Seeking extra funds for a major purchase or expense? A personal loan may offer the financing you need, if you navigate the application process strategically.
While interest rates are often lower than credit cards, approval is not guaranteed.
Craft your application to highlight creditworthiness and properly align with lender requirements. With reasonable terms and disciplined budgeting, a personal loan can provide flexibility to achieve your financial goals.
Applying for a Personal Loan
Applying for a personal loan allows you to access funds that can be used for various expenses like debt consolidation, home improvements, medical bills, vacations, and more.
While interest rates are typically lower than credit cards, approval is not guaranteed and depends on your creditworthiness. Follow these key steps when applying for a personal loan:
Step 1: Determine Your Loan Needs
First decide why you need the loan and how much you need to borrow. Common loan amounts range from $1,000 to $50,000. Think about one-time expenses versus ongoing expenses to determine the ideal loan term, typically from 1 to 7 years.
Use a loan calculator to estimate monthly payments at different loan amounts, terms, and interest rates.
Step 2: Check Your Credit Score
Your credit score plays a big role in loan eligibility and interest rates offered. Before applying, check your credit score for free so you can realistically assess your chances.
Those with good credit (690+) will qualify for the best rates, while fair credit scores (630-689) may still get approved but with less ideal terms.
Step 3: Research Lender Options
With your credit score and loan needs in mind, research different personal loan lenders like banks, credit unions, online lenders, and peer-to-peer lending marketplaces.
Compare factors like minimum credit scores, loan amounts, terms, fees, discounts, customer service, funding speed, and prequalification options. Create a shortlist of top contenders.
Step 4: Prequalify with Multiple Lenders
Prequalifying lets you check potential loan terms and likelihood of approval without a hard credit inquiry. It’s quick and doesn’t affect your credit score.
Submit basic information and you’ll receive loan offers if eligible. Compare terms side-by-side and choose companies to continue your application with.
Step 5: Gather Required Documents
To complete the application, compile needed documents ahead of time including:
- Proof of identity like driver’s license or passport
- Proof of address like utility bill or bank statement
- Proof of income like recent pay stubs or tax returns
- Account numbers of debts being consolidated
Having organized financial records speeds up the application and approval process.
Step 6: Formally Apply with Selected Lender(s)
Submit your full personal loan application with your top choice lender first. Be prepared to provide personal information, income details, monthly expenses, and banking information.
Approval may take between 1-7 days during which a hard credit check is performed.
If approved, verify terms and e-sign loan documents. The lender then deposits funds directly into your bank account, often as fast as the next business day.
If denied by your first choice, continue down your list until approved. Each application involves a hard credit check which can temporarily drop your score a few points.
Limit applications to a period of 14-45 days to minimize the impact on your score.
Step 7: Make Payments and Pay Off Loan
Your lender provides monthly statements detailing payment amounts and due dates.
Set up autopay through your bank account to avoid late fees. Pay more than the minimum when possible to pay off the loan faster and reduce total interest costs.
Notify your lender immediately if you need to adjust payment dates or amounts to avoid negative credit impacts.
Congrats! With reasonable terms and disciplined budgeting, your personal loan can offer financial flexibility when you need it most.
Summary of Personal Loan Application Steps
| Step | Description |
|---|---|
| 1. Determine Your Loan Needs | Decide why you need funds, how much, and ideal repayment term |
| 2. Check Your Credit Score | Get free credit check to assess approval odds and rates |
| 3. Research Lender Options | Compare banks, credit unions, online lenders, etc. |
| 4. Prequalify with Multiple Lenders | Check offers and terms without hard credit check |
| 5. Gather Required Documents | Have ID, income, expenses info ready to apply |
| 6. Formally Apply with Selected Lender(s) | Submit application and required documents |
| 7. Make Payments and Pay Off Loan | Set up autopay, pay extra to save on interest |
