How to get a personal loan in 8 steps

A personal loan can help you get over a financial hump, cover an unexpected expense, pay down debt faster or make a big-ticket purchase more affordable. And there are several types to choose from.

Whether you’re looking for debt consolidation loans, home improvement loans, medical loans or wedding loans, there will be a similar process. Although applications are often relatively simple, you should know what to expect beforehand to avoid any unpleasant surprises.

How to get a loan in 8 steps

There are many reasons to get a personal loan, like an unexpected hospital bill, an emergency car repair or some much-needed home renovations. If you’ve decided that a personal loan is the right type of financing for you, follow these eight steps to apply.

1. Run the numbers

Before taking out a loan, you need to know certain numbers, including the exact amount you need to borrow to cover your expense, your estimated interest rate and whether the lender you’re considering charges any upfront fees, such as an origination fee.

This can be difficult if you don’t know what rates and repayment terms lenders will offer you, without prequalifying, but you can play around with a personal loan calculator to get an idea of what the loan will cost you and decide if your budget can handle it.

Takeaway: Before you apply for a personal loan, find out whether the lenders you’re considering charge an origination fee or other upfront costs. Figure out how much cash you’ll need after fees to cover your expense, and a monthly payment you can comfortably afford.

Next steps: Use a personal loan calculator to get an idea of how the ideal loan for you may look. This can help you narrow down your search to lenders that offer the terms and interest rates you’re looking for.

2. Check your credit score

Most lenders will run a credit check to determine how likely you are to repay your loan. While some online lenders have started to look at alternative credit data, they will still typically look at your credit score.

Personal loans typically require that you have at least fair credit — usually between 580 and 669. Good and excellent credit above 670 will give you the best chance of getting approved with a competitive interest rate.

You can get a free copy of your credit report from AnnualCreditReport.com. It will typically provide a free copy from all three major credit bureaus — Equifax, TransUnion and Experian — every 12 months. Currently, you can check your report once per week for free.

Check if there are any errors on the report. If you find mistakes, contact the corresponding major credit reporting agencies to get them corrected.

If your credit score is low for other reasons, you may still have a chance to get a loan. But the interest rates and fees may be too high to make it worth it, so take steps to improve your credit before applying.

Takeaway: Checking your credit score will give you an idea of where you stand. The better your credit score, the more likely you are to get approved for a loan and the lower your interest rate could be.

Next steps: Check your credit score and history. If your score is lower than the qualification requirements and you don’t need a loan immediately, work on improving it.

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3. Consider your options

Depending on your creditworthiness, you may need a co-signer to get approved for a personal loan with a decent interest rate. If you can’t find a co-signer, or the lenders you’re considering don’t allow co-signers, you may have the option to get a secured personal loan instead of an unsecured one.

Secured loans require collateral, such as a vehicle, a house or cash in a savings account or certificate of deposit, in exchange for more favorable terms. If you fail to repay the loan, the lender can seize the collateral to satisfy the debt.

You’ll also need to think about where to get a personal loan. With traditional banks, for instance, you may have a hard time getting approved if you have bad credit. Some online lenders, however, specialize in working with bad-credit borrowers, and some credit unions have short-term loans that serve as cheaper alternatives to payday loans. That said, unsecured bad credit loans do tend to come attached to higher interest rates and fees than other loans, so you will have to do some research to find the most affordable option.

If you don’t meet the typical qualifications and your expenses can wait, take some time to build up your credit score so you can qualify.

Takeaway: If you don’t meet the qualification requirements for a decent rate, and you need a loan right now, a co-signer, a bad-credit loan or a secured loan could improve your chances of approval.

Next steps: If you don’t think you’ll get approved, research your loan options or reach out to a family member or friend with good financial health about being your co-signer. Additionally, research lenders that offer this option, as not every lender allows joint loan applications.

4. Choose your loan type

Once you know where your credit stands and consider your options, determine which type of loan is best for your situation. While some lenders are flexible in terms of how you use the funds, others may only approve loan applications if the money will be used for specific purposes.

For example, one lender might let you take out a personal loan to pay for an emergency expense, while a different lender might only allow you to use the funds for debt consolidation. It’s generally smart to find a lender that is comfortable loaning you money for the exact reason you need it.

Likewise, depending on the type of loan you get, you may get different terms and interest rates. For instance, home improvement loans tend to come with longer repayment terms than emergency loans, while debt consolidation loans tend to have lower starting APRs than general purpose loans.

