How do personal loans work? Here’s the process in 7 simple steps

Find out how a personal loan works every step of the way.

Looking to apply for a personal loan but want to know more about the process? Find out how they work and how you can apply. Whatever you’re looking to take out a personal loan for – to finance a new or used car purchase, consolidate debt or even cover wedding costs – there are a variety of personal loans to choose from. Use the guide below to help you choose the right one for your needs and financial situation.

Laurel Road Personal Loans

Laurel Road Personal Loans

Get a personalized rate offer through a quick online application. Recommended for people with annual income of $60K+ and debt of less than 40% of their income.

  • Min. Credit Score Required: 680
  • Min. Loan Amount: $1,000
  • Max. Loan Amount: $45,000
  • Starting APR: 5.5%
  • Loan Term: 3, 4 or 5 years
  • Rate discounts for autopay
  • No prepayment fees

    How do personal loans work?

    Personal loans are similar to other types of loans: You borrow money from a lender to pay for personal expenses, which you eventually repay with interest and fees.

    Before applying, you first need to figure out what type of personal loan you want. Compare lenders offering that loan, making sure you’re eligible. Once you’ve found your match, get all of your documents together and fill out the application.

    How long it takes for your lender to get back to you depends — it can be anywhere between a few hours and a few weeks. If you’re approved, you should receive your funds shortly, after which your repayments will start. Your loan is closed once you have paid off your balance.

    The personal loan process

    Jump ahead to one of the steps in the personal loan process to find out more about it.

    1. Comparison 2. Eligibility 3. Application 4. Approval 5. Loan funding 6. Repayment 7. Loan closure

    Step 1: Comparison

    Finding the right personal loan is the first step of the process. Choosing a loan type depends on what your funding needs are. Here is a breakdown of some of the main types of personal loans available:

    After you’ve decided what type of personal loan you want to apply for, here’s how to compare the personal loan offers from different lenders:

    • Loan amount. What is the minimum and maximum amount the lender lets you apply for and is it enough?
    • Loan terms. What are the minimum and maximum loan terms? Usually terms of between one and seven years are available, but terms differ between providers.
    • Fees. Check for upfront fees such as establishment or application fees and ongoing fees such as monthly or annual fees.
    • Interest rate. Is the rate fixed or variable? Is the rate competitive?
    • Repayment amount. Once you know your loan amount and terms, you can use a loan repayment calculator to see if the repayments will be affordable on your budget.
    • Repayment terms. Can you choose your repayment schedule? Can you make extra repayments without a fee? Can you repay the loan early without penalty?

    Compare your personal loan options

    Rates last updated December 12th, 2017

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    Unfortunately, none of the personal loan providers offer loans for that credit score. If you are in urgent need of a small loan, you might want to consider a short term loan.
    Name Product Product Description Min. Credit Score Max. Loan Amount APR Requirements
    Laurel Road Personal Loans
    Get a personal loan with no application or origination fees and a rate discount for autopay.
    From 5.5% (fixed)
    Must be a US citizen or permanent resident with a valid I-551 card. Best for people w/ 680+ credit scores and $60,000+ annual income.
    Even Financial Personal Loans
    Get connected to competitive loan offers instantly from top online consumer lenders.
    From 4.99% (fixed)
    Must have a minimum credit score of 580+. Must be 18+ years old and be an American citizen or permanent resident.
    LendingClub Personal Loan
    A peer-to-peer lender offering fair rates based on your credit score.
    From 5.99% (fixed)
    You must be over 18 years of age, a permanent resident of the US or an American citizen and have a steady source of income.
    Prosper Personal Loan
    Borrow only what you need for debt consolidation, home improvements, special occasions and more — with APRs based on your credit score.
    From 5.99% (fixed)
    Must be 18+ years old, an American citizen or US permanent resident and have a 640+ credit score.
    SoFi Personal Loan Fixed Rate (with Autopay)
    Borrow up to $100,000 with a competitive APR and no fees.
    Good to excellent credit
    From 5.49% (fixed)
    You must be a US citizen or permanent resident, and 18 years or older.
    LendingPoint Personal Loans
    Get a personal loan with reasonable rates even if you have a fair credit score in the 600s.
    From 15.49% (fixed)
    Must have a fair credit score of 600 or better and verifiable income. Must live in a state where LendingPoint services.
    NetCredit Personal Loan
    Check eligibility in minutes and get a personalized quote without affecting your credit score.
    From 34%% (fixed)
    Varies depending on your state of residence.

