A personal loan can be a great way to get the cash you need to consolidate debt or finance a home improvement project — as long as you have a reliable plan to pay it off.
Here’s how to get a personal loan in eight steps:
- Run the numbers.
- Check your credit score.
- Consider your options.
- Choose your loan type.
- Shop around for the best personal loan rates.
- Pick a lender and apply.
- Provide necessary documentation.
- Accept the loan and start making payments.
Whether you’re interested in borrowing from a bank, credit union or online lender, the process is mostly the same. Here’s how to apply for a personal loan. You can also sign up for a Bankrate account to get prequalified for a personal loan in under 2 minutes.
Resources you’ll need
- Personal identification (e.g., a driver’s license, Social Security card or passport).
- Proof of income (e.g., W-2s, paystubs or filed tax returns).
- Employer’s information (e.g., the company name, your manager’s name and the phone number).
- Proof of residence (e.g., a utility bill with your name and address, or a lease agreement).
How to get a personal loan in 8 steps
There are many reasons to get a personal loan, like an unexpected hospital bill or a necessary car repair. If you’ve decided that a personal loan is the right type of financing for you, start with these steps.
1. Run the numbers
The last thing you or lenders want is for you to take out a personal loan and not be able to afford to pay it off. While lenders typically do their due diligence to make sure you have the ability to repay the debt, it’s smart to run your own numbers to make sure it’ll work out.
Start by determining how much cash you’ll need, keeping in mind that some lenders charge an origination fee, which they deduct from your loan proceeds. Make sure you borrow enough to get what you need after the fee.
Use a personal loan calculator to find out what your monthly payment will be. This can be difficult if you don’t know what kinds of rates and repayment terms lenders will offer, but you can play around with the numbers to get an idea of what the loan will cost you and decide if your budget can handle it.
Takeaway: Before you apply for a personal loan, find out whether the lender charges an origination fee (if it does, ask what the fee is). Figure out how much cash you’ll need after fees, and what monthly payment you can afford.
Next steps: Use Bankrate’s personal loan calculator to estimate your monthly payments.
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, they will still typically look at your credit score.
If your credit score is lower than you expected, get a copy of your credit report from AnnualCreditReport.com to see if there are any errors. Through his website, you can receive a free copy of your credit report from all three credit bureaus every 12 months. If you find mistakes, contact the major credit reporting agencies (Equifax, TransUnion and Experian) to get them corrected.
If your credit score is low for other reasons, you may still have a chance to get a loan. But the interest rates and fees may be too high to make it worth it, so take steps to improve your credit before applying.
Takeaway: The better 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 score and history. If your score is lower than the qualification requirements, work on improving it.
3. Consider your options
Depending on your creditworthiness, you may need a co-signer to get approved for a personal loan with a decent interest rate. If you can’t find 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, such as a vehicle, a home or cash in a savings account or certificate of deposit, in exchange for more favorable terms. If you fail to repay the loan, the lender can seize the collateral to satisfy the debt.
You’ll also need to think about where to get a personal loan. With traditional banks, for instance, you may have a hard time getting approved if you have bad credit. Some online lenders, however, specialize in working with bad-credit borrowers, and some credit unions have short-term loans that serve as cheap alternatives to payday loans.
Takeaway: If you don’t meet the qualification requirements, a co-signer, a bad-credit loan or a secured loan could improve your chances of approval.
Next steps: If you don’t think you’ll get approved, research your loan options or reach out to a family member or friend with good financial health about being your co-signer.
4. Choose your loan type
Once you know where your credit stands and you’ve considered your options, determine which type of loan is best for your situation. While some lenders are flexible in terms of how you use the funds, others may only approve loan applications if the money will be used for specific purposes.
For example, one lender might let you take out a personal loan to fund your small business, yet a different lender might not allow you to use borrowed funds for business purposes at all. It’s generally smart to find a lender that is comfortable loaning you money for the exact reason you need it.
You can search the Bankrate personal loan marketplace for different types of loans, such as:
- 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 number of payments you have to worry about each month and receive one (potentially lower) interest rate.
- Credit card refinancing loans: Some companies, like Payoff, 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 a personal loan.
- Wedding loans: Weddings and vacations can be pricey, which is why many people turn to personal loans to pay for them. This spreads payments out over a number of years, so you don’t need to worry about paying for a special occasion all at once.
Takeaway: Find a lender that offers loans designed for your specific needs.
Next steps: Search the Bankrate personal loan marketplace to find the loan that’s ideal for you and your borrowing situation.
5. Shop around for the best personal loan rates
Avoid settling for the first offer you receive; instead, take some time and shop around for the best possible interest rate. Compare several types of lenders and loan types to get an idea of what you qualify for.
You can generally find personal loan offers from banks, credit unions, and online lenders. If you’ve been a longtime account holder with your bank or credit union, consider checking there first. If you’ve shown that you’ve made positive financial choices for years, your bank or credit union may be willing to look past some recent credit missteps.