You can search the Bankrate personal loan marketplace for different types of loans, such as:

  • Debt consolidation loans: Debt consolidation is one of the most common uses for personal loans. By taking out one loan to cover your existing debt, you decrease the monthly payments you have to worry about and receive one (potentially lower) interest rate.
  • Credit card refinancing loans: Some companies, like Happy Money, specialize in loans for people looking to pay off credit card debt. Because personal loan rates are often lower than credit card rates, a loan may be a good way to clear your credit card balances and pay them off over a longer period.
  • Home improvement loans: A home improvement loan may be a good option if you’re looking to pay for a large renovation up front without taking out a secured home equity loan.
  • Medical loans: Because medical expenses are often unpredictable, a personal loan may be a good way to decrease the immediate financial burden and pay debt down over a number of years.
  • Emergency loans: Emergency loans are useful for a number of purposes. A car breakdown, a smaller medical expense or a burst pipe may be good reasons to take out this type of loan.
  • Wedding loans: Weddings and vacations can be pricey, which is why many people turn to personal loans to pay for them. This spreads payments out over years, so you don’t need to worry about paying for a special occasion all at once.
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Takeaway: Find a lender that offers loans designed for your specific needs.

Next steps: Search the Bankrate personal loan marketplace to find the ideal loan for you and your borrowing needs.

5. Shop around for the best personal loan rates

Avoid settling for the first offer you receive; instead, take some time and shop around for the best possible interest rate. Compare several lenders and loan types to get an idea of what you qualify for.

You can generally find personal loan offers from banks, credit unions and online lenders. If you’ve been a longtime account holder with your bank or credit union, consider checking there first. Often, showing that you’ve made positive financial choices for years means your bank or credit union may be willing to look past recent credit missteps or give you a better rate.

Some online lenders also allow you to get prequalified with a soft credit check, which won’t impact your credit score. Check with the lenders you are considering to see if they offer a prequalification process. Utilize this option to get a full understanding of the rates available to you.

Lenders that don’t offer a prequalification process will typically run hard credit inquiries as part of the loan application process. To limit the effect of hard inquiries on your credit score, it’s best to do your rate shopping within 45 days to count them as a single inquiry for credit-scoring purposes.

Takeaway: Don’t settle for the first offer you receive. Compare several lenders and loan types and check for a prequalification option before applying to avoid an impact on your credit.

Next steps: Shop around and compare offers, rates and fees to find a loan with competitive rates. Get prequalified if this is an option.

6. Pick a lender and apply

After you’ve done your research, pick the lender with the best offer for your needs, then start the application process.

Depending on the type of lender, you may be able to do the entire application process online. Alternatively, some lenders may require you to apply in person at your local bank or credit union branch.

Every lender is different regarding what information it’ll need on the application, but you’ll typically need to provide your name, address and contact information, income and employment information and the reason for the loan.

The lender will also request you share how much you want to borrow. It may then give you a few options to consider after a soft credit check. You’ll also have a chance to review the complete terms and conditions of the loan, including fees and your repayment period. Read through the loan agreement thoroughly to avoid hidden fees and other pitfalls.

Takeaway: All lenders have different qualification requirements and may ask for different information. Lenders may also require you to apply in person, while others let you complete the entire application online.

Next steps: Determine the application process for the lender you have chosen. Once you are ready to apply, gather all of the information you will need for the application and apply as directed.

7. Provide necessary documentation

Every lender is different regarding what you need to apply. Once you submit your application, your lender will likely ask you to provide additional documentation. For example, you might need to upload or fax a copy of your latest pay stub, a copy of your driver’s license or proof of residence.

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The lender will let you know if it needs any documentation from you and how to get it to the right person. The faster you provide the information, the sooner you’ll get a decision.

Takeaway: Be prepared to present additional documentation as requested during the application process.

Next steps: Gather pay stubs, proof of residence, driver’s license information and W-2s in advance to speed up the application process. Submit all requested documentation quickly to your lender to get your decision as soon as possible.

8. Accept the loan and start making payments

After the lender notifies you that you’ve been approved, you’ll need to finalize the loan documents and accept the terms. Once you do this, you’ll typically get the loan funds within a week — but some online lenders get it to you within one or two business days.

When you are approved, start keeping track of when your payments are due, and consider setting up automatic payments from your checking account. Some lenders even offer interest rate discounts if you set your account to make autopayments.

Consider paying extra each month. While personal loans can be cheaper than credit cards, you’ll still save money on interest by paying the loan off early. Adding even a small amount to your monthly payments can help you do so.

Takeaway: You could receive the funds as early as one to two business days after getting approved and accepting the loan terms. Once you’re approved, start considering how you’ll pay down your balance.

Next steps: Create a plan to make your monthly payments and pay your loan off. Consider automatic payments and think about paying extra each month to save on