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How to get a personal loan

Follow these 6 steps to get a personal loan

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Written by Jessica Render
LendingTree, Personal Loan Pro and Bankrate
couple signing for a personal loan

You can use a personal loan for pretty much anything. Start by deciding how how much you need, then get pre-qualified for loans, compare options and complete an application for your chosen lender.

Follow the steps below for more on what you need to apply for a loan. Skip to the frequently asked questions for information on where to get a personal loan, federal regulations and alternatives.

  1. Decide how much you need to borrow
  2. Consider your eligibility for different loans
  3. Compare lenders on rates and fees
  4. Get pre-qualified or preapproved
  5. Apply for the loan
  6. Wait for approval, sign and receive funding

1. Decide how much you need to borrow

It’s smart to go in with a set dollar amount in mind. Lenders have different minimum and maximum personal loan amounts, typically starting around $1,000 on the low end and capping between $35,000 and $100,000. This helps eliminate lenders that won’t work for your situation.

How much you need to borrow varies based on why you need the funds — you might want a few thousand dollars to cover planned expenses, like a home remodeling project or moving costs. You might want $10,000 as part of a strategy to get out of debt or build credit.

Some people borrow more to cover a wedding, emergency medical expenses or personal projects. If you need less than $1,000, you might be better off opening a personal line of credit.

2. Consider your eligibility for different loan options

Your credit history plays a big role in your options. It’s one of the first things lenders look at when deciding whether your level of risk as a borrower.

The minimum credit score needed to qualify for a personal loan is typically 600 to 660.

If you have a good credit score, it’s relatively easy to find personal loans with affordable annual percentage rates (APR). If you have bad credit, expect much higher rates and fewer options. You might have to put something up for collateral, such as your car title.

The average FICO Score in 2020 was 711, according to Experian); the average VantageScore in early 2021 was 698, according to Equifax. If you check your credit score and are surprised to see a lower number, it might be because of your payment history or credit utilization.

Everyone is entitled to a free credit report each year from each of the three reporting bureaus, so take advantage of it. The reports detail any active credit accounts, credit inquiries, collection information and other factors that affect your credit score.

Sometimes, incorrect information on your credit report indicates a case of identity theft. A good credit monitoring service can help you stay vigilant about reporting fraud as soon as possible.

3. Compare lenders on rates and fees

Once you know what type of loan you need, the next step is to select a lender. Some people use an online marketplace, like LendingTree or Personal Loan Pro, to compare rates from multiple lenders.

Interest rates start around 3% to 5%. However, you need excellent credit to get the lowest rates. Those with average credit could pay up to 20%. If you have bad credit, you could pay up to 36%. The average personal loan interest rate is between 10% and 11%, according to Bankrate.

In addition to the interest rate, pay attention to the APR, which includes fees other than interest. Many online lenders offer calculators on their websites to help you see repayment amounts.

If you don’t take advantage of an online comparison tool, use a spreadsheet to create your own so you keep track of different offers and choose the most favorable one.

4. Get pre-qualified or preapproved

Pre-qualifying for a loan is a first step you can take while looking for a personal loan. It gives you an idea of what kind of loan you get. You might have gotten letters in the mail saying that you pre-qualify for a loan — this just means that others with similar credit profiles have qualified for in the past.

Preapproval is a step closer to approval. It's when you get more specific details about loan offers, including how much you can borrow and the cost to borrow. Applicants must disclose more financial information to get preapproved, such as proof of income. Preapproval also requires a hard credit check.

For the pre-qualification and preapproval process, be ready to provide the lender with your:

  • Name
  • Birthdate
  • Requested loan amount
  • The reason you are requesting the loan
  • Your total annual income
  • Your debt obligations

You can complete the steps to pre-qualify or get preapproved online, over the phone or in person if you are working with a bank or credit union. The preapproval process may require you to provide your Social Security number and submit to a hard credit inquiry, which temporarily lowers your credit score.  If you’re applying for preapprovals with multiple lenders, we suggest batching applications within the same month to minimize the effect on your credit.

5. Apply for the loan

Once you’re pre-qualified, you can formally apply for the loan of your choice. If you haven’t already, get ready to provide documents that prove your identity, income and address, such as:

  • A government-issued photo ID
  • Social Security number
  • Recent pay stubs
  • Recent bank statements
  • Mail or other proof of address

The lender will use this information to verify your creditworthiness and determine exactly how much it can lend to you and what interest and annual percentage rates it can offer.

