How to Apply for a Personal Loan in 8 Steps
Applying for a personal loan is similar to applying for any other type of financial product, like a credit card or auto loan. You’ll need to provide your financial information, and the lender will either approve or deny your request for funding.
But learning the ins and outs of how to apply for a personal loan can help you qualify — and ensure you get the best possible APR and terms available to you. You would know to prequalify to confirm eligibility and check rates without harming your credit score, for example.
See a complete breakdown of the personal loan application process below.
1. Estimate your need – and project your repayment
When you start filing personal loan applications, you’ll be asked how much you need to borrow. The answer might be obvious to you already, or it might take some research.
If you have about $10,000 worth of credit card debt that you’re hoping to consolidate with a personal loan, for example, you’ll be borrowing about that figure. If you’re considering a swimming pool loan, on the other hand, you might need to design your pool and get a few professional estimates before knowing how large of a personal loan you’ll need.
From there, a good rule of thumb to follow is that you should only borrow what you can reasonably afford to repay. If you’re planning on borrowing a certain amount, you could employ a personal loan calculator to see what APR or interest rate and repayment term would result in a monthly payment that realistically fits your budget.
Once you have a better idea of your desired loan amount and repayment term, you can start working to qualify for the lowest possible rates.
2. Check your credit score
Unsecured personal loans don’t require collateral. Because of this, personal loan lenders determine your eligibility based on your financial history, including your credit score, income and total debt.
Typically, the higher your credit score is, the lower your APR will be. APR, or annual percentage rate, is the annualized cost of borrowing a loan. It includes your interest rate plus any other fees, such as a loan origination fee.
How credit score impacts personal loan APRs
|Credit score||Average best offered APR*|
*LendingTree Personal Loan Offers Report (June 2021)
Borrowers with bad credit may not qualify for a personal loan, or might only qualify for one with a high APR, which would make it an expensive borrowing option. Before you apply for a loan, do your research to find out your credit score and see what your potential APR might be.
How do I check my credit?
You can request a free copy of your credit reports through all three credit bureaus (Equifax, Experian and Transunion) for free on AnnualCreditReport.com. If you find any mistakes on your credit report, read our guide on how to dispute credit report errors.
You can also check your credit score with LendingTree Spring.
3. Consider different types of personal loans
As you’re checking your credit report and improving your credit score, begin thinking about the type of personal loan that will best suit your needs. You might compare unsecured and secured loans, for example, before ruling one out. Most borrowers will prefer unsecured loans to avoid posting collateral, but unsecured loans require stronger credit histories.
If you decide on an unsecured loan, you’ll notice that lenders advertise different types. Consider the following:
- Debt consolidation loan
- Emergency loan
- Home improvement loan
- Medical loan
- Personal loan for bad credit
- Travel loan
- Wedding loan
These are all personal loans per se, but how you plan to employ the funds could affect your choice of lender. If you’re borrowing to consolidate credit card debt, for example, you might opt to work with a lender like Happy Money that specializes in refinancing credit card balances.
4. Get prequalified through multiple lenders
Once you know your borrowing purpose and credit score, you can start to research lenders and see if you meet their personal loan requirements. Some lenders will list a minimum credit score requirement on their website, but not all lenders do this.
Where can I borrow a personal loan?
The best places to get a personal loan are:
|Online company|| |
|Credit union|| |
Most lenders let you check your eligibility for a personal loan simply by entering some financial information without a hard credit check. This is called personal loan prequalification, and it’s a good way to see if you’re eligible for a personal loan and compare estimated APRs across multiple lenders.
What do I need for personal loan prequalification?
Expect to be asked for basics like:
- Borrowing purpose
- Requested loan amount
- Name and address
- Estimated annual income
- Citizenship status or Social Security number
- Whether you’re applying with a co-borrower
LendingTree’s personal loan marketplace allows eligible borrowers to compare multiple loan offers using just one form. See if you prequalify by clicking the button below.
5. Consider ways to increase your odds of approval
Lenders look at your credit history and debt-to-income (DTI) ratio when determining your eligibility for a personal loan. If you have bad or no credit or a low income, then you may not qualify for a personal loan at all. If you didn’t get any personal loan offers, consider these steps to become a more eligible applicant:
- Improve your credit score. Consider signing up for a secured credit card or paying down credit card debt to lower your credit utilization ratio.
- Increase your income. Find a pathway to a promotion at work, ask for a raise or consider taking on another source of income.
- Consider a secured loan. Banks and credit unions may let you borrow a personal loan against your savings account or certificates of deposit.
- Ask a cosigner for help. You may have a better chance of getting a personal loan with a cosigner who has good credit.
6. Compare your loan offers
If you’ve received multiple loan offers, you’ll want to choose the best one based on a number of factors, including:
Estimated APR. Since your estimated APR is the total annualized cost of borrowing, the loan offer with the lowest APR is typically the cheapest borrowing option.
Fees and penalties. Many personal loans come with an origination fee of 1% to 8% of the total cost of the loan, which is taken from the balance of the loan or tacked on top of it. Some lenders charge a prepayment penalty for paying off the loan before the term expires.
Loan amount and length. Longer, larger loans will cost you more over time since you’ll be paying more in interest. Be careful not to overborrow, or else you’ll end up paying interest on money you didn’t need.
Collateral required. Unsecured personal loans don’t require collateral, but borrowers with subprime credit may consider a personal loan that’s secured by a car title or savings account in order to get better borrowing terms. Tread carefully: If you don’t repay the loan, the lender may seize your collateral.
Monthly payment. Before you take out a loan, make sure the monthly payment fits within your budget. Use the calculator below to estimate your personal loan monthly payment.
7. Gather your documents and formally apply
Once you’ve settled on a loan offer, you’ll need to formally apply through the lender. This requires a hard credit check, which will impact your credit score, so it’s good to file formal applications within a brief period.
However, hard credit inquiries aren’t necessarily a bad thing. A hard credit inquiry only lasts on your credit report for two years, and it will only affect your credit score for one year, typically. Still, it’s best to do your research and see if you prequalify for a loan to avoid unnecessary hard inquiries.
Once the lender has all of the information and documents they need to make a decision, your loan will typically be approved or denied on the same day you apply.
8. Close on the loan and receive your funds
If you’ve been approved for a personal loan and you decide to accept the offer, then you’ll close on the loan. You’ll sign a loan agreement, which can typically be done online without having to scan documents or go to a branch in person. Make sure you read your personal loan agreement carefully so you fully understand the terms.
Your loan will be funded after you close on the loan. Typically, your personal loan funds are deposited directly into your bank account. You can then use the funds for any reason you see fit.
How long will it take for my personal loan to be funded?
The funding timeline varies from lender to lender; some lenders offer same-day personal loan funding, while others may take a few business days or longer to fund your loan.