How to Apply for a Personal Loan in 5 Steps

Check your credit score

Before submitting your personal loan application, check your FICO score. Your credit score helps lenders gauge how risky it is to let you borrow money. The higher that score, the better your chances of qualifying for favorable loan terms — and the less you’ll pay in interest over the life of the loan. If your score is less-than-ideal, some lenders may still be willing to let you borrow, but it could cost you more in the long run.

Most banks and credit card companies give you access to your score through their apps or websites. You can also use sites like Credit Karma or Experian to check your score and get an idea of where you stand in terms of credit health. If your score isn’t where you want it to be, there are ways to improve it.

Start by heading to annualcreditreport.com and ordering a free copy of your credit report from each of the credit bureaus. Then comb through your reports to check that the information listed is accurate. If there are errors that are potentially hurting your credit, you can dispute the discrepancies. Other ways to improve your credit include paying down your credit card balances and avoiding new credit applications.

Knowing your credit score ahead of time helps you avoid lenders that might not work with your current profile. It also gives you more confidence going into the application process since you’ll know exactly what kind of offers you’re eligible for.

» FIND OUT: The minimum credit score to get a personal loan

Determine how much you need to borrow

Personal loans are paid out in a lump sum, so you’ll want to know how much you need to borrow to avoid paying interest on money you didn’t really need in the first place. Start by listing the specific expenses you're trying to cover and adding everything up. Then, check if the lender charges any origination fees that’ll come out of your loan amount. If they do, consider borrowing a bit more to account for them.

If the amount you want to borrow is less than the lender’s minimum, don’t take out unnecessary debt just to meet that minimum requirement. Instead, consider other options, like finding a lender with a lower minimum requirement or using a credit card with a 0% introductory annual percentage rate (APR).

If you decide to take out a personal loan, you’ll also want to think about how the loan fits into your monthly budget. If you choose a short loan term, expect high monthly payments. A longer loan term can spread out the payments and give you more breathing room each month, but you'll pay more in interest over the life of the loan.

Compare offers from multiple lenders

Since each lender sets its own rates, fees and terms, make sure to compare multiple lenders before choosing one — don’t just go with the first offer.  “The biggest mistake I see is people only applying to one lender and assuming that offer is the best they’ll get,” said Joe Camberato, CEO and founder of National Business Capital, a business lending platform. “Always apply with a few to give yourself a true shot at the best deal.”

Start by looking at the APR, not just the interest rate. The APR includes things like origination fees and gives you a better idea of the total cost of the loan. You’ll also want to check the repayment term, whether there are any penalties for paying off the loan early and what your monthly payment will look like.

When you’re searching for lenders to work with, watch out for red flags like extremely high rates, sketchy websites or pressure to act quickly. And if a lender promises guaranteed approval without even checking your credit or asks for money upfront, that’s usually a scam.

Spot scam behavior

Look out for these red flags:

1. High-pressure sales tactics
2. Not checking your credit
3. Asking for money upfront
4. Unprofessional websites with missing contact info or loan details

Most lenders offer prequalification, which gives you an idea of your potential rate and loan terms without hurting your credit score. Getting prequalified lets you compare your options side by side so you can see what works best for your budget and timeline.

Prequalify with lenders

Once you’ve narrowed it down to a few solid lenders, the next step is prequalification. A prequalification is essentially a soft credit check that gives you an estimate of the loan amount, rate and terms you could qualify for. Even though prequalification doesn’t guarantee approval or lock in final terms, it’s a useful way to preview your options.

Most lenders let you prequalify online. You’ll just need to provide some basic info, like your income, employment status and the amount you want to borrow. Within minutes, you’ll see estimated rates and terms to help you decide whether it’s worth moving forward.

Most lenders use a soft credit check for prequalification, so it won’t hurt your score — just double-check with the lender to be sure that’s the case. Don’t be afraid to get prequalified with multiple lenders to compare your options. Once you find an offer that works for you, move forward with the full application and a hard credit check.

Gather necessary documentation

Before you officially apply, make sure you have all your documents ready to go. This way, when the lender asks for something, you’re not scrambling to find it.

Most lenders will ask for proof of income, proof of identity and proof of address. That usually means recent pay stubs or tax returns, a government-issued ID (like your license) and a utility bill or lease with your name and address on it. If you're self-employed, you may need to provide additional documents, like 1099 forms and bank statements, to show how much income you have and how consistent it is.

Also, if you’re applying online, make sure all your documents are saved as PDFs or clear images that can be uploaded without any issues.

Submit your application and review the offer

Now that you’ve chosen the offer you want to go through with, it’s time to officially apply. You’ll fill out a detailed application, provide the required documents mentioned above and agree to a hard credit check.

Once that’s done, the lender will review your application and run the check. If you’re approved, you’ll get an official loan offer with the interest rate, loan amount, monthly payment and repayment term spelled out.

Never immediately accept an offer without reviewing it. Make sure the monthly payments fit your budget and that there aren’t any unexpected fees or conditions. Also watch for prepayment penalties or auto-payment discounts since both can affect what the loan ends up costing you. If your terms aren't what you expected, you may want to apply with a different lender.

If everything looks good, all you need to do is accept the offer by signing the loan agreement. After that, the money usually lands in your account within a few business days.

» LEARN: Loan approval tips

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