Are online personal loans legit?

By Corey Buhay | Published on March 24, 2026

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Personal loans are becoming one of the most popular ways to cover short-term expenses. More than 26 million Americans owe $276 billion in personal loans at the end of 2025, with the average personal loan debt per borrower sitting at $11,699. That number is projected to keep growing, too: according to the same research, there’s been a 10% jump year over year in how much Americans owe in personal loan debt, and a 7.8% year-over-year increase in the amount of Americans who owe personal loan debt.

Increasingly, these personal loans come from online lenders. But what exactly is an online personal loan? And why are they becoming so popular? Here’s everything you need to know.

What is an online personal loan?

A personal loan is a lump sum of cash borrowed from a bank or other financial institution. It’s a type of installment loan, which means the borrower must repay the funds in a series of monthly payments, AKA “installments.” Unlike mortgage loans or auto loans, personal loans can be used for almost any purpose, including home repairs, vacation travel, wedding expenses, and other needs. Personal loans are also a popular way to consolidate credit card debt. Basically, you take out a personal loan, use it to pay off your high-interest debts, and close those accounts. Then, you pay off your new personal loan over time instead — usually at a lower interest rate than what you would have gotten on your credit cards.

There are a few restrictions on personal loan use. You can’t use them to cover college or trade school tuition, for example, and you can’t use a personal loan to refinance federal or private student loan debt.

Secured vs. unsecured loans

Most personal loans are unsecured loans, which means the lender doesn’t require you to put down collateral before borrowing. Unsecured personal loans are typically available to borrowers with good credit scores.

If you don’t have a high enough credit score to qualify for an unsecured loan, you may want to look into secured loans. These do require some kind of collateral, like a car, home, or other valuable asset. If you’re unable to make your payments, the bank can repossess this asset, and that gives the lender a layer of reassurance.

For that reason, secured loans are typically available to borrowers with lower credit scores. They also may come with lower interest rates.

Online vs. offline personal loans

An online personal loan is a type of personal loan that comes from an online lender as opposed to a traditional brick-and-mortar bank.

These days, online lending is becoming an increasingly popular way to borrow money because of its convenience. Unlike many traditional banks, online lenders often review loan applications and disburse funds quickly — sometimes as soon as the same business day. So, if you’re stuck with an emergency expense and need cash fast, an online personal loan can be a great solution.

If you’re comparing options, many lenders—including Earnest—let you preview your rate before applying.

Are online personal loans safe to use?

The short answer is yes. There are tons of reputable online lenders on the market these days, that are safe, legitimate, and backed by big-name banks. (Earnest, for example, partners with Finwise Bank, which is an established, insured, Member FDIC institution.)

That means most online personal loans are just as good—if not better—than personal loans from brick-and-mortar lenders.

Online lenders often operate with lower overhead than traditional banks, which enables them to pass those savings onto the borrower in the form of competitive rates or flexible features.

The other benefit of online lenders is that they tend to be newer and more agile companies. They may also offer more streamlined digital experiences.

That said, it’s still important to review terms carefully and compare options.

How to identify a predatory lender

As with any financial product, it’s important to do your research before borrowing. Scan the lender’s website, read reviews, and peruse ratings from third-party sites like TrustPilot and the Better Business Bureau. Also look up their business license online: Check with your state bank regulator to make sure your prospective lender is registered to do business in your state.

A few other red flags to keep an eye out for:

• Upfront fees: Scammers will often charge you right away instead of folding loan costs into your monthly payments. Look for lenders, like Earnest, that charge low or no fees.

• Pressure to move fast: If you’re being rushed into a decision, take a step back and review the terms carefully.

• Approval without a credit check: If a lender guarantees you a loan without first looking into your credit, they might not be legit. Reputable lenders typically review your credit and financial information before making an offer.

• Extremely high interest rates: Be sure to read the fine print and compare offers across lenders. Personal loans typically have multi-year terms, unlike payday loans, which often come with very short repayment windows and high costs.

How is an online loan different from a traditional loan?

Online loans differ from traditional bank loans in a few key ways.

1. You can apply online

With online lending, you can complete the entire loan process without ever having to set foot in a bank. Many online applications can be completed in as few as 10 minutes.

2. It’s easy to shop around

Many online lenders offer free estimates through a process called prequalification. When you prequalify for a loan, you simply input some basic personal information — like your social security number — using a secure online form. The lender then pulls your credit report from one of the major credit bureaus and uses this information to give you a ballpark estimate of the annual percentage rate (APR) it can offer you. Prequalification makes it easy to compare loan offers among different lenders, and it won’t affect your credit score.

3. Funding may be faster

Thanks to a fast, streamlined application process, the average online lender can review your information and make a decision within just a few business days. If you’re approved, the lender will deposit the loan amount directly into your bank account –– sometimes same-day.

4. More flexible evaluation criteria

Many traditional lenders consider your credit score the crowning measure of financial stability. So, if you have poor to fair credit, you might not meet the eligibility requirements for a traditional bank loan.

Online lenders often take a less conventional approach. They may consider factors aside from creditworthiness — like your education level, occupation, or loan purpose — when making approval decisions. That can make it easier to qualify for a loan with bad credit.

5. Communication is all online

With a brick-and-mortar bank or credit union, you can often walk into a local branch and speak with someone in person. With online lending, communication typically happens through digital channels instead.

