kate_sept2004 / Getty Images
A personal loan can help you finance a wide range of expenses, such as unexpected bills, debt consolidation, or large purchases like a new appliance or vacation.
Applying for a personal loan may seem intimidating, but it's fairly straightforward. Let's walk through the key steps for how to apply for a personal loan, as well as actions you can take ahead of time to make the process go more smoothly.
Key Takeaways
- Determine how much money you need and the amount of monthly payments you can afford to pay so you avoid borrowing too much.
- Check your credit score and credit report to understand how lenders will view you as a borrower.
- Research lenders and then get pre-qualified to narrow your personal loan choices.
- Gather copies of required documents to save time.
How To Apply for a Personal Loan
When you apply for a personal loan from a lender, you’ll likely go through each of these key steps, which we review in more detail below:- Determine how much you need: Is the loan for a home improvement? A vacation? To consolidate debt? Whatever the need, be sure you understand how much you need as a first step. Use Investopedia's Personal Loan Calculator to work out repayment costs for different loan amounts with varying interest rates.
- Review your finances: With an amount in mind, look at your financial situation. Can your budget support another monthly payment? How is your credit score?
- Research and compare lenders: Lender options are limitless. Narrow your options by starting with your current bank and researching lender reviews, including those from Investopedia.
- Pre-qualify: Most lenders will allow you to pre-qualify—without damaging your credit score. Go through the process with at least three lenders to review rates, terms, fees, and estimated payment amounts.
- Apply: Once you've selected a lender, complete a formal application.
Before You Apply for a Personal Loan
Most loan applications take only a few minutes to complete (and funding can arrive the next day—or sooner). But the process before you apply can take a little longer.1. Determine How Much You Need
Consider why you're applying for a personal loan and estimate how much you'll need to borrow. This is a key step in getting a personal loan. You can borrow between $250 and $100,000, so honing in on an appropriate amount will prevent you from borrowing more than you need.12(Be aware that lenders may charge an origination fee, which is deducted from your loan disbursement. As a result, you may need to borrow a greater amount to cover the fee.) Later in the process, this information can help you narrow your options because permitted loan amounts and interest rates vary by lender.
2. Review Your Finances
Assess your finances to figure out what you can afford before you apply for the loan. Review your income and expenses to understand your budget or how much money you have coming in and going out each month. Can your budget handle another monthly payment? How much can you comfortably add?Check your credit score, too, because it will play a role in your loan eligibility and interest rate. Higher credit scores improve your odds of approval and allow you to qualify for lower rates. If your credit score is lower than you expected, review your credit report to see whether it includes errors that need to be disputed.3
3. Research and Compare Lenders
Shop around with banks, credit unions, and online lenders to compare loan amounts, interest rates, terms, and fees. Review loan requirements if they're available. For example, some lenders have a minimum credit score, income, or loan amount requirement or only offer loans in certain states.4Read personal loan and lender reviews and ratings to help you zero in on the best personal loan lenders, and then rank your top choices. Interest rate is always a key consideration, but many borrowers say they are most satisfied when they work with a lender when they already use their products, such as credit cards, savings accounts, and other types of loans, according to J.D. Power, an industry intelligence research firm.
Amid today's high interest rates, customer satisfaction with consumer loans is highest among those with the greatest levels of financial health and is significantly lower among those who are overextended or financially vulnerable.
4. Pre-Qualify
Most lenders offer pre-qualification that allows you to view the loan terms for which you are likely to be approved. To pre-qualify, you usually only have to enter a minimum amount of information: your personal identifying information, income or employment details, and desired loan amount.The lender will review your information and do a soft credit check, which, unlike a hard inquiry that will occur when you officially apply, won't affect your credit.7 A soft credit check can give you a preliminary decision, but it doesn't guarantee you'll get approved.
5. Apply for a Personal Loan
With the preparation out of the way and your choice of lender set, you can apply.Many lenders offer online applications, which are quick and convenient. Some lenders, particularly traditional banks, may require you to apply in person. Either way, the loan application will ask for personal and financial information, like your name, home address, and employment information. You may have to provide additional documents, including your:
- State-issued ID
- Proof of residence
- Income documents, like a bank statement or pay stub
- Tax return
If you're approved, the next step for how to apply for a personal loan is to review your final loan documents, then accept and sign them. Your loan documents will include the loan amount, interest rate, repayment term, and monthly payment amount. Within a few days of acceptance, you should receive funds in your bank account or by check, depending on the payment method you choose.8
