You know the basics about personal loans — what they are and how they work. Now you’re wondering: What are the best places to borrow money? Where to start? A search engine? An actual brick-and-mortar building? That suspicious email promising low interest rate no credit check loans?!?
A lot of us haven’t fully honed our practical money skills yet, and the money lending landscape is undergoing titanic changes anyway. New players seem to emerge every day targeting people borrowing money without much knowledge of the process, or specifically appealing to app-first Millennial and Gen Z borrowers by sidestepping traditional financial institutions.
Whether it’s a personal loan or a credit card (which is really just a different kind of loan), where you borrow from is a crucial factor.
People who need to borrow money come from all kinds of backgrounds, from beginners seeking financial advice to people carefully managing multiple secured and unsecured loans. When deciding where to take out a personal loan, Kasasa recommends that you borrow local. Supporting community financial institutions creates a virtuous cycle we call sustainable banking.
Here’s what to think about when you’re trying to figure out where to take out a personal loan, and the pros and cons of each major type of lender.
The three main types of lender: Megabanks, neobanks, and community financial institutions
It’s a new century, and the regulatory framework around lending has changed dramatically in recent years. A new class of online-only lenders, sometimes called “neobanks,” has come up to challenge both long-entrenched megabanks — monolithic, century-plus-old institutions such as Bank of America and Wells Fargo — and deeply rooted community financial institutions.
Megabanks. These are the first stop for many people because they’re everywhere; and it’s likely you’re already using one of their products, like savings, checking, credit card, or bill pay services. Megabanks have a strong brick-and-mortar presence, and many of them are multinational corporations with overseas offices. While they may offer convenience through sheer size — they’re everywhere — they are often not the best choice of lender. For personal loans, megabanks like to tout “competitive interest rates” and “low monthly payments,” but these are often lures to a loan with less-than-ideal terms and an interest rate that will make you pay more in the long run.
One other factor to consider before getting a loan from a megabank: How will they treat you after you receive your funds? Though they have branches all over the place, they deal in volume, and you're treated more like a number than a person. A lot of times you'll be directed to a 1-800 number or an online comment form, and can't reach a real person who can actually help you.
Neobanks. This term isn’t as commonly used, and maybe sounds a little too "Matrixy," but it describes a real, if still emerging, phenomenon. Neobanks are a new wave of online lender using whiz-bang technology to cut out the middleman — megabanks and other traditional financial institutions. These mobile-first, online-only lenders remove the loan application process even further from person-to-person interactions than megabanks, which have plenty of in-person branches but often lack human-to-human empathy.
If you’re just a number on a ledger to a megabank, then to a neobank you’re just a string of 0s and 1s. Your customer service experience there will also likely be a number to call, rather than a person to reach out to when you need assistance.
Community financial institutions. Local banks and credit unions are a third, distinct type of personal loan lender. They are often true brick-and-mortar, many only one building; some have been around for more than a hundred years or more. Community banks and credit unions operate at a much smaller scale than megabanks, and the best of them put a focus on real, human relationships front and center. As a whole, they’re not as interested in gimmicky promotions to open accounts as megabanks are, and they’re not as flashy as the emerging neobanks.
Kasasa partners with such community financial institutions around the country to offer the best of both worlds: a technically sophisticated, easy-to-use personal loan with Take-Backs™ so you can pay ahead to get out of debt faster but still have access to those extra funds when you need them. Kasasa isn’t a “neobank” — we’re not a bank at all. We are the only financial tech (aka fintech) company whose mission, for nearly two decades, has been to help community financial institutions thrive.
How taking out a personal loan works with different kinds of lenders
No matter where you do it, applying for a personal loan requires a few basic pieces of info. The lender wants to know who you are. They’ll want a valid ID and will run a credit score check as non-negotiable requirements. At this stage, no matter where you’re borrowing, do not share any personal information with an untrusted source.
On any loan application, it’s normal to ask for your full name, valid ID, and Social Security number to verify your identity and gain access to your credit score. If a lender is asking you for any other information up front, such as bank account info, or is charging you a “processing” fee of any kind, that’s a red flag.
