How to Apply for Personal Loans

Where can I apply for a personal loan?

Borrowers can get a personal loan through a traditional bank, credit union, online lender, or peer-to-peer lender.

• Banks and credit unions likely allow borrowers to apply for personal loans in person at one of their physical locations, or via an online application. Your application process may be sped up if you’re already a customer or member of the bank or credit union.
• Online and peer-to-peer lenders have an online-only application process, though likely have a customer service phone number that can be called for assistance if necessary. In most cases, it’s faster and easier to apply for a loan online than in person.
• Non-banking financial institutions, also called non-banking financial companies, are sources without a banking license meaning they cannot accept deposits. They can be found online or in brick-and-mortar locations and include finance companies, insurance companies, payday lenders, and other non-bank entities. Most of the time they have higher interest rates, but you may be more likely to get approved even if you’re considered high risk.

Read more: Best Places to Get a Personal Loan

Information to have before applying for a loan

In order to make the loan application process go as smoothly as possible, you should prepare information and documentation ahead of time that will be needed for the application. Examples of this include:

• Bank account information such as your routing number and account number.
• Cosigner information (if your credit score requires one or you prefer to have one)
• Information about the loan, including the loan amount, purpose of the loan, desired term, etc.
• Personal information like your name, address, phone number, Social Security number, date of birth, etc.
• Proof of employment and income.

If the purpose of the loan is for debt consolidation, be prepared with those account numbers, balances, and lender information as well.

Apply for a personal loan in 8 steps

If you have decided on getting a personal loan, there are several factors that go into finding the right loan for you, applying for one, getting approved and accepting the loan. With some research and preparation, you’ll be more likely to find the best loan and get the funds as quickly and efficiently as possible.

Here are the steps to getting a personal loan:

1. Estimate your need and repayment

The first step to getting a personal loan is to calculate how much you’ll need to borrow. This can be easy, or it can be more difficult, depending on what you’re using the loan for.

For example, if you’re taking out a personal loan to consolidate credit card debt and you know you have $10,000 in debt, you’ll need to borrow a $10,000 loan.

On the other hand, if you’re using the loan for home renovations or to pay for a wedding, you may have to get some estimates or get further along in the design or planning to have an idea of how much you’ll need.

The important thing is to only borrow what you can afford – get prequalified for the loan or use a personal loan calculator to estimate your monthly payment using estimated interest rates and repayment terms. Keep in mind that the longer the term, the shorter the monthly payments but the more you’ll pay in interest over time. The shorter the term, the higher the payments but you’ll save money in interest.

2. Check your credit score

When you apply for a loan, the lender will run a credit check to look at your credit score and credit history. The lender uses this information to determine how likely you are to repay the loan, and whether they are taking a risk by approving your application. Your credit score also helps determine your interest rate and loan terms.

If you have good and excellent credit – 670 or above – you will likely get the most competitive interest rate and best loan terms. If your score is lower than that, your application may still be approved, but you’ll likely have higher interest rates.

There are a few places you can check your credit score for free, so the first step is to do this and get a free copy of your credit report for the last 12 months. Check to see if there are any errors on the report that need corrected.

If your score is low, you may want to improve it before applying for a loan to increase your chances of approval and competitive interest rates. Look at lender credit score qualifications to see if you’d qualify, or the score you’d need to get the best rate.

3. Consider your options

There are different types of loans, and depending on your credit score, a few options you may need to pursue.

• For example, if you have a poor credit score, you may need a cosigner to get approved for the loan. In this case, you’ll need to find someone who will co-sign the loan, and a lender who will allow this.
• Another example is a secured vs. unsecured loan. Secured loans may be easier to get if you don’t have great credit, but they require collateral for approval, and you risk losing that asset if you don’t repay the loan.
• Also consider where to get your personal loan from, such as a bank or online lender. Online lenders typically work with borrowers who have lower credit scores compared to other options, but banks and credit unions may offer more favorable terms if you’re already a customer or member.

4. Choose your loan type

Personal loans can be used for just about anything, including:

• Home renovations
• Auto repairs
• Paying for a vacation
• Funding a wedding
• Medical bills
• Debt consolidation
• Emergency expenses
• And more!

However, you may find that some lenders offer personal loans specific to borrower needs. The total amount of the loan could vary, as well as other benefits or restrictions depending on what the loan will be used for. Some lenders specialize in certain types of personal loans.

It may be helpful to shop for loans specific to your needs. For example, if you are using a personal loan to consolidate debt, search for a debt consolidation loan.

5. Shop around for the best personal loan rates

Once you know your credit score and what type of loan you’re looking for, it’s time to start researching lenders to find the best rates. While your rate can depend on a few factors, here are some tips to get started:

• When possible, get prequalified for the loan. This triggers a soft credit check, which doesn’t affect your credit score, and can give you an estimate of your interest rate and monthly payments with that lender.
• If you are a customer with a bank or credit union, you may qualify for a better rate because you have a history with that financial institution, and they may be able to use that to support your application.
• Compare average APRs from lenders, which you can typically find on their website. Remember, the better your credit score, the more likely you’ll qualify for a better rate.

The important thing to note is to not fill out and submit an application until you’re ready. Each application triggers a hard credit inquiry which can negatively affect your credit score.