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.
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
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:
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.
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:
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.
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:
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:
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.
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:
Before applying for a personal loan, make sure you’re aware of the terms and conditions. For example, you should:
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:
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.
There are different types of personal loans available based on specific needs. Popular personal loan options include:
Eligibility for a personal loan will depend on the lender you’re applying for. However, many lenders will look at the following:
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.
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.
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.
TransUnion Credit Monitoring acts like a watchdog for your credit report.
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.