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Life is not always predictable, and sometimes those unpredictability’s come with a price tag. Personal loans are a tool that people can use to handle life’s uncertainty or to even fund future wants.
Applying for personal loans to cover emergencies, home improvements, paying off high-interest debt, medical expenses, or even vacations has never been easier.
How to Get a Personal Loan (Step-by-Step)
#1. Check Your Credit Score
Before you approach any lenders, you want to know how strong a candidate you are for a loan. The best way to do that is to check your credit score. Everyone is allowed one free credit check a year and knowing that magic number will help you figure out if tons of lenders will enthusiastically offer you a personal loan or if you need to take what you can get.
Credit scores are determined by things like on-time payments and credit history.
Lenders use credit scores to determine approval, but also interest rates. Applicants with the highest credit scores can expect the best rates. Lower credit scores will generally see higher rates meaning borrowing the money will cost them more in the long run.>> More: Best Personal Loans
#2. Pre-Qualify through Multiple Lenders
There are two types of inquiries on credit scores “hard” and “soft.” Soft inquiries do not impact credit scores. Most lenders will allow borrowers to pre-qualify for personal loans using a soft inquiry, so borrowers can get a prequalification from various lenders.
Prequalification’s from multiple lenders allow you to compare rates and terms between multiple lenders to ensure you are getting the best deal.
How Long Does It Take to Pre-qualify for a Personal Loan?
Nearly all lenders have an option online to check your rate. The process is very quick if you have all your financial information like your income, ideal loan amount/terms, and how you plan to use your loan. Most lenders will spit out a result the same day, and many tout a decision will be made within minutes.
#3. Compare Personal Loan Offers
- Loan Terms: The loan term refers to the amount of time you have to repay the loan. Loan terms are typically denoted by months. Loan terms usually range from 24 months to 180 months, with 180-month repayment terms being reserved for the larger borrowed amounts.
- Loan Amount: The loan amount is the amount of money that you can borrow. You are not required to take your entire loan amount. You may take any amount of money up to the entire amount, but not more.
- Estimated APRs: APR stands for annual percentage rate and is the amount of money that will cost you to borrow the money. The APR is both the interest rate and the associated fees with a loan. Some loans do not have associated fees, so the APR is the same as the interest rate.
- Fees: Lenders can choose to assess fees on their loans. Some of the more common fees include loan origination fees or funding fees, which are assessed as a percentage of the overall amount and must be paid upfront or as part of the loan balance. Not all lenders have these fees, so borrowers looking to save money should try to find a lender that does not.
- Penalties: Lenders may also charge penalties for early prepayment. This fee is only assessed on borrowers who pay off their loan before their scheduled repayment. There are plenty of lenders that do not have any penalties for early repayment, so borrowers who might repay early should look for those who don’t have the penalty.
- Collateral Required: Not all loans require collateral, but some loans do. Loans requiring collateral are called “secured” loans. Borrowers with lower credit may qualify for a secured loan even if they cannot qualify for an unsecured loan because the collateral they put down keeps some skin in the game, and lenders think that makes them more likely to repay their loan. The collateral for the secured loan could vary from cash to CDs to investment portfolios to houses to cars.
#4. Choose Your Loan. Make Sure It Makes Financial Sense.
There are a few things to keep in mind when considering which loan is best for you. The monthly payment to fit comfortably into your lifestyle is probably the most important factor in deciding which loan to choose.
APRs are a close second for important considerations. Remember, lower APRs are better, and the money you are borrowing will cost you less the lower your APR.
#5. Submit Full Application
After you have selected which loan is best for you, it is time to offer them the final rose by formally applying for the loan.
Unlike the prequalification credit pulls, this pull will be considered a “hard” inquiry and affect your credit score, so you only want to do this once. Be ready to provide your financial information to the lender. The lender will need to know your social, address, and legal name at a minimum.
Approval decisions are made very quickly on loans usually. Once you’ve reviewed and signed your loan documents, some loans will even fund within 24 hours.
#6. Begin Making Monthly Payments
Once your funds have been deposited into your bank account or paid to the designated debt, your monthly payments will start and are usually billed within 30 days. Autopay is a great way to make sure that you stay on track, and some lenders will even offer an APR discount for borrowers who sign-up.
What Are the Requirements for Applying for a Personal Loan?
All lenders will require that the borrower have a social security number, identifying documents, and proof of income.
Personal loan requirements are straightforward but vary from lender to lender. Some lenders may approve borrowers with lower credit scores, while some may require excellent credit.
Those borrowers who take a secured loan will have requirements of how much collateral they have to use to secure their loan.
How Long Will Does It Take for a Personal Loan Application to be Approved?
Personal loan applications are most often approved the same day of the application, especially those loan applications that are online.
How Long Will It Take to Get My Funding?
The amount of time that funding takes is different from lender to lender. Some loans fund within 24 hours of approval, and some loans take a few days. The funding timeline also depends on where the money is going. Money that can be directly deposited will be funded most quickly.
What Can Personal Loans be Used For?
Personal loans can be used for many different things. The most common uses of personal loans are debt consolidation, emergency funding, or home improvements.
However, personal loans are just that- personal. Some personal loans can be used for things like vacations, moving expenses, and purchases.
Bottom Line: How to Apply for a Personal Loan
Personal loans are an excellent way to fund your needs, and the process of getting them does not have to be complicated.
Anyone considering a personal loan is encouraged to shop around and find the best loan for them. Hopefully, you now know how to apply for a personal loan. It isn’t nearly as hard or confusing as you might imagine. Good luck!