Is your credit so good that loan officers line up outside your door begging to lend you money? Is your credit score in the thousands? Does Donald Trump ask you for financing advice?
While those examples may be exaggerated, if you have a credit score of 750 or above and trending toward that perfect score of 850, you have exhibited the soundest financial practices. You rarely, if ever, miss a payment, utilize only a small percentage of your available credit, and maintain a low debt balance. You are almost certainly eligible for an unsecured personal loan (sometimes called a signature loan) because you pose such a low risk of default that a bank will loan you money with only your signature as a promise of repayment.
On those occasions where you do need a personal loan, why not use your excellent credit score and payment history to your advantage?
Your bank or credit union may offer a great rate on a personal loan, especially if you have been a longstanding customer. They may also be willing to loan you more money than an average customer would receive. However, before simply accepting your bank's best offer, we suggest that you shop around with some of the new breeds of innovative online lenders. Their different business models, out-of-the-box financial thinking, and relatively low overhead structures may offer significant advantages that traditional banks simply cannot match.
Going online for a loan can shave up to two to three percentage points off your interest rate, saving you hundreds or even thousands of dollars in interest payments — even with a "good customer discount" at your traditional bank.
Not only can you receive a better rate, you can also receive your funds quickly. Some online lenders can provide your funds in a matter of days, or even the same day, via direct deposit thanks to a streamlined approval process.
The examples below illustrate two varieties of online personal loans and what separates them from a traditional lender's products.
SoFi — SoFi (short for Social Finance) takes a different approach to lending. They began by targeting student loan holders with high-income potential and expanded into other areas of finance, including personal loans. While a credit score is still important, SoFi focuses on other indicators of low risk such as a high salary and a history of regular on-time payments. In essence, SoFi is forming a low risk "club" of vendors by cherry picking those with the best loan qualifications — like you.
In return, SoFi can offer one of the highest lending limits available — up to $100,000 in some cases — as well as relatively low interest rates. As of this writing, fixed rates are available from 5.49% to 14.24%. Variable interest rates can go as low as 5.17% with AutoPay, with rates capped at 14.95% over the life of the loan. Loan terms are for three, five, or seven years, and there are no origination fees, closing costs, or prepayment penalties.
SoFi cultivates more of a community relationship than a traditional lender-borrower arrangement. They offer an unemployment protection program that can allow for up to twelve months of forbearance, along with a Career Services department to help you find new employment. Networking events drive home the community approach. There is also a monetary component — by referring others to the SoFi community, you may be eligible to earn a reward.
Concerned about using a non-traditional lender? SoFi offers the peace of mind of an AAA bond rating from Moody's and a valuation well into the billions (a reported $4 billion according to Forbes).
LightStream — As the online lending branch of Sun Trust Bank, LightStream offers excellent rates and an efficient process to consumers who qualify at the top end of the good credit bracket.
What sets LightStream apart is the fact that the terms and APR on your loan will be different depending on how you plan to use the loan. It is therefore compulsory for you to use the loan in the way you agreed to. This enables them to offer exceptionally low rates. Their best rate on a short-term (two- to three-year) auto loan is 2.19% with the AutoPay option, while the lowest rates for other loan purpose categories vary from 2.99% to 5.99%. Compare this to most online lenders that charge rates of 6.99% to 8.99%.
It is possible to get same-day funding if you are approved. With terms of up to seven years and loan amounts of up to $100,000 available, LightStream again differs from other online lenders that generally limit their loans to five years and $35,000. LightStream does not charge any fees whatsoever - even if you make a late payment, you will only pay accrued interest.
In order to qualify for a loan from LightStream, you'll need a credit score of at least 680, but you're more likely to get better rates with a score in the 700s. Other qualifying factors include a stable income and a proven ability to save (assets like bank deposits, retirement accounts, etc., will help). LightStream also looks for a credit history of several years with a diverse mix of credit such as a mortgage, auto loan and/or major credit card.
You are not likely to find better rates than those from LightStream. At least, that's what LightStream implies with its "Rate Beat" program. They offer to beat the interest rate of a competing fixed-rate personal loan by 0.10 percentage points, provided it meets certain conditions. LightStream is also confident you will have a good loan experience with them - if it is unsatisfactory, they will give you $100.
Prosper – Prosper's peer-to-peer lending network cuts out the middleman to connect you directly with investors who provide loans ranging from $2,000 to $35,000. Depending on your credit score, your interest rate would vary from 5.99% to 35.97% APR and you have the option of repaying it over 3 or 5 years. These loans are perfect for debt consolidation, home improvements, starting your new business, or preparing for your new baby.
The Prosper marketplace has funded over $9 billion in loans so far. You won't be charged any prepayment penalties, but there is a closing fee of 1%-5% of your loan amount, depending on your Prosper rating. You can pay off the loan in single monthly payments, but late payments and insufficient funds will also incur fees.
Compared to other loan companies, loans from the Prosper network take a bit longer to reach your account, due to the funding structure. Once you post your lending plan online, the investor has up to 14 days to provide funding. Prosper does not currently service Iowa, Maine, or North Dakota. Read our review of Prosper's peer-to-peer lending marketplace to learn more.
Other online lenders are available that have unique takes on loan evaluations and terms, such as lower interest rates with shorter loan terms or a higher weighting of LinkedIn and academic records to assess creditworthiness. With some targeted searches, you may be able to find a lender that is uniquely perfect for your set of qualifications.
Online lenders have one other great advantage with respect to rate shopping. In general, you can shop for an initial interest rate without a hard credit pull (a full credit report from at least one of the major credit bureaus). Multiple hard pulls can harm the credit score that you have worked so hard to attain.
By filling in basic information from a series of questions, you can receive an estimate of your available loan rates based on a soft credit pull — essentially a verification of your identity and the information that you provide, similar to a background check. This allows for comparison of multiple vendors without any significant effect on your credit score.
Should you decide to fill out an application, the lender will then perform a hard credit check. Be sure to verify the credit pull policy on the lender's website before submitting any information.
SoFi and LightStream are available in almost every state, but not all online vendors have wide coverage. Check each lender's website for availability in your area, along with any other limitations imposed by your state's laws.
Your high credit score gives you leverage, so don't let that leverage go to waste. With a little research and diligence, you can utilize your exemplary credit score to your advantage and secure an outstanding interest rate and terms to match your excellent credit. Of course, we really don't have to tell you that — such habits are how you achieved an excellent credit score in the first place.
If you are interested in a personal loan, visit our curated list of top lenders.