That doesn’t mean support is harder to access. Many online lenders offer responsive customer support through phone, email, and chat, along with intuitive dashboards to help you manage your loan.

At Earnest, for example, borrowers have access to an award winning Customer Happiness team that can help answer questions and guide you through the process—so you can get support when you need it, even without visiting a branch.

6. Fees and discounts may differ

While many online lenders charge origination fees, late fees, and other costs, some (like Earnest) charge no fees at all. Many online lenders also offer unique perks, like Auto Pay discounts for enrolling in automatic billing.

7. There may be a wider range of interest rates

Personal loan interest rates are usually similar from bank to bank and credit union to credit union. Online lenders, however, offer a much wider APR range. That makes it important to watch out for predatory online lenders. That said, most online lenders offer similar or better loan terms than what you’d get at a traditional financial institution.

Pros and cons of personal loans

Personal loans come with some distinct benefits and drawbacks. Here are some of the big ones to consider.

Pros of personal loans

• Flexible loan purpose: Personal loans can be used for almost any purpose, from covering a home improvement project to consolidating high-interest credit card debt
• Lump-sum payment: You’ll receive your money in one lump sum, which means you’ll get the loan funds you need all at once
• Varying loan amounts: Many lenders will let you borrow anywhere from $1,000 to $100,000, though minimum loan amounts vary
• Lower interest rates: Personal loan interest rates are usually much lower than credit card interest rates
• Easy applications: Online applications for personal loans often take just minutes to complete
• Fixed interest rates: Many lenders offer fixed interest rates, which guarantee a stable, predictable monthly payment amount
• No collateral required: Most personal loans don’t require collateral
• Perks for good credit: If you have a good credit history, you’ll likely qualify for lower interest rates and larger loan amounts
• Varying term lengths: Term lengths for personal loans usually vary from two to seven years, so it’s easy to find a loan that fits your budget

Cons of personal loans

• Your debt burden will increase: As with any loan, taking on a personal loan will increase your debt-to-income ratio, which can negatively impact your credit score.
• Loans sometimes come with fees: When you take out a new loan, you’ll likely have to pay origination fees, late fees, and other costs. Some lenders also charge prepayment penalties.
• A credit check is required: If you don’t have excellent credit, you might not qualify for the best personal loan rates.
• Applying can impact your credit: Your lender will complete a hard credit inquiry when you complete your final loan application, which can negatively affect your credit score.
• They’re not ideal for some types of debt: If you need cash to pay medical bills, it’s usually best to speak to the hospital’s financing department about repayment options. Likewise, personal loans may not be the best option for covering college tuition or consolidating student loan debt. Taking out federal loans, pursuing federal loan consolidation, or applying for student loan refinancing is often more cost-effective.

What are current personal loan rates?

Personal loan rates vary based on market conditions and borrower qualifications. In general, rates can range widely depending on credit profile and loan terms. Comparing multiple offers can help you understand what may be available to you.

As of March 2026, the average personal loan rate is about 12.2% for borrowers with good credit. Typical rates can range widely—from around 6%–8% on the low end to 30%+ for higher-risk borrowers. Shorter-term loans (like 3-year loans) are averaging around 13% APR, while longer-term loans (like 5-year loans) can average closer to 17% APR.

Rates have remained relatively steady compared to 2025, though they’re still higher than pre-2022 levels due to broader interest rate trends. Because rates can vary significantly, it’s helpful to compare offers and check personalized estimates before choosing a loan.

How fast can I get an online personal loan?

Personal loan disbursement times vary by lender. Some online lenders offer same-day funding for qualifying borrowers. Others will deposit the funds in your checking account the next business day. That’s much faster than credit unions or brick-and-mortar banks. On average, online personal loans take one to five days to process, compared to as many as seven days for a traditional bank loan.

What are some alternatives to online personal loans?

If you don’t have excellent credit or can’t find a personal loan with an interest rate you can afford, consider these other options to get the funding you need.

• Home equity line of credit (HELOC): A HELOC lets you use the equity you have in your home as collateral for borrowed funds, which appear in a credit account on a rolling basis. You can use HELOC funds for anything from renovating your home to consolidating credit card debt.
• Personal line of credit: A personal line of credit lets you borrow funds on a rolling basis up to a certain limit. Your limit, interest rate, and repayment terms will depend on your creditworthiness.
• Credit cards: Credit cards are ideal for funding everyday purchases, but interest rates on credit card debt are often in the double digits.
• Auto, mortgage, or student loans: Purpose-made loans usually offer better interest rates and terms for specific purchases — like buying a car or home, or funding a college education.
• Peer-to-peer (P2P) loan: With P2P lending, investors and individuals, rather than financial institutions, provide loan funds. These individuals make approval decisions on a case-by-case basis. For that reason, P2P lending can be a more forgiving option for those with subpar credit.

The takeaway

Online personal loans can be a convenient way to access funds for a variety of needs. The key is understanding your options, comparing lenders, and choosing a loan that fits your financial situation.

Check your rate with Earnest to explore personalized options

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Corey Buhay

Corey Buhay is a writer and editor based in Boulder, Colorado. She’s passionate about literature, the outdoors, and doing her taxes by hand. She has been writing about student loans and personal finance for Earnest since 2019. You’ll find her work in Outside Magazine, Backpacker Magazine, Smithsonian, and The Denver Post.