How to Apply for a Personal Loan in 6 Steps

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.

 

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.