How To Apply For A Personal Loan
To apply for a personal loan, first make sure your credit is as strong as possible. From there, explore lenders that offer personal loans with the features you’re looking for and gather the data you need to submit an application.
You may be able to get an interest rate estimate before you officially apply, depending on the lender. You can also get a decision within minutes of pressing submit. But with so many personal loan options available from both traditional and online lenders, finding one that fits your goals and budget will require some research. Here’s how to do it.
1. Check your credit score
Before applying, check your credit score to make sure you meet the minimum credit score requirements. While some lenders share this information publicly, not all do. As a rule of thumb, a safe bet is to have good credit—a score of at least 670; Some lenders offer loans to applicants with fair or bad credit (below 670).
Your credit score helps determine the annual percentage rate (APR) you’re offered and the amount you’re allowed to borrow. Generally, lenders offer the best rates and terms to borrowers with the best credit.
You don’t even have to pay to check your credit score. You can use free credit score websites, or many banks, lenders and credit card issuers now offer free access to scores, even to those who are not active customers or account holders.
Improve your credit score if necessary
If your credit score is less than ideal, there are a few things you can do to improve it before applying for a personal loan:
Correct any credit reporting errors. If you see an error on your credit report, dispute it online with a credit reporting agency. Or, if the credit bureau allows it, you can file a dispute over the phone or by mail. It’s also a good idea to file a separate dispute with the creditor, collection agency or other provider that is reporting your information inaccurately.
Pay off current debt. One way to improve your score quickly is to pay off as much of your credit card balance as possible so that you’re only using a small percentage of your available credit. Ideally, your balance should be less than 30% of your total credit limit for a low credit utilization ratio.
Pay on time. Make sure to track your debt obligations so you don’t miss a payment. Your payment history makes up 35% of your credit score calculation, so on-time payments are a critical component of a good credit score.
2. Pre-qualification for loans by multiple lenders
Many lenders allow you to check your rates and potential terms without making a hard inquiry on your credit report, which can hurt your score for a year.
You can use a lender’s prequalification tool to compare offers and gauge how likely you are to get approved for a loan at a competitive rate. Requesting pre-qualification can also help you avoid hard inquiries for loans you don’t qualify for.
When visiting a lender’s website, look for an invitation to submit your information, such as a “Check Your Rate” button. When you fill out the online prequalification form, you’ll be asked about your income and housing payment, how much you want to borrow, how you plan to use the loan, and your ideal loan term. Make sure you have this information handy before you begin.
3. Compare your offers
You are likely to receive the loan terms once you complete the pre-qualification process. If you’ve pre-qualified with multiple loans, it’s important to compare each offer to help you understand the best loan for your situation. In particular, you should compare the following:
APR. Your APR tells you how much it will cost you to borrow the money you qualify for, including interest and fees. A higher APR can increase the cost of the loan over time.
Tenure of Loan. The term of your loan is how long you have to repay your loan, usually between two and seven years. Longer loan terms have lower monthly payments but you may incur higher interest over time.
Loan amount. Your loan amount is the amount you can borrow. Make sure to choose a loan that offers you what you need while still being able to afford your repayment obligations.
Monthly payment. Your monthly payment is how much you owe each billing cycle, usually every 30 days. Make sure to choose a loan that offers a payment plan that works for your budget.
Origination fee. Some, but not all, providers charge an origination fee, typically 1% to 8% of the loan amount. You either have to pay this upfront as closing costs or finance it as part of your loan balance. Ideally, you want to find a provider that doesn’t charge any origination fees.
Prepayment penalty. As with origination fees, some providers charge prepayment penalties. This is a fee that lenders charge borrowers who pay off all or some of their loans ahead of schedule. Fees typically start at around 2% of the outstanding principal balance and drop to zero in the first few years of the loan.
4. Complete and submit your application
Once you’ve pre-qualified for a loan, the lender will give you a window of time–potentially several weeks–to proceed with a formal application. The information you will need to complete your application will vary by lender. But you can expect to fill out basic contact information and details that help confirm your identity, such as your Social Security and driver’s license numbers.
In addition, you may be asked about yourself:
- Household income
- Employment status, whether you are self-employed or out of work
- Employer and Business
- Your home ownership or rental status
- Monthly rent or mortgage payment
- Home equity if you own a home
- Checking and savings account balances
- Assets and Investments
Once you submit your application online or in person, the lender will check your credit again, this time showing a hard inquiry on your credit report—which can hurt your score by up to five points for a year. The application review process can take a few hours to a few days depending on the lender.
5. Close, manage and pay off your loan
After the lender reviews your application, and if they approve it, you’ll receive final loan documents that outline your loan details, including the interest rate, Personal loan term, loan amount, and monthly payments.
Once you sign your Personal loan documents, your lender will usually deposit the funds directly into your bank account. Depending on the specific lender, this can take anywhere from 24 hours to a week; Online lenders usually disburse funds quickly.
This marks the start of your payment terms. To make sure you don’t miss a payment, register for AutoPay or set a calendar reminder. Some lenders offer discounts of up to 0.25% for borrowers who enroll in AutoPay.
How to get a personal loan with bad credit
While it’s not impossible, getting a personal loan with bad credit can be challenging—it will require some extra attention and steps on your part. When preparing to apply for a Personal loan if you discover you have a low credit score, or you are already aware of a bad credit score, consider these tips to improve your chances of approval:
- Add a co-signer if possible. Some, but not all, personal loan lenders allow co-signers. A co-signer is someone who legally agrees to pay the Personal loan if you are late or default on payments. Their credit score is considered during the application process and can help increase your chances of getting a personal loan with bad credit.
- Find a bad credit lender by pre-qualifying. Some lenders offer a pre-qualification process, which lets you see what terms you might receive if you submit a formal application. By prequalifying with multiple lenders, you can find people who accept bad credit borrowers and have loans to offer you.
- Take time to improve your score. To the best of your ability, improve your score before applying. Because payment history accounts for 35% of your FICO score, you can cover a lot by paying off current debt and making future payments on time or early. Also consider other quick credit-building strategies such as becoming an authorized user, opening a secured credit card, requesting a credit limit increase or opening a credit-builder Personal loan.