What are unconventional personal loans?

If you tried to borrow money at a reasonable interest rate from a traditional lender but were denied because of limited credit, income or employment history, the latest generation of personal loan lenders might be able to help. These so-called “unconventional personal loans” could be your best shot at getting a good interest rate and unique perks.

What is an unconventional personal loan?

Like a traditional personal loan, an unconventional personal loan lets you borrow a fixed amount of money from a lender. You’ll need to repay the loan, plus interest charges that accrue, within an agreed-upon time frame. The borrowed funds can be used toward upcoming purchases, like a car repair or medical bills.

Unconventional personal loans come from nontraditional lenders, such as online and marketplace lenders, that may focus on non-standard factors to evaluate the loan applicant. Consequently, you could get approved for funding even if you wouldn’t qualify at a traditional bank.

How do personal loan approvals usually work?

The lender typically runs a “soft pull” on your credit and analyzes the information in your application, including debt-to-income ratio (DTI), to determine if you qualify for a loan. The lender will also share the annual percentage rate (APR) and loan terms it can offer if you qualify for funding.

If you choose to move forward with the application, lenders conduct a “hard pull” on your credit history and might ask you for additional documentation to make a final decision.

Unconventional personal loan lenders also evaluate your creditworthiness and DTI, but they may weigh those factors differently. They may also approve you based on things like your career or college degree.

Unique personal loan lenders

Avant, LendingPoint and Upstart are online lenders that offer personal loans for borrowers without strong credit. Be mindful that each has its own eligibility requirements and underwriting criteria. Here are a few key details about their unconventional personal loan options.

To find the best personal loan rates, make sure to shop around.

Avant

Avant offers unsecured loans ranging from $2,000 to $35,000, and you can choose a term as short as 24 months to save a bundle on interest. Loan proceeds are deposited as soon as the next business day following approval. You can easily manage your loan through the user-friendly mobile app. Even better, there is no prepayment penalty should you choose to pay the loan off early.

There is a downside to consider. The lender charges an administration fee of up to 9.99 percent, deducted from the loan amount. Factor that into your budget before accepting a loan offer.

LendingPoint

LendingPoint caters to borrowers who are considered “near-prime” with scores in the 600s. The lender uses software that looks beyond credit scores to evaluate personal loan applicants and tailor the most ideal loan solutions.

Loan amounts range from $1,000 to $36,500, and there are no prepayment penalties if you choose to repay your debt sooner. Depending on where you live, you may face an origination fee of up to 10 percent.

Upstart

Upstart looks beyond your credit score to determine if you’re a good fit for a loan. It considers your education, area of study and job history when evaluating your application. If you aren’t working yet but have a job offer, this lender might still consider you.

Upstart specializes in quick funding. It claims that 99 percent of its personal loans are disbursed just one business day after approval.

Best Egg

Borrowers can get loans for anywhere from $2,000 to $50,000 through Best Egg.

One feature that sets this lender apart is the fact it offers both secured and unsecured personal loan options. Most personal loans are unsecured. With Best Egg, you can offer collateral like your car or your home’s fixtures to potentially access greater loan amounts or lower rates.

Benefits and drawbacks of an unconventional personal loan

Unconventional personal loans have both pros and cons. Here’s what to consider if you are thinking about taking out an unconventional loan.

Benefits of an unconventional personal loan

Getting an unconventional loan offers several advantages:

• Collateral not always required: Many online lenders let borrowers get personal loans at reasonable rates with no collateral when they can’t get approved by a bank.
• Transparent pricing and loan fees: Reputable lenders should share their rates and origination fees upfront. You may even be able to instantly prequalify to see your actual rate without a hard credit pull.
• Easier to get approved with low or no credit: Lenders that fund unconventional personal loans typically target fair-credit borrowers. Some even serve those with bad or no credit. This removes a typical obstacle to getting approved.

Drawbacks of an unconventional personal loan

Getting an unconventional loan has its drawbacks, though. These are some common ones:

• Higher interest rates: Your APR might be higher than if you had worked on improving your credit before applying for any loan. Depending on your credit score, income and DTI, you could pay as high as 35.99 percent APR.

• No in-person service: Many unconventional personal loan lenders operate entirely online, meaning you’ll have to conduct all business through email or over the phone.

What are the credit score requirements for unconventional loans?

Even though some online lenders target borrowers who might not qualify with traditional lenders, unconventional lenders still have credit requirements you’ll have to meet.

For unconventional personal loans, you typically need at least a “fair” credit score to get approved for a competitive rate and terms in this category. A FICO score of 580 to 669 is considered “fair,” though lenders may have their own definitions. Make sure to check out Bankrate’s best fair credit loan picks if you fall into this category.

Some lenders might consider applicants new to borrowing (i.e., those who don’t have a credit score) on a case-by-case basis. Unconventional factors, like your areas of study at college or work history, might help you get approved, but traditional ones — like a credit score — still matter.

The bottom line

An unconventional loan could be a viable option if you can’t secure the funding you need through a traditional bank or credit union. Getting approved for a loan with competitive terms is possible, and you may not need collateral.

Still, there are drawbacks that come with these loan products to consider. Depending on your financial situation, you may find it more sensible to seek other alternatives if you need fast cash.