How to Apply for a Personal Loan in 6 Steps

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Published January 29, 2024

When applying for a personal loan, determine what type of loan you need and how much you need to borrow, as well as understand the terms and conditions. Also, ensure your credit score is in good standing to help you get the best loan terms before applying to your chosen lender.  

Introduction
Determine how much you need loaned
Review your credit
Research lenders and consider prequalification
Compare loan terms and conditions
Complete the loan application
Review and accept the offer
Frequently asked questions
Monitor your credit ahead of time
 

Introduction

Personal loans can be helpful for borrowers who are looking for credit to help fund large purchases or emergency expenses. Some reasons why consumers considering taking out personal loans could include:

  • Moving costs
  • Home improvement projects
  • Emergency expenses (auto repairs, medical)
  • Large purchases (household appliances, etc..)
  • Tax bills

They can also eliminate debt through consolidation and help you to refinance a credit card.

Recently, personal loans have also been gaining popularity for debt consolidation purposes. According to a 2023 TransUnion® report, the average borrower has $11,692 in debt — to help manage these expenses, more have begun to rely on personal loans to consolidate their debts.

With the increase in demand for personal loans, lenders have been tightening their approval standards, making it even more important for customers to have their credit in the best shape possible to get approved for a loan with the best terms.

In this guide, learn how to apply for a personal loan in six steps and read about considerations to help you get the best loan.

 

1. Determine how much you need loaned

When considering a personal loan, you need to determine how much to borrow to tailor your loan search to achieve your specific financial goals. Without a clear plan of how much you need, how much you can afford, and what you want to accomplish, you might end up borrowing too much or too little.

Build a budget outlining the expenses you intend to cover — doing so can streamline the loan application process and ensure you don’t overborrow.

Create a budget with the following steps:

  1. Total your monthly spending to include things like housing payments, utilities, credit card bills, groceries, and insurance costs.
  2. Determine your take-home pay from your job
  3. Subtract your total monthly spending amount from your take-home pay
  4. See if the total amount is enough to pay off the monthly loan payment

 

VantageScore 3.0 credit score ranges

Pro tip: Make sure the loan terms and payment schedule make sense for both short and long-term. With short-term loans, even though they might be just a few months in duration, you should be able to comfortably make payments. Long-term loans can help you consolidate high-interest debt.

 

2. Review your credit

Getting familiar with your credit report and score before you apply for a personal loan is a proactive approach that can be beneficial for many reasons.

When you check your credit report, you can locate areas to improve your credit health before you apply for a personal loan. If you have any outstanding debts, missed payments or errors that could impact your loan approval, then consider taking action such as paying off debt.

And, it can help you understand your creditworthiness and get a realistic idea about your chances of getting approved.

Plus, knowing more about your credit profile beforehand can help prevent unforeseen surprises during the application process. A poor credit history could lead to loan denial, stricter loan terms, or higher interest rates.

Checking your credit before you start the loan process can be a wise move. Credit monitoring takes a step further beyond doing a one-time check.

Monitoring your credit will give you insight into:

 

TransUnion Credit Monitoring helps keep you informed, so if you need to act fast, you can.

Pro tip: When reviewing your credit score, look at your entire credit report and dispute inaccuracies. You can get a free weekly credit report from TransUnion or annualcreditreport.com.

3. Research lenders and consider prequalification

As you rate shop and explore various lenders for your personal loan, look into getting prequalified. Compare different lenders against each other and investigate factors such as:

  • Interest rates, terms and fees
  • Customer reviews and testimonials
  • Prequalification options

Pro tip: When applying for personal loans, bunch your applications into a short window — this can help avoid multiple hard inquiries that can decrease your credit score.

 

what to consider before applying for a personal loan

Applying for a personal loan can lead to a hard inquiry, which can temporarily lower your credit score. To avoid this while you rate shop, consider prequalification.

If a lender offers prequalification, you can see different rate quotes and compare them to other lenders — this will result in a soft inquiry where your credit score won’t be affected. To determine if you’re eligible for prequalification, a lender may look at:

  • Proof of income
  • Employment information
  • Details on any existing debts and liabilities
Pro tip: To avoid a scam, ensure that the lender is reputable before giving out your sensitive information. You can look up your lender at the Better Business Bureau to confirm.

4. Compare loan terms

Before applying for a personal loan, make sure you’re aware of the terms and conditions. For example, you should:

  • Review the interest rate structure: Look at the interest rates for each loan or its APR. Usually, when the APR is low, so is the cost of the personal loan.
  • Explore term length: Explore the loan term length before applying — this is how long you will be paying down the amount you owe. For example, you can pay off a short-term loan faster but will likely have higher payments. A long-term loan will give you more time to pay but may have a higher interest rate.
  • Look at repayment terms: Lenders typically break up loan terms into an amortization schedule. This will lay out how much of your payments go to interest and principal, as well as the total amount of interest paid over time and the decrease in principal balance.
  • Understand any associated fees or penalties: Many loans have fees and penalties associated, such as origination fees, prepayment and late payment fees, application fees and annual fees. Understanding these terms lets you know what you’re paying for before applying for the loan.