    Compare up to 4 providers

    Step 2: Eligibility

    Lenders have set minimum eligibility criteria for their personal loans. This can include any of the following:

    • Age. You will need to be 18 or older to apply for a loan in most states. Some states require you to be 19 or older.
    • Income. You may need to earn over a certain amount to be eligible to apply for a loan. Check with the lender for any annual income requirements.
    • Employment. Most lenders will require you to be employed and working a stable job. Some lenders may consider alternative forms of income such as retirement or investments.
    • Residency. Most lenders will require you to be a US citizen, a permanent resident of the US or on a long-term visa in the US.

    However, even if you meet the minimum requirements for a loan you won’t be approved unless you can prove you can afford the repayments. Lenders determine this by looking at your income, your debts and the stability of your employment.

    Step 3: Application

    The application process for a personal loan differs between lenders. Generally, you will have the option of applying online, in-branch (if the lender has branches) or over-the-phone. You can find a list of documents and information required to complete the personal loan application on review pages and on the lender’s website. Here’s a general list of what may be required when applying for a personal loan:

    • ID. You will need to provide your driver’s license, passport or another form of government-issued identification.
    • Proof of income. Depending on the lender you may need to provide three to six months of pay stubs, bank account statements and/or two years’ of tax returns if you’re self-employed.
    • Other financial documents. If you have other debts, such as loans or credit cards, you may need to provide statements from those accounts.

    Online applications usually take just a few minutes to complete if you have all your information ready.

    Step 4: Approval

    Some lenders can give you an answer instantly while others may take a few days or weeks to approve you. There are two forms of approval: full approval or conditional approval.

    Conditional approval usually takes less time but is given pending more information from you, such as additional pay stubs or documents relating to your assets or debts. Lenders may just ask for this information and not offer any conditional approval. This is to help them make a more informed lending decision.

    Full approval is given when you have supplied sufficient information for the lender to make a decision on your application.

    Step 5: Loan funding

    Your loan can be funded in a number of ways depending on the type of loan it is and what you’re using it for. For example, when you take out a car loan the lender may pay the car seller directly. This is often the same case with a debt consolidation loan as well, with the lender directing funds to your debtors directly rather than to you.

    If it’s an unsecured personal loan, the funds will be sent to the bank account you select. Some lenders can transfer funds on the same day you’re approved while others might take a few days following approval.

    Step 6: Repayment

    Most repayment terms are monthly. When choosing your repayment structure, you may want to consider additional and early repayments.

    • Find out if your lender will charge fees for additional repayments.
    • Check if your lender has restrictions on how much you can repay extra per year (fixed rate personal loans may have this).
    • If you’re planning to repay your entire loan balance early, check if there is a penalty for that.

    Step 7: Loan closure

    If you’re simply making your repayments as set out in your loan contract, then your loan should be closed following your final repayment. However, if you are planning to repay your loan early, it’s a good idea to call the lender and get a final payout figure if you’re getting close to paying off your loan. This is to ensure the loan will be closed when you make your final payment and you won’t be charged any unexpected interest.

    Frequently asked questions about how personal loans work

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    2 Responses

    1. Default Gravatar
      DonnaOctober 9, 2017

      Back in 2003 HFC home finance gave me a loan at 10 % on $14.000 dollars and I paid $252 .00 per month on the 17 th each month and after x3 years the principal never went below $10.000 dollars and I paid 5 years and 3 months and called the offices and they told me I had a very high interest rate on the money ! I asked why it was suppose to be %10 and they said it was %100 or %200 percent plus I charged $1700 dollars on my credit cards back in 2009 and in 2011 I paid them checks out of my mothers checking account another $1000 dollars and the chain of collections keep calling my husband for money I owe.

      • Staff
        HaroldOctober 10, 2017Staff

        Hi Donna,

        Thank you for your inquiry.

        While we do not represent any company that we feature on our pages, we can offer you a general information. It would be nice if you can call the lender directly to clarify this matter. HFC Bank doesn’t operate in the US, so you may want to confirm the terms are permitted based on location’s regulations

        I hope this information has helped.


    US Personal Loans Offers

    Learn about our information service
    Even Financial Personal Loans

    Get connected to competitive loan offers instantly from top online consumer lenders.

    Prosper Personal Loan

    Borrow only what you need for debt consolidation, home improvements, special occasions and more — with APRs based on your credit score.

    LendingClub Personal Loan

    A peer-to-peer lender offering fair rates based on your credit score.

    SoFi Personal Loan Fixed Rate (with Autopay)

    Borrow up to $100,000 with a competitive APR and no fees.