How To Apply For A Personal Loan In 5 Steps

To apply for a personal loan, first ensure your credit is as strong as possible. From there, explore lenders that offer personal loans with the features you’re looking for and gather the data you’ll need to submit an application.

You may be able to get an interest rate estimate before officially applying, depending on the lender. You may also receive a decision within minutes of hitting submit. But with many personal loan options available from both traditional and online lenders, it’ll take some research to find one that fits your goals and budget. Here’s how to do it.

1. Check Your Credit Score

Before applying, check your credit score to make sure you’ll meet minimum credit score requirements. While some lenders publicly share this information, not all do. As a rule of thumb, you need to have a good credit score to get a personal loan, which is a score of at least 670 on the FICO scale. Some lenders offer personal loans for fair credit or bad credit (below 670), but these loans typically come with a higher interest rate.

Your credit score helps determine the annual percentage rate (APR) you’re given and the amount you’re allowed to borrow. Typically, lenders offer the best rates and terms to borrowers with excellent credit.

You don’t have to pay to check your credit score, either. You can use free credit score websites, or many banks, lenders and credit card issuers now offer free access to scores, even to those who are not active customers or account holders.

Improve Your Credit Score If Necessary

If your credit score is less than ideal, there are a few things you can do to improve it before applying for a personal loan:

• Fix any credit reporting errors. If you spot an error on your credit report, dispute it with the credit reporting agency online. Or, if the credit bureau allows it, you can file a dispute over the phone or by mail. It’s also a good idea to file a separate dispute with the lender, collections agency or other provider that’s inaccurately reporting your information.
• Pay down existing debt. One way to quickly improve your score is to pay down your credit card balances as much as possible so that you’re only using a small percentage of your available credit. Ideally, your balances should be well below 30% of your total credit limit in order to have a low credit utilization ratio.
• Make on-time payments. Be sure to track your debt obligations so you don’t miss a payment. Your payment history makes up 35% of your credit score calculation, so on-time payments are a crucial component of a good credit score.

2. Prequalify for Personal Loans

Many lenders let you pre-qualify for a personal loan so you can check rates and terms options without causing a hard inquiry to appear on your credit report, which damages your score for one year.

You can use a lender’s pre-qualification tool to compare offers and gauge how likely you are to get approved for a personal loan at a competitive rate. Requesting pre-qualification may also help you avoid getting dinged with hard inquiries for loans you won’t qualify for.

When visiting a lender’s website, look for an invitation to submit your information, such as a button that says “Check Your Rate.” When you fill out a pre-qualification form online, you may be asked about your income and housing payments, how much you want to borrow, how you plan to use the loan and your ideal loan term. Make sure you have this information on hand before you start.

3. Compare Your Offers

Once you complete the pre-qualification process, you’ll see the personal loan terms you could be offered. If you’ve prequalified for multiple loans, it’s crucial to compare each offer to help you understand the best loan for your situation. In particular, you should compare the following:

• APR. Your APR tells you how much it will cost you to borrow the money you qualify for, which includes interest and fees. A higher APR can drive up the cost of the loan over time.
• Loan term. Your loan term is how long you have to repay your loan, typically between two to seven years. Longer loan terms have lower monthly payments but could cost you more interest over time.
• Loan amount. Your loan amount is the amount of money you can borrow. Be sure to choose a loan that offers you what you need while still being able to afford your repayment obligations.
• Monthly payment. Your monthly payment is how much you’ll owe every billing cycle, typically every 30 days. Make sure to select a loan that offers a payment plan that works for your budget.
• Origination fee. Some, but not all, providers charge origination fees, typically 1% to 8% of the loan amount. You’ll either have to pay this upfront as a closing cost or finance it as part of your loan balance. Ideally, you want to find a provider that charges no origination fees.
• Prepayment penalty. As with origination fees, some providers charge a prepayment penalty. This is a fee that lenders charge borrowers who pay off all or part of their loans ahead of schedule. Fees typically start out around 2% of the outstanding principal balance and fall to zero over the first several years of a loan.

If you want to negotiate different terms on a loan offer, a personal loan calculator can help you adjust loan variables—like the rate and loan term length—to create a loan scenario you can pitch to the lender.

4. Complete and Submit Your Application

Once you’ve prequalified for a loan, a lender will give you a window of time—potentially several weeks—to proceed to a formal application. The information you’ll need to complete your application will vary by lender. But you can expect to fill in basic contact information and details that help confirm your identity, such as your Social Security and driver’s license numbers.

In addition, you may be asked about your:

• Household income
• Job status, including whether you’re self-employed or out of work
• Employer and profession
• Your homeownership or rental status
• Monthly rent or mortgage payment
• Home equity if you own a home
• Checking and savings account balances
• Assets and investments

Once you’ve submitted your application online or in person, a lender will check your credit again, this time causing a hard inquiry to appear on your credit report—which can damage your score by up to five points for one year. The application review process can take a few hours to a few days, depending on the lender.

5. Close, Manage and Repay Your Loan

After a lender reviews your application, and if they approve it, you will receive final loan documents that outline your loan details, including the interest rate, loan term, loan amount and monthly payments.

Once you sign your loan documents, your lender will typically direct deposit the funds into your bank account. This can take anywhere between 24 hours to a week, depending on the specific lender; online lenders typically disburse funds quicker.

This marks the beginning of your repayment terms. To ensure you don’t miss a payment, enroll for autopay or set up calendar reminders. Some lenders offer rate discounts of up to 0.25% for borrowers who enroll in autopay.

Apply for a Personal Loan With Bad Credit

While it’s not impossible, it may prove challenging to get a personal loan with bad credit—it’ll likely require some extra attention and steps on your part. If you discover you have a low credit score while preparing to apply for a personal loan, or you’re already aware of a bad credit score, consider these tips to improve your approval chances:

1. Add a co-signer, if possible. Some, but not all, personal loan lenders permit co-signers. A co-signer is someone who legally agrees to repay the loan if you are late on payments or default. Their credit score is taken into account during the application process and can help boost your chances of getting a personal loan with bad credit.
2. Find a bad credit lender through pre-qualification. Some lenders offer a pre-qualification process, which lets you see what terms you may receive if you submit a formal application. By prequalifying with multiple lenders, you can find those that accept bad credit borrowers and have a loan to offer you.
3. Take time to improve your score. To your best ability, improve your score prior to application. Because payment history accounts for 35% of your FICO score, you may be able to cover a lot of ground by paying down existing debt and making future payments on time or early. Also consider other fast credit-building strategies like becoming an authorized user, opening a secured credit card, requesting a credit limit increase or opening a credit-builder loan.