Some online lenders also allow you to get prequalified with a soft credit check, which won’t impact your credit score. This can be a great way to view offers without any commitment.
Lenders that don’t offer a prequalification process will typically run hard credit inquiries as part of the loan application process. To limit the effect of hard inquiries on your credit score, it’s best to do your rate shopping within a 45-day period to count them as a single inquiry for credit-scoring purposes.
Takeaway: Don’t settle for the first offer you receive. Compare several lenders and loan types and check for a prequalification option before applying to avoid an impact on your credit.
Next steps: Shop around and compare offers, rates and fees to find a loan with competitive rates.
6. Pick a lender and apply
After you’ve done your due diligence, 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, or you may need to do part of it at your local bank or credit union branch.
Every lender is different regarding what information it’ll need on the application, but you’ll typically need to provide your name, address and contact information, your income and employment information and the reason for the loan.
You’ll also share how much you want to borrow and may get a few options to consider after a soft credit check. You’ll also have a chance to review the complete terms and conditions for the loan, including fees and your repayment period. Read through the fine print carefully to avoid hidden fees and other pitfalls.
Takeaways: All lenders have different qualification requirements and may ask for different information, but typically a personal loan application can be completed online.
Next steps: Come prepared to your application with details about your financials and the reason for your personal loan.
7. Provide necessary documentation
Depending on the lender and your credit situation, you may need to provide some documentation after you submit your application. For example, you might need to upload or fax a copy of your latest pay stub, a copy of your driver’s license or proof of residence.
The lender will let you know if it needs any documentation from you and how to get it to the right person. The faster you provide the information, the sooner you’ll get a decision.
Takeaways: Be prepared to present all of the documentation necessary during the application process.
Next steps: Gather pay stubs, proof of residence, driver’s license information and W-2s in advance to speed up the application process.
8. Accept the loan and start making payments
After the lender notifies you that you’ve been approved, you’ll need to finalize the loan documents and accept the terms. Once you do this, you’ll typically get the loan funds within a week — but some online lenders get it to you within one or two business days.
Now that you have the loan, note when your first payment is 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.
Also think about adding extra money to your payments each month. While personal loans can be cheaper than credit cards, you’ll still save money on interest by paying the loan off early.
Takeaways: 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 pay your loan off. Consider automatic payments and think about paying your balance off faster to save money on interest.
Factors that will affect your interest rate
Personal loan qualification requirements vary based on the lender, but there are a few criteria that many lenders look at to determine your interest rate offer.
- Your credit score: Good credit can make it easier to qualify for a personal loan at a lower interest rate. Lenders will review your score and your credit history for adverse marks, like late payments or delinquent and defaulted accounts.
- Debt-to-income (DTI) ratio: Your DTI ratio is the amount of your monthly debt divided by your monthly gross income. Generally, a low DTI ratio is a signal to lenders that you can manage monthly payments on a new personal loan.
- Loan term: Generally, loans with shorter repayment terms offer lower interest rates. A longer repayment term typically means a higher interest rate.
- Co-signer: If you don’t meet the qualification requirements, having a family member in good financial health be your co-signer can increase your chances of approval — potentially at a better interest rate.
If you have a low credit score and a high DTI ratio and don’t have a willing co-signer with good credit and stable income, you likely won’t be eligible for the lowest personal loan rates. However, a strong credit score and a low DTI ratio will attract the most competitive rates.
Can I prequalify for a personal loan?
Some lenders let you see if you prequalify for a personal loan before submitting a formal loan application. This no-commitment option does the least damage to your credit score with a soft credit check.
To see if you prequalify, you’ll need to answer a basic questionnaire that includes your personal information. Details include your name, address, and Social Security number, your annual gross income, the loan amount you need and your reason for seeking a loan.
Depending on the lender, a prequalification form might ask other preliminary questions. During this stage, you won’t be asked for additional documentation; the lender will ask for any required supporting documents after you’ve decided to move forward with an offer.
Tips for speeding up the process
Regardless of your reasons for getting a personal loan, chances are that you’re in need of funds immediately or in the near future. Here are a few ways to help you avoid delays when applying for a personal loan.
- Check your credit report before applying. Know where your credit stands before shopping around for personal loans. Spotting and correcting errors immediately is a simple way to avoid issues later on when you’re applying for a loan.
- 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, which can increase your chances of approval. It also lowers your debt-to-income ratio, which helps you qualify.
- 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.
- Consider online lenders. Many online lenders offer next-day loan decisions, and funds may be deposited into your bank account within a few days after verification.
- Pick loan funds up in person. If your lender has a brick-and-mortar location, ask if you can pick funds up at the branch so you can get the money faster.
Where can I find the best personal loan rates?
Now that you have a better understanding of how to get a personal loan, it’s important to compare a handful of offers to see which lender can give you the lowest interest rates and fees. This will help you find a loan that meets your needs and is most affordable in the long run.