How to get a personal loan in just 7 steps

If you need cash to cover a large expense, taking out a personal loan may make sense. But if you’ve never used this type of product before, the process of securing your funds may seem a little daunting. 

Don’t worry. We’ll share everything you need to know about how to apply for a personal loan. That way, you can get the money you need quickly.

1. Decide what type of personal loan you need

Many personal loans can be used to finance anything you want. However, some personal loans are designed to cover specific purchases. Examples include, but aren’t limited to:

• Wedding loans.
• Home improvement loans.
• Emergency loans.
• Debt consolidation loans.

Plus, some personal loans restrict how the money can be spent. For instance, due to regulatory red tape, many lenders explicitly state that loan funds can’t be used to cover college tuition.

So, keep the loan’s purpose in mind as you research your options. That way, you get the best financial product for your needs.

2. Figure out how much you need to borrow

Before you start applying for funding, you need to determine how much you need to borrow. This task is a balancing act, says Leslie Tayne, personal founder and principal attorney at Tayne Law Group, P.C., a legal office specializing in debt relief.

You need to borrow enough to cover the intended expense so you won’t have to take out another loan later. However, you don’t want to borrow more than necessary. Every dollar you accept from the lender increases your debt.

Don’t forget that many lenders charge an origination fee to process your loan. The fee is typically calculated as a percentage of your loan amount, and it’s taken from the funds before they’re deposited into your bank account.

For example, if you borrow $10,000 and the origination fee is 5%, you’ll only receive $9,500. However, you’ll still need to repay $10,000. So, if your lender imposes this fee, you must apply for enough cash to cover it and your planned purchase.

Find out how much you can afford with our personal loan calculator.

3. Review your credit report

You can get a free copy of your online credit report from each of the three major credit bureaus as often as once a week. You’ll just need to visit AnnualCreditReport.com and follow the instructions.

“It can be helpful to review your credit [report] before applying for a personal loan to ensure there aren’t any negative marks or errors that could cause you to be denied or charged a higher [interest] rate,” Tayne says.

If you spot an error while reviewing your reports, you can dispute it and get any incorrect information removed.

Helpful tip: Consider reviewing your credit score at this stage, too. This information can help you rule in or rule out certain loans based on their credit score requirements.

4. Compare personal loan lenders and pre-qualify

Now it’s time to shop around for your loan. You may want to research options from online lenders, credit unions and traditional banks. That way, you can have a well-rounded look at what’s available on the market.

Some lenders publish loan eligibility details online, which can give you a sense of whether you’d qualify. You might also be able to pre-qualify for a personal loan on the bank’s website. If so, you’ll answer a few questions about your desired loan and provide some personal details.

The pre-qualification process generally takes a few minutes to complete. It won’t harm your credit score as long as the lender only performs a soft pull on your credit.

As you pre-qualify for various personal loans, keep track of details like:

• Amount.
• Repayment term.
• Interest rate. 
• Fees (including a prepayment penalty).
• Monthly payments.
• Potential perks (such as sending money directly to your creditors with a debt consolidation loan).

That way, comparing your options and choosing the best personal loan is easy.

Remember: You’re not guaranteed to get the loan you want at this stage. “You’ll still need to go through the full application process and provide documentation to back up the information you originally shared,” Tayne says. “If there are any discrepancies, you may be approved for a different offer or not get approved at all.”

5. Gather documents and apply

Once you’ve determined which loan is right for you, you must officially apply for it. While some lenders may still use paper-based applications that you need to fill out in person, many have embraced a digital process. 

Here’s how to apply for a personal loan online:

1. Fill out the required forms on the bank’s website.
2. Submit requested supporting documentation (typically a driver’s license or passport, proof of address, employer contact information, pay stubs, bank statements and tax returns).
3. Wait for the lender’s decision.

You may receive a same-day approval. However, if the bank needs additional information from you or its process is slower, you’ll likely have a longer wait.

Pro tip: If you plan to apply for multiple personal loans to compare your official offers, it’s wise to submit all applications within two weeks. This strategy is known as rate shopping, so the applications should only appear on your credit report as one hard inquiry instead of multiples.

6. Receive your funds

Once your application gets approved, you must sign the official paperwork to accept the loan. Be sure to read all of the fine print before signing. You can typically expect to see the money hit your bank account within a week — though Tayne says some lenders may disburse funds within a day or two.

7. Prepare for repayment

Ask your lender when your first payment (and subsequent installments) will be due. Then, decide if you want to set up automatic payments (if available).

If you don’t want to go that route, you might want to set a payment reminder on your phone or in your calendar. That way, you’ll never miss a payment.

How to apply for a personal loan with no credit

Millions of Americans are “credit invisible,” which means they don’t have a credit history or credit report with the three major credit-reporting companies. Having no credit poses similar challenges as having bad credit, Tayne says. “Without a credit history, you’re considered a risky borrower, so you will face high rates and fees if you’re approved at all,” she adds.

However, you can increase your chances of approval by applying with a co-signer with excellent credit or pursuing a secured personal loan. When you include a co-signer, the bank will consider their credit profile, too.

A secured personal loan is backed by collateral you own, such as a car. If you default on the debt, the lender can take the collateral to recoup its costs.

“If you already have a relationship with a community bank or credit union, it may be worth meeting with a loan officer to see what options are available,” Tayne says. “Having established bank accounts in good standing may persuade them to work with you despite lacking a credit history.” 

How to apply for a personal loan with bad credit

A poor credit score is generally one that falls below 580. If your score is on the lower side, it could be difficult to qualify for a personal loan. “But it is still possible,” Tayne says. “There are some lenders that specialize in providing bad credit loans, though the interest rates and fees are much higher to offset the risk.” 

Another way to apply for a personal loan with bad credit is by adding a co-signer or putting up collateral. These steps help reduce the lender’s risk, which may help you qualify for the loan and receive better loan terms.

Pros of a personal loan

Some of the main benefits of a personal loan include:

• Flexibility: You can use the funds for nearly any purpose.
• Fast approval and funding: You may be able to get your money in a few days if you apply online.
• Affordability: Often, personal loans have lower interest rates than credit cards.

Cons of a personal loan

Some of the primary drawbacks of a personal loan include:

• Potential fees: If your lender tacks on additional costs, like an origination fee, your loan could become an expensive way to borrow money.
• Potentially high interest rates: You may not receive a competitive interest rate if you have poor or fair credit.
• Possible collateral requirements: You may have to opt for a secured loan if you have poor or no credit.