How to Apply for a Personal Loan

Applying for a personal loan is similar to applying for any other type of credit, such as a credit card. When you apply for a personal loan, you’ll give the lender your financial and personal information. Then the lender will decide if your qualifications and financial standing grant you approval or denial for funding.

Here’s what to know ahead of time to ensure a smooth application process:

• What’s the average annual percentage rate (APR) on a personal loan? The average interest rate for personal loans varies. The APR can range depending on your creditworthiness, income, and the length and size of the loan.
• Where can you apply for a personal loan? You can apply online or in person through your lender (like a bank, credit union, or credit card issuer).
• What do you need to get a personal loan? You’ll need to verify your personal information (identity, income, etc.). Documentation like government-issued identification cards and bank statements are usually acceptable but check with the loan issuer to confirm what it will accept for proof of address.

Applying for a personal loan either online or in person is simple! Here are the basic steps to take:

1. Assess how much you should borrow

Ask yourself how much you need to borrow and how much you can reasonably afford to repay with interest. Try to borrow only what you need and make sure the payment amount is manageable.

Don’t overextend yourself and your finances. It might be worth employing a financial advisor to help you decide your best plan.

2. Check your credit score and credit report

Your credit score and credit standing are the biggest considerations when lenders evaluate a loan application. Personal loans mostly rely on your creditworthiness, so consider checking your credit scores and reports from each of the three major credit bureaus before you apply. Make sure to look for inaccuracies in your credit report.

If your credit score is in good standing and in a higher range, you can typically expect to pay a lower interest rate. Other factors, such as your financial history, income, and debt will play a role in determining your eligibility for a personal loan.

Want to improve future loan applications? Start building credit with on-time payments and everyday purchases when you open a Chime Credit Builder Secured Visa® Credit Card.²

3. Apply for pre-qualification

Pre-qualifying for a personal loan means you are pre-screened before you complete a formal application. This process allows you to review the offers you may receive from lenders and compare your options.

During the pre-qualification process, the lender will typically perform a soft credit check, which won’t affect your credit score.³ This means there’s very little harm in getting pre-qualified by multiple lenders so you can compare your estimated rates and payment amounts.

You’ll need to provide basic financial information and personal details, such as your name, date of birth, income, employment status, and loan purpose.

4. Choose your lender and loan

Shop around for competitive terms and rates when getting a personal loan. Consider the loan amounts, monthly payments, and interest rates from various lenders. Think about the pros and cons of borrowing from different financial institutions such as banks and credit unions. For example, credit unions tend to offer more flexible terms and lower interest rates, even to bad-credit borrowers.

After comparing your options, make sure you can make the monthly payments and that it fits into your budget. Research which lenders offer the features and services that you’re looking for. Consider things like credit building assistance or flexible payment schedules.

5. Submit a formal application

After choosing a lender, you can officially complete your personal loan application. Remember, pre-qualification doesn’t guarantee approval – you’ll still need to apply formally. Gather all your documents, fill out the application, submit it, and wait to hear back.

Depending on the lender, your loan might be reviewed and approved on the same day. A lender will typically run a hard credit check when finalizing your application. A hard credit check could drop your credit score by a few points but shouldn’t have any long-term effects.⁴ If you’re approved, the lender will send you the final loan documents detailing the terms of your loan, interest rate, length of the loan, loan amount, and your monthly payments.

Don’t be discouraged if your personal loan application is denied. A lender can deny your application if your credit score is too low or if you have too much unresolved debt. Other reasons could include asking for more money than the lender thinks you can pay back.

If a lender denies your loan application, there are some steps you can take to improve your chances of getting approved in the future:

• Improve your credit score by paying down outstanding debts
• Check for mistakes on your credit report
• Increase your income
• Consider using a co-signer
• Apply for a smaller loan amount
• Review your loan application for mistakes or inaccuracies

Whether it’s for debt consolidation, a big-ticket purchase, medical expenses, or an emergency, personal loans can come in handy when you need a little extra cushion. Don’t let the application deter you.

Learn more about personal loans so you can apply with confidence.