the Best Option for a Personal Loan?

I have two favorite companies for personal loans: Upstart and Sofi. Upstart is great because people with low credit scores can access loans. I also love that they look at more than just your credit score. Companies that treat you like a real person rather than just a number are always better, in my book.

SoFi is great because of all the added benefits. I love the idea of combining finance with a social network, and SoFi’s member benefits make it a great company to work with.

Which Loan Company is Best for Bad Credit?

Upstart has the lowest credit score requirement of all the companies I researched. They list 300 as the minimum credit score and claim they may fund loans for those with insufficient credit history.

The 300 score comes with caveats. If you have a substantial change in score between the time you apply and the time the loan is funded, they may reject your application. They may also deny your application if you have current delinquencies, a recent bankruptcy, or an unfavorable debt-to-income ratio.

The Worst Alternatives to Personal Loans

We understand that some folks have few options. However, you should avoid these two predatory loan options.

Payday Loans

I am not a fan of payday loans. They charge exorbitant amounts for fees and interest. Many people get so caught up in the payday loan cycle that they owe thousands of dollars to payday loan companies on a loan that was initially only for a few hundred bucks.

I understand the allure. Sometimes, there’s a giant emergency, and you may think this is your only option, but please explore the other options listed above first.

Title Loans

Title loans are similar to payday loans with fees and interest, but they are secured. That means you must give up your car title as collateral to get funded for the loan.

If you own your car outright, this is a considerable risk. Do you want to risk losing your car for that $500 loan? These are only a good idea if you have no other options.

Should You Get a Personal Loan?

Before applying for a personal loan, you must examine your finances and determine whether it’s necessary. Getting into more debt is rarely a good idea.

People use personal loans for all types of things, like travel, weddings, and home improvement projects. Before applying for a loan, consider whether you can reduce spending on the event or put it off for longer.

Personal loans can be a lifeline for people trapped in debt. They offer lower interest rates in one payment, making the debt load more manageable.

Regardless of your reasons, there is no shame in wanting or even needing a personal loan. However, before applying, you should consider whether it will support or harm your financial future.

Loan Options for Everyone

As you can see, many different companies offer personal loan options. There is a product available for just about everyone, and the companies listed here are just the tip of the iceberg.

But all of the companies I listed (except for the harmful alternatives!) are great companies and places to start if you are searching for a personal loan and don’t want to use a traditional bank. Happy loan getting!

This article was produced and syndicated by Partners in Fire.