Key takeaways

  • Ensure you know the approval requirements or prequalify (if offered by the lender) before applying to minimize your potential credit damage.
  • Personal loan terms will differ by lender, so make sure your intended usage is approved by the lender before applying.
  • Compare multiple personal loans before applying to make sure you’re getting a competitive interest rate and fee structure.

There are several types of personal loans to choose from. Whether you’re looking for debt consolidation loans, home improvement loans, medical loans or wedding loans, each lender typically has similar application processes.

Although the applications are often relatively simple, you should be fully prepared and know exactly what to expect to increase your chances of approval.

How to get a loan in 8 steps

There are many reasons to get a personal loan, like an unexpected hospital bill, an emergency car repair or to finance some much-needed home renovations. If you’ve decided that a personal loan is the right type of financing for you, follow these eight steps to make the application process as smooth as possible.

1. Run the numbers

Before taking out a loan, you need to know the exact amount you need to borrow, your estimated interest rate and any up-front fees, such as an origination fee.

Running the numbers will be near impossible if you don’t know what rates and repayment terms are available. However, playing around with a personal loan calculator can help give you an idea of what repayment could look like for you.

Takeaway: Before you apply for a personal loan, find out whether the lenders you’re considering charge an origination fee or other upfront costs. Calculate how much cash you’ll need — after fees — to cover your expenses and figure out what a comfortable monthly payment would look like for your budget.

Next steps: Use a personal loan calculator to get an idea of what your ideal loan could look like. This will help you narrow down your search to find the lenders that offer competitive rates and terms for your credit situation.

2. Check your credit score

Most lenders will run a credit check to determine how likely you are to repay your loan. While some online lenders have started to look at alternative credit data, most base eligibility on creditworthiness.

Personal loans typically require that you have at least fair credit — usually between 580 and 669. Good and excellent credit above 670 will give you the best chance of getting approved with a competitive interest rate.

Every factor that goes into your credit score is found on your credit report. This is what lenders look at to assess your potential risk as a borrower during the approval process. You’re entitled to one free copy of your credit report each year from Request a copy from each of the three major credit bureaus — Equifax, TransUnion and Experian — to get a well-rounded view of your credit health.

If your credit score is low and you’re not sure why, check to see if there are any errors on your report. If you find mistakes, contact the corresponding credit agency to get the information corrected.

Correcting wrong information about your repayment history or any of your active accounts will likely result in a boost to your score. However, if your score is still on the lower side, then it may be worth it to hold off on taking out another loan.

If you can, take steps to improve your credit and pay off existing debts before taking on more debt. This will not only improve your chances of approval but will also increase your odds of scoring a better rate or lower fees.

Takeaway: Regularly checking your credit score and keeping up with your credit report will give you a well-rounded knowledge of your credit health. The higher your credit score, the more likely you are to get approved for a loan and the lower your interest rate could be.

Next steps: Check your credit report. Look for any potential discrepancies and correct them as soon as possible. If your score is lower than most lenders’ minimum requirements, improve your score before applying (if you can) to protect your finances.

3. Consider your options

Depending on your creditworthiness, you may need a co-signer to get approved for a personal loan with a competitive interest rate. If you don’t have a co-signer, or the lenders you’re considering don’t allow co-signers, you may have the option to get a secured personal loan instead of an unsecured one.

Secured loans require collateral to back the loan balance such as a vehicle, a house or cash in a savings account or certificate of deposit (CD). Because the lender incurs less risk with a secured loan, the rates and terms are often more favorable than with most unsecured loans.

However, they don’t come without risk. If you default on the balance or fail to repay the loan, the lender can legally seize your collateral to satisfy the delinquent debt. That being said, only take on a secured loan if you’re positive you can make the monthly payments, both now and well into the future.

You’ll also need to think about where you’re going to take out your personal loan, especially if you have lower credit. Some institutions, like traditional banks, have stricter lending requirements and it may be harder to get approved with low credit.

Some online lenders, however, specialize in working with borrowers with less-than-stellar credit, and some credit unions have short-term loans that serve as cheaper alternatives to payday loans.

Just keep in mind that unsecured bad credit loans do tend to come attached to higher interest rates and fees than other loans. Prequalify with as many lenders as possible and do your research to find the most affordable option.

Takeaway: If you don’t meet the qualification requirements for a competitive interest rate but you need a loan immediately, a co-signer, a bad-credit loan or a secured loan could improve your chances of approval.

Next steps: If you don’t meet the approval criteria, find lenders that allow for co-signers and reach out to a creditworthy family member or friend about being your co-signer.

4. Choose your loan type

Once you know where your credit stands, determine which type of loan is best for your situation. While some lenders are flexible in how you use the funds, others may only allow the money to be used for specific purposes.

For example, one lender might let you take out a personal loan to pay for an emergency expense, while a different lender might only allow you to use the funds for debt consolidation. Before applying, check to make sure you can use the funds for what you need.

Likewise, depending on the type of loan you get, you may get different terms and interest rates. For instance, home improvement loans tend to come with longer repayment terms than emergency loans and debt consolidation loans tend to have lower starting APRs than general purpose loans.

To make the most informed decision on what’s best for your finances, consider every type of personal loan available.

Different types of personal loans

  • Debt consolidation loans: Debt consolidation is one of the most common uses for personal loans. By taking out one loan to cover your existing debt, you decrease the monthly payments you have to worry about and receive one (potentially lower) interest rate.
  • Credit card refinancing loans: Some companies, like Happy Money, specialize in loans for people looking to pay off credit card debt. Because personal loan rates are often lower than credit card rates, a loan may be a good way to clear your credit card balances and pay them off over a longer period.
  • Home improvement loans: A home improvement loan may be a good option if you’re looking to pay for a large renovation up front without taking out a secured home equity loan.
  • Medical loans: Because medical expenses are often unpredictable, a personal loan may be a good way to decrease the immediate financial burden and pay debt down over a number of years.
  • Emergency loans: Emergency loans are useful for a number of purposes. A car breakdown, a smaller medical expense or a burst pipe may be good reasons to take out this type of loan.
  • Wedding loans: Although not recommended as a first-resort option, personal loans can be used to finance weddings and vacations.