6. Wait for approval, sign and get funded

Depending on the type of lender you choose, you should know if you’re approved within a few hours to a few days. Generally, lenders look at these factors to make their decision:

  • Your credit score
  • Annual income
  • Debt-to-income ratio
  • Employment history
  • Your age
  • Your assets
  • Collateral (for a secured loan)
  • How you plan to use the money
  • Whether you have a creditworthy co-signer (if applicable)
If approved, you should get funding within a week.

Read over the fine print in the loan agreement carefully before you sign. Lenders are required by federal law to disclose your APR, the total finance charge and the total of all the payments you will make over the term of your loan. Look for information in the contract about late payment charges and any prepayment penalty.

If you agree to sign for the loan, you should get the money within a week. Once you receive funds, the repayment process as agreed upon in your contract begins.

It's important to follow the terms of the loan and make your payments on time — failure to repay a loan or multiple late payments can negatively affect your credit score in a major way.

If you don’t get approved

You can try again with a different lender. Adding a creditworthy co-signer can help some people with bad credit qualify for unsecured personal loans. You might explore other options, including secured loans and the alternatives below.

Getting a personal loan FAQ

If getting an unsecured personal loan doesn’t work out, you might consider one of these alternatives:
  • Borrowing from friends or family: Keep in mind, the IRS says these types of personal loans must be reported on tax returns and paid back with interest. (You might be better off asking for a gift.)
  • Line of credit: A line of credit is similar to a personal loan in both the requirements and the application process. The main difference between the two types of funding is a personal loan is paid out as a lump sum, while a credit limit, like on a credit card, lets an individual borrow up to a certain amount over time.
  • Home equity loan/HELOC: If you’re a homeowner, you can use a home equity loan or line of credit to leverage the equity you’ve built up through years of mortgage payments.
  • Debt consolidation loan: Debt consolidation companies help you pay off your current debts with a new loan. You then make just one monthly payment.
  • Crowdfunding: Online crowdfunding platforms, like GoFundMe and Kickstarter, give you the opportunity to raise funds from people on the internet.
  • Payday and title loans: These types of cash advances should be a last resort. Be aware, many companies targeting folks with “bad credit” charge extremely high APRs — sometimes up to 100% or more. We suggest first exploring payday loan alternatives.
  • Other loan options: Depending on your situation, a business loan, 401(k) loan, car loan or peer-to-peer lending might work out.
Banks, credit unions, online lenders, peer-lending companies and private lenders all offer personal loans. Read our guide to find the best personal loan company for you.
Regulation Z is the part of the Truth in Lending Act (TILA) that protects consumers when they use consumer credit, like installment loans. It requires lenders to make certain disclosures, including the APR, to loan applicants. The lender must provide these disclosures in writing.
It’s safe to apply for a personal loan online as long as you go through a reputable company with a secure website. Never give out any important personal information (date of birth, Social Security number, bank account numbers) unless you’re certain you’re working with a legitimate lender. Here are some red flags to look out for:
  • Advance payment fees: Reputable companies don’t charge fees before you take out a loan.
  • Lack of address: Always verify the company has a physical address.
  • Interest rate inflation: An extra interest point and a few more months on your repayment schedule can cost a lot.
  • Copycat names: Sometimes, fraudulent online lenders use a similar logo and font as a reputable company. This is intended to trick you.

Bottom line

A personal loan can be used to pay for just about anything — from emergency necessities like medical bills to more fun purposes, such as international vacations. They can be attractive because they often have better rates than credit cards and other financial solutions. It can also be smart to get a personal loan to consolidate debt and build credit.

Regardless of how you plan to use your personal loan, you first need to meet lender-specific qualifications and compare loan offers to find the right one for you.

Remember that when you take out a personal loan, it’s essential to be sure you can afford to make payments to the lender. Otherwise, your credit could quickly suffer. In some situations, you might be better off opening a line of credit.

ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. To learn more about the content on our site, visit our FAQ page.
  1. Debt.org, “Personal Loan Options.” Accessed Oct. 12, 2021.
  2. Debt.org, “Loan Agreements With Family And Friends.” Accessed Oct. 12, 2021.
  3. Consumer Finance Protection Bureau, “1026.17 General disclosure requirements.” Accessed Oct. 12, 2021.
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