Now, let’s say you just moved to a new town, and you need a quick line of credit for a few unanticipated necessities — better pillows, a white noise machine, a familiar coffee setup. Rather than run it all through your credit card (or even worse, use your credit card for a cash advance), you’d rather take out a personal loan and pay that back at a lower interest rate. Here’s how taking out a personal loan works with the three types of lenders we just covered.
Megabanks. Megabanks succeed because of their scale. For many people they’re the easiest choice: a known name with a strong institutional foundation. Maybe you already have a checking or savings account with one and they keep sending you stuff in the mail, so taking out a loan with them is the path of least resistance. A megabank account moves easily from Town A to Town B. You may even be attracted by loans for the amount you need offering “lower monthly payments” than competitors — an easily fact-checked claim, surely?
Low monthly payments as a selling point often mask a long repayment period, meaning more payments, meaning more interest paid in the long run. Low monthly payments at a high interest rate will end up costing you a lot more over time. And these banks are mammoth, national (if not international) corporations. They funnel profits anywhere they want, instead of investing back in the borrower’s community.
Neobanks. You settle into your new place. Long before your boxes are unpacked, you make sure to install a rock-solid internet connection. You’re drawn to online loan offers that seem much more suited to the current pace of technology than the slow-moving megabanks. You’re used to doing everything from home anyway, why not take out a loan with well-designed online functionality and no loan officer interaction? This is definitely an attractive option for many. Once you take out that loan, though, you’re at the mercy of your chosen neobank’s customer service department if you ever have a problem. There’s no branch to visit.
Community financial institutions. All lenders want to know who you are. A local bank or credit union also wants you to know who they are. Not in pale, corporate slogan terms, but as people in a shared community. They are interested in your long-term success because it means theirs, too. When you take out a loan with an institution like this after a disorienting move, they’re an immediate lifeline to your new home in ways that transcend interest rates and loan terms. Because they’re based right there in your area, they keep their money there too, and the money they make is reinvested in your community, in the form of small business loans, scholarships, community service, etc.
(Can you guess which one we here at Kasasa think are your best option? We’re on the side of the good guy: your neighborhood bank and credit union!)
Tips for borrowing from a local bank or credit union near you
The more info you can give to the bank about your financial picture, the better, especially if you are able to get proof of employment, or proof of regular income. Proof of address can also give the bank lending officer a better sense of your overall stability. The more info you give your lender about what the loan is for up front, and your ability to pay it off, the better.
The requirements for any given personal loan will depend on the loan amounts and loan terms, which will in turn affect the interest rate, which determines your monthly loan payment. A local financial institution will need to know about your existing debt and credit history before working with you, as will any lender.
Your future plans are also a factor. As you get on your feet, you might anticipate one day needing a new car. If you’re planning to set roots, a mortgage. If you moved for college and anticipate sticking around for grad school, you may need a student loan down the road. A big perk of working with a community financial institution is that when you’re ready to move on a secured loan like an auto or home loan, you’ll have a pre-existing relationship with a bank or credit union invested in your journey.
Where to borrow money near you
First, a quick review. Megabanks: will probably cost you more money in the long run, not famous for their customer service. Neobanks: good for getting a loan quickly and easily, but might not have the best rate, and most likely won’t have great customer service if you ever have a problem. (And for the record: NEVER respond to a sketchy, unsolicited email or social media post offering too-good-to-be-true loan terms or interest rates. Do not send these people any information!)
A community financial institution that will be more invested in your long-term well-being is the smart choice.
But how do you navigate the options of local lenders? How do you decide whether to use a local bank or a credit union? How can you find the best lenders for your needs locally?
If there’s one downside to small financial institutions, it’s that they can sometimes lack visibility. Many are unable to compete with high-tech digital product offerings from megabanks and neobanks alike, and lack their advertising budgets.
The Kasasa Loan® is a new kind of loan designed to solve this problem, to provide tech-forward tools to community financial institutions. It helps you borrow smarter instead of racking up more high-interest debt when it can be avoided, and our unique Take-Back™ feature lets you reclaim any extra money you’ve already put toward paying off your loan early, giving you access to funds when you need them most. And we keep it local! All of the lenders we partner with are community banks and credit unions. You might even find one of our partners down the street!
Discover more about the Smartest Way to Borrow in our previous blog post, "Personal loans: What are they, and what to know before you apply for one."