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How to Apply for a Personal Loan in 5 Steps

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Personal loans are lump-sum loans that are repaid in fixed monthly installments over a set period of time, typically a few years. You can use personal loans for virtually anything, from home improvements to consolidating credit card debt.

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 a loan. See a breakdown of the personal loan application process below.

1. 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 debts.

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*
760+ 9.82%
720-759 13.93%
680-719 18.77%
640-679 22.62%
*LendingTree Personal Loan Offers Report, Jan. 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.

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 and monitor your credit score for free on the LendingTree app.

2. Get prequalified through multiple lenders

Once you know your 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 to get a personal loan: You can find personal loans at many types of financial institutions, including:

Online lenders
Traditional banks
Credit unions

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.

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.

See personalized offers

3. 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.

What if you didn’t get any offers?

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 loan if you have a cosigner with good credit to help.

4. Formally apply through a lender

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.

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.

What do you need to get a personal loan? You’ll need to provide documents and information that verify your identity, income and address. Examples include a driver’s license, valid Social Security number, pay stubs, bank statements and tax returns. Proof of address may include a utility bill, lease agreement or voter registration card, for example.

5. 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. The funding timeline varies from lender to lender; some lenders offer same-day personal loan funding, while others may take a few business days to fund your loan.

Typically, your personal loan funds are deposited directly into your bank account. You can then use the funds as you see fit.

 

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