Pro tip: Use a loan calculator to help you determine your monthly payments and interest on your potential loan.

5. Complete the loan application

Once you’ve found a personal loan that feels right for you, complete a loan application. Here are the steps that you’ll likely need to follow:

  1. Visit the chosen lender’s website or branch: Do this to find information on how to find the application.
  2. Begin to fill out the personal loan application form: Make sure to have important information documents such as:
    • Social Security number
    • Income and employment information, such as a W-2 form, bank statements and tax forms
    • Loan purpose, amount and desired term length
  3. Double-check the application: Ensure all information you provided on your application is correct; this can ensure the lender can assess your creditworthiness as accurately as possible.
  4. Understand the typical processing time: Application decisions can vary depending on the lender — some decisions could happen in minutes, and others could take a few days.

Pro tip: If you apply in person, you can have the loan officer help review your application for you before submitting it.

6. Review and accept the offer

Once you’ve received the loan offer from the lender, review the information and ensure everything is accurate and what you expected. Double-check and confirm the loan details, such as the interest rate, repayment terms and fees.

Frequently asked questions

Are there different types of personal loans?

There are different types of personal loans available based on specific needs. Popular personal loan options include:

  • Debt consolidation loans: These loans help you combine balances into one manageable loan to better tackle debt.
  • Secured personal loans: These loans require collateral in return for funds, such as a car or house.
  • Unsecured personal loans: These types of loans are not backed by collateral and give you access to a line of credit but usually require a higher credit score to qualify.

What makes me eligible for a personal loan?

Eligibility for a personal loan will depend on the lender you’re applying for. However, many lenders will look at the following:

  • Your credit score: A higher credit score will likely help you qualify for a wider range of loans.
  • Income source: Lenders like to see that you have a steady and reliable income.
  • Debt-to-income ratio: This compares a borrower's monthly debt payments to monthly gross income and assesses their ability to manage monthly debt obligations.

According to LendingTree, If these factors are in good shape, you may be eligible for a personal loan.

Another way to explore if you can get a personal loan is to consider pre-qualification if the lender offers it. It’s a way to shop for loans and compare terms. And you can do so without hurting your credit score because the lender will perform a soft credit check.

Can I apply for a personal loan with bad credit?

You can still apply for a personal loan with bad credit — you don’t have to let a lower score keep you from getting a loan. However, improving your credit health before you apply for a personal loan can provide you with more options and boost your approval odds.

Can I have a co-signer on a personal loan?

You can consider applying for a personal loan with a co-signer if your credit score isn’t in the best shape. A co-signer should have the credit health required for the loan, and the lender will also hold them responsible for any late payments on the loan.

Be sure to check with the lender first to see if they allow co-signers on their loans.


Monitor your credit

When it comes to securing the best terms on a personal loan, a strong credit history is often the key to get a loan approval that suits your needs and budget.

While there isn’t a quick fix to improve your credit profile significantly in the short run, it can make sense to look at ways to adhere to healthy financial habits out into the future that can help you get a lower interest rate or secure better loan terms.

One way is to check your free credit report at annualcreditreport.com to look for any inaccuracies.

Another option is to get credit score and report monitoring, which can be a valuable tool before taking out a personal loan to learn about your credit profile, review your debt levels, and take action to point your score in the right direction.

More Monitoring More Protection More Empowerment

TransUnion Credit Monitoring acts like a watchdog for your credit report.

  • Allows 24/7 access your score and report with updates available daily
  • Sends alerts about critical changes to all three credit bureau reports
  • Enables lock and unlock of your TransUnion and Equifax® reports
  • Generates a personal debt analysis to review your debt-to-income (DTI)
  • Points your score in the right direction with actionable steps from CreditCompass™

 

 

Remember: Checking your credit isn’t just about getting a loan; it’s about staying on top of the factors that can have an impact on your financial future. So, before you embark on your personal loan journey, take the time to check your credit well in advance and shore up any parts that could need fixing.


Disclaimer: The information posted to this blog was accurate at the time it was initially published. We do not guarantee the accuracy or completeness of the information provided. The information contained in the TransUnion blog is provided for educational purposes only and does not constitute legal or financial advice. You should consult your own attorney or financial adviser regarding your particular situation. This site is governed by the TransUnion Interactive privacy policy located here

 

 

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What You Need to Know:

The credit scores provided are based on the VantageScore® 3.0 model. Lenders use a variety of credit scores and are likely to use a credit score different from VantageScore® 3.0 to assess your creditworthiness.

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