How to get a personal loan
Need to apply for a personal loan? Follow our six simple steps on how to get a personal loan, from checking your eligibility to comparing rates.
Jessica Render
What you need to have and do to secure funds
Personal loans can be versatile tools in supporting your financial goals. Whether you want to use the money to pay off debts or finance a major purchase, a personal loan can get you the funds you need in one lump sum.
You can get a personal loan through a bank, credit union, an online lender and other financial institutions. These loans are usually unsecured, which means you don’t have to offer collateral like you would with a traditional car loan or mortgage.
Most personal loans are unsecured, and personal loan payments typically stay the same each month. Your term may be as short as six months or as long as 10 years, depending on the lender's requirements and your preferences.
When you apply for a personal loan, your potential lender will require some information and documents to establish things such as your identity, how you plan to use the funds and your income.
You’ll need to provide your full legal name, date of birth, address and Social Security number, as well as how much money you'd like to borrow and how you plan to use the funds if you’re approved.
Lenders also ask about your financial situation, including your income and debts. Be prepared to list all sources of income, assets and obligations to creditors.
Lenders need to verify that you are who you say you are, that you’re a U.S. citizen or permanent resident, and that you’re at least 18 years old. Some lenders may also require your bank account and routing numbers.
You'll usually have to provide two forms of identification, including a form of government-issued ID. You may need to provide some combination of:
You may be able to verify your income and employment with one or more of the following documents:
In some cases, you’ll have to prove your address. You can often do so by showing any of the following documents:
If you've recently moved, you may be able to use your change of address confirmation from the U.S. Postal Service.
Applying for a personal loan doesn’t need to be complicated. You can easily handle the process by following these five steps.
The first step to getting a personal loan is deciding how much money you want to borrow. Think about why you need the money and whether you have the financial capacity to repay the loan plus fees and interest.
If you know how much you'll pay in fees and have an idea of how much interest the lender may charge, you can use an online calculator to figure out your monthly payments. Make sure you can easily fit those payments into your budget before proceeding. Making even one payment late can hurt your credit score, which could make it difficult to get loans and credit cards with favorable terms in the future.
Lenders examine your credit history and score when determining approval for a personal loan, so it’s smart to check your credit before applying. Visit annualcreditreport.com to get access to your Experian, TransUnion and Equifax reports at no charge. You might be able to get your FICO Score free through your bank, credit union or credit card company. If your score is in the mid-600s or higher, you have a better chance of getting lower interest rates and fees.
A debt-to-income ratio of less than 40% is ideal for a potential borrower.
Lenders also look at your debt-to-income (DTI) ratio. Your DTI ratio is your total monthly debt payments divided by your gross monthly income.
So, if you have a $650 car payment, a credit card with a minimum monthly payment of $75, student loan payments totaling $800 and a mortgage payment of $1,350 per month, your total debt payments add up to $2,875. Your gross monthly income is equal to your paycheck before health insurance, 401(k) and tax deductions. If your gross monthly pay is $9,500, for example, your DTI ratio would be 30%.
Lenders typically consider a 20% DTI ratio low, which is good if you want to qualify for a personal loan. Each lender has different standards for maximum DTI ratios; most lenders prefer to see a DTI ratio of 40% or below.
Pre-qualification helps determine the likelihood of a lender approving your application based on a soft pull of your credit, which doesn't impact your credit score.
If you’re pre-qualified for a personal loan, you aren't obligated to accept the lender's offer. In fact, it's smart to shop around and consider multiple lenders to make sure you get the best possible terms.
Be sure to compare the annual percentage rate (APR), which is the total of all fees and interest expressed as a yearly percentage of the loan amount.
Once you choose to apply with a specific lender, the institution will perform a hard inquiry on your credit, which may cause your score to drop by a few points.
When you submit your formal application to get a personal loan, the lender may ask for additional information, like recent savings and checking account statements, to assist with underwriting. Try to respond to any requests in a timely manner so the loan process stays on track.
After you've been formally approved for a personal loan, you'll sign the appropriate documents and close on the loan. Funds may be transferred to your bank account immediately, or you may have to wait a few days to get access to the money.
Read your closing documents carefully so you fully understand how much you’ll pay monthly, how many payments you'll make over the course of the loan and when your first payment is due. If possible, it’s a good idea to set up automatic payments through your bank's bill-pay system so you don't accidentally make a late payment.
Check with your bank or credit union; it may have unadvertised, low-interest personal loans available for current customers. A number of reputable online lenders also provide personal loans.
Maybe. While a credit score of 550 is low, there are some lenders that specialize in personal loans for applicants with lower credit scores. If you have bad credit, expect to pay more for access to personal loan funds, including significantly higher interest rates.
If you have good credit, you can typically expect a minimum interest rate of around 5%. Interest rates for applicants with bad credit can reach as high as 30% or more, depending on state laws.
Personal loans provide access to a lump sum of cash you can use for almost any reason. While it may make sense to use this type of loan instead of savings for large purchases or to consolidate debt, it's crucial to compare a number of lenders to make sure you get the best possible interest rates and terms.
For borrowers with lower credit scores, a personal loan may be too expensive. It may be smart to wait and work on improving your credit score before proceeding with a personal loan to avoid paying high fees and interest.
Need to apply for a personal loan? Follow our six simple steps on how to get a personal loan, from checking your eligibility to comparing rates.
Jessica Render
Can you pay off a personal loan early? You can always pay off a personal loan early, but it might come with a cost, depending on your lender.
Ashley Eneriz
Curious about how the interest on your loan works? Learn how interest rates are determined and how to calculate interest yourself.
Ashley Eneriz
A personal loan is fast funding you can put toward just about any purchase. Read about how these loans work, the types and where to get one.
Sandy Baker
Considering taking out a loan? From the application and approval process to funding and repayment, learn more about how loans work.
Sandy Baker
Personal loan rates tend to range from 6.99% to 36%. Read about what affects interest rates on personal loans and how to get a good one.
Ashley Eneriz
We’ll start sending you the news you need delivered straight to you. We value your privacy. Unsubscribe easily.