Takeaway: Sift through all of your loan options to find a lender that offers a loan that best meets your needs.

Next steps: Search the Bankrate personal loan marketplace to find the most competitive loan that best meets your borrowing needs.

5. Shop around for the best personal loan rates

Avoid settling for the first offer you receive. Instead, compare several lenders and loan types to get an idea of what you qualify for.

If you’ve been a longtime account holder with your bank or credit union, consider checking there first. If you have a generally positive repayment and banking history, your bank or credit union may be willing to give you a better rate or offer exclusive perks and discounts.

Most financial institutions also allow you to check your predicted interest rates and eligibility odds before officially applying. Known as prequalification, this tool is often offered as the first step of the application process and doesn’t impact your credit score. Prequalify with at least a few lenders to easily compare potential offers and find the most affordable loan for your credit situation.

However, not all lenders offer prequalification, but they are required to list the minimum eligibility requirements. Shop around and only apply for the lenders that clearly list the personal and financial approval requirements. During the application process, most lenders will run a hard credit inquiry, which knocks your score down a few points.

Avoid severe credit damage by only applying for lenders you qualify for, especially if prequalification isn’t offered. If you do apply for multiple lenders, keep the applications within 45 days of each other. This will ensure that multiple hard checks are counted as a single inquiry on your credit report and will reduce the negative credit impact.

Takeaway: Don’t settle for the first offer you receive. Compare several lenders and loan types before applying by prequalifying (if offered) to limit the overall negative impact to your credit.

Next steps: Shop around and compare offers, rates and fees to the lender that best meets your needs. If it’s offered, prequalify for multiple lenders before applying to see your predicted eligibility odds and rates.

6. Pick a lender and apply

After you’ve done your research, pick the lender with the best offer for your needs, then start the application process.

Depending on the type of lender, you may be able to do the entire application process online. Alternatively, some lenders may require you to apply in person at your local bank or credit union branch.

Every lender is different regarding what information it’ll need on the application. You’ll typically need to provide basic personal information as well as your income and employment information. Most will require that you state your intended loan purpose during the application process as well.

The lender will also request that you share how much you want to borrow and then may give you a few options to consider. You’ll also have a chance to review the complete terms and conditions of the loan, including fees and your repayment period. Read through the loan agreement thoroughly to avoid any hidden fees.

Takeaway: All lenders have different qualification requirements and may ask for different information. Lenders may also require you to apply in person, while others let you complete the entire application online.

Next steps: Once you’re ready to apply, gather all of the information you’ll need for the application and follow the steps as directed.

7. Provide necessary documentation

Every lender will have different documentation requirements and once you submit your application, you may be asked to provide additional documentation. For example, you might need to upload or fax a copy of your last pay stub as proof of employment or income.

The lender will let you know if it needs any documentation from you and what that process looks like. However, the faster you provide the information, the sooner you’ll get a decision.

Takeaway: Be prepared to present additional information as requested during the application process and have personal and financial documentation on hand.

Next steps: Gather pay stubs, proof of residence, driver’s license information and W-2s in advance to speed up the application process. If your lender requests extra documentation, submit it quickly to get your approval decision sooner rather than later.

8. Accept the loan and start making payments

After the lender notifies you that you’ve been approved, you’ll then finalize the loan documents by accepting the terms. Once you sign off on the loan agreement, you’ll typically get your funds within a week — but some online lenders get it to you within one or two business days.

When you are approved, start keeping track of when your payments are due, and consider setting up automatic payments from your checking account. Some lenders even offer interest rate discounts if you set your account to make autopayments.

Consider paying extra each month, even if it’s only a small amount. While personal loans are often cheaper than credit cards, you’ll still save money on interest by paying the loan off early.

Takeaway: You could receive the funds as early as one to two business days after getting approved and accepting the loan terms. Once you’re approved, start considering how you’ll pay down your balance.

Next steps: Create a plan to make your monthly loan payments on time and in full. To make the process easier, enroll in automatic payments and pay extra each month if possible to save on interest.

Tips for speeding up the loan application process

The following tips can help you avoid delays when applying for a personal loan:

  • Check your credit before applying. Know where your credit stands before shopping around for personal loans. This will allow you to narrow down the pool of lenders to those that cater to your specific credit profile.
  • Pay off debt. If you have debt and you don’t need the loan funds urgently, paying some debt off can raise your credit score and lower your debt-to-income (DTI) ratio. The lower your DTI, the more likely you are to get approved and score a competitive rate.
  • Talk to your existing financial institution. Banks and credit unions might be more willing to consider a personal loan application from a customer with whom it’s had a positive, long-standing relationship.
  • Get prequalified. Some lenders have a prequalification process that you can undergo without a hard credit check. You’ll get an idea of what your loan rates and terms could be before you apply.
  • Consider online lenders. Many online lenders offer same-day loan decisions, and funds may be deposited into your bank account within a few business days after applying if you are approved.
  • Pick loan funds up in person. If your lender has a brick-and-mortar location, ask if there is an option to pick funds up at the branch so you can get the money faster.

How to find the best personal loan rates

To find the best deal on a personal loan for your unique financial situation, compare rates, terms and fees from multiple lenders. You can do this by reviewing lenders’ websites individually or signing up for an online marketplace that allows you to prequalify for multiple loans at one time without impacting your credit.