We’re here to guide you step-by-step through the loan application process.
There are times when you need to pay for a large expense but don’t have the money in your savings. A personal loan can help you deal with anything, from repairing your car to financing your wedding, and our page will help guide you through the process of applying for a personal loan.
Steps to take before getting started
Before you start on the loan process, confirm what type of loan you need. Personal loans are generally unsecured, meaning they use your credit as a gauge rather than an asset like your house or car. If you need a larger loan or need an open source of credit, you may want to consider other financing options.
1. Decide how much money you need
The amount you borrow should be based on the expense you’re trying to cover and your income. It’s better to determine how much you can spend each month and borrow less than your maximum so you can avoid stretching yourself too thin.
Taking out a loan that’s too small can leave you with remaining financial needs, but if you take out a loan that’s too large, you’ll be stuck paying interest on a larger amount than necessary. This is why you should carefully calculate the debt you can handle and the amount of your purchase before you apply.
2. Find the right type of loan
There are a wide range of personal loan types that are appropriate for different borrowers. Common types of personal loans include:
- Unsecured personal loan. A loan without collateral for general personal use. This is the most common type of personal loan.
- Secured personal loan. A loan backed by collateral for general personal use.
- Debt consolidation loan. A loan you can use to pay off current debts for a better rate and easier repayments.
- Medical loan. Some lenders offer special financing options for borrowers undergoing medical or dental procedures.
3. Decide on the right type of lender
Banks and credit unions tend to offer a more hands-on experience. Current customers might also get discounted rates. But they typically take much longer to process your application than online lenders. They also require more documents and the application itself can be more complicated.
Consider what you value the most when deciding where to start your search: assistance or speed.
4. Check your credit score
Your credit will determine how much you qualify to borrow. Most lenders will require good credit scores and at least one year of credit before they offer you an unsecured loan, but there are personal loans for people with bad credit. Before you apply, check your credit score so you know what type of loan you qualify for.
5. Check the lender’s requirements
Don’t waste time applying for a loan that you’re ineligible for. Before you consider a lender, check their eligibility requirements. Typical requirements include:
- Credit Rating: Varies, but the lowest average score is 640.
- Annual Income: Typically $25,000 or more.
- Credit History: You will usually need a credit history, sometimes of at least three years, in order to qualify.
- Debt-to-income ratio: Most lenders prefer a debt-to-income ratio (DTI) of 43% or lower.
6. Compare providers
Don’t hesitate to shop around and compare lenders. Check interest rates, fees, loan terms and payment options before signing any documents. You can check out our comparison tables to find a loan that’s right for you.
Need more info? Our guide to personal loans will help you make an informed decision. You may also want to visit your local bank or credit union. The processing times may be higher than online loans, but you may receive a more prime interest rate.
7. Gather your documents and information
Having the required documents on hand can make your application go a lot faster — the sooner you can get them in, the sooner you can get approved. Ask your lender which documents it requires before you get started. Typically it includes:
- State-issued ID. Lenders generally accept driver’s licenses or passports.
- Proof of employment. Generally lenders ask to see your last three pay stubs or a W-2 form.
- Bank statements. This shows lenders how much money you have and can act as proof-of employment if you work for yourself.
- Social Security number. Your lender needs a SSN to check your credit score.
- Employer’s contact information. Some loan applications ask for your company’s contact information — and sometimes information about your former employers.
How to apply for a personal loan
What happens next?
The application process may vary slightly from lender to lender, but generally they all follow a format similar to the one above.
Receiving your loan funds.
Many lenders and banks require that you have a checking account to receive your loan via direct deposit, but that’s not always the only option. Some lenders will be able to send you a check or load your money onto a prepaid debit card. If this is important to you, ask your lender how they transfer funds.
Time to spend it.
If you took out a loan for something specific, such as an auto loan or a debt consolidation loan, you should spend it on that. However, you are free to spend your loan funds on whatever you’d like.
Make your payments on time.
It’s very important to make your payments on time so you don’t end up paying extra in fees or hurting your credit. Be sure to verify how you’ll need to make repayments. Can you pay by phone with a credit card or account number, online through the lender’s website or do you need to mail in a check? Is there an automatic payment option? These will impact which lender you choose and how you’ll pay off your debt.