How to Get a Personal Loan in 5 Easy Steps

Applying for a personal loan might seem daunting, but breaking it down into a few manageable steps makes the process much more straightforward. Here are the four essential steps to guide you through applying for a personal loan.

1. Determine how much you need to borrow

Personal loans can range from $100 to up to six figures.¹ But you should only borrow the amount you need, not the highest amount you can get. You’ll have to repay the full amount and any interest it accrues.

To decide how much you need to borrow, consider:

• How much money you need to cover your expense(s)
• How much you can use from your savings accounts
• Your ability to repay the loan

If you’re unsure of your borrowing power or approval odds, you can also get pre-qualified to see your loan term options. To pre-qualify for a personal loan, you might have to fill out a form on the lender’s website with the following information:

• Loan amount
• Ideal monthly payment
• Borrowing purpose
• Name and address
• Social Security number
• Estimated annual income
• Co-signer details (optional)

2. Check your credit

Credit scores and history are significant considerations when lenders evaluate loan applications because they can show how well you’re handling your existing debt. Lenders can use this information to assess your credit risk and offer you appropriate loan terms.

You can review your credit reports through one of the major credit bureaus – Equifax, Experian, or TransUnion – for an idea of what lenders will see when they pull your credit. If your credit score is in an excellent range (670+), you can typically expect to pay a lower interest rate and receive the loan without collateral. Other factors – like your financial history, income, and debt – will also affect your loan terms.

If your credit score is 579 or below, you may have a harder time finding the best personal loan terms and a lower likelihood of getting approved.² In such cases, it’s better to wait and improve your credit score. To get things rolling, you can build your credit with a secured credit card, pay down some of your debt, and remove collections entries from your credit report.

3. Research and compare lenders

Shop around for the best deal when looking for a personal loan. During the research process, consider each loan amount, monthly payments, annual percentage rates (APY), missed payment penalties, and term lengths.

To help you start your search, here are a few notable personal loan options for 2024 in no particular order.

These personal loan rates and term lengths are accurate as of 5/25/24. This table is for informational purposes only and is not intended to offer financial advice.

Next, narrow down your options based on the likelihood of approval. Review each lender’s eligibility criteria and see how factors like your credit history, income, and collateral stack up.

Meeting these basic criteria before applying may increase your chances of approval and securing a reasonable APY:

• Good credit score: If you have a FICO® score of 670 or above, you have a decent shot at getting favorable personal loan terms. However, your approval odds may drop if it drops below 579 (“poor” credit).¹³^,¹⁴
• Steady income: Depending on how much you’re borrowing, you may have a better chance of being approved if you earn at least $15,000 a year.¹⁵ However, some lenders will grant you a low-income loan as long as you have some form of annual income.¹⁶ You might have to prove this by submitting tax returns, bank statements, or pay stubs.
• Low debt-to-income ratio (DTI): Most lenders want your DTI to be under 40%.¹⁷ To calculate your DTI ratio, add up your monthly expenses and divide them by your gross monthly income.
• Legal age: Most lenders require that you’re at least 18 of age to take out a personal loan.¹⁸

4. Gather necessary documents and fill out the application

The last step before applying for a loan is gathering all the necessary paperwork.

The lender will use this information to verify your identity and ability to repay a loan. Make sure to have all the documents below on hand if the lender requests proof.¹⁹

• Social Security card: To fill out a loan application, you need your Social Security number.
• Proof of identity: To prove that you are who you claim to be, you will likely need to upload two types of identification. These can often be copies of a birth certificate, driver’s license, passport, military ID, certificate of citizenship, or state ID.
• Proof of address: Whether it’s due to state laws or a need to know you’re financially stable, you may need to show the lender a bill or lease so they can confirm where you live.
• Income verification: To show that you earn enough to repay the loan, you may need to submit your W-2s or tax returns for the last year.

Once you choose a lender and gather your paperwork, you can complete your personal loan application. Pre-qualification doesn’t guarantee approval – you’ll still need to submit the loan application and wait to hear back.

Depending on the lender, they might review and approve your loan on the same day. However, lenders typically have to verify the information you provided and run hard credit checks, so it can take them a week to approve or deny your application.²⁰

You may have to pay an origination fee when you submit your application, which goes toward the cost of processing your application. A typical origination fee hovers between 0.5% to 1% of the total loan amount, which lenders will add to your loan balance if they approve you.²¹

5. Accept the loan offer or consider alternatives, then access the funds

If you’re approved, the lender will send you the final loan documents detailing the:

• Amount of money they’re lending you
• Interest rate they approved you for
• Number of months you have to pay the loan
• Amount you will need to pay every month

If the terms they send work for you, you can accept the personal loan offer and wait for the lender to send you the funds.

But don’t be discouraged if the lender denies your application. A denial can happen if your credit score is too low, you have too much unresolved debt, or you ask for more money than the lender thinks you can reasonably repay.

If a lender denies your personal loan application, here are a few things you can do to increase your approval odds when you reapply:

• Pay off credit card debt
• Find and remove incorrect information from your credit report
• Look for ways to grow your income
• Ask someone you know to cosign the loan
• Apply for a smaller loan amount

The time it takes to receive loan money usually depends on the type of lender you borrow from:

• Online lenders tend to distribute funds faster – usually the same day your application is approved.
• Lenders like banks and credit unions may take a couple of business days or even a week to send the funds.

Most lenders will deposit your money directly into the account they have on file once they approve you, but some may mail out a check instead.

Personal loans can come in handy when you need a little extra cushion, whether for debt consolidation, a big-ticket purchase, medical expenses, or an emergency. Make sure that you will qualify for a personal loan when you need one by getting your credit in order now. Of course, if you don’t have time to build your credit, there are other options.

If a personal loan isn’t the right fit for you, there are several alternatives to consider. Here are a few options:

• Home equity loan or line of credit: You can borrow against the equity in your home. These loans typically offer lower interest rates because they are secured by your property and are suitable for large expenses like home renovations or debt consolidation.
• Credit card installment plan: Some credit cards offer installment plans for large purchases at lower interest rates than standard credit card rates. Credit card installment plans can be a helpful option for managing large expenses without taking out a separate loan.
• Savings-secured loan: Use your savings as collateral to secure a loan. Savings-secured loans can help you build or improve your credit score while still earning interest on your savings.

Ready to apply for a personal loan? Here are the personal loan requirements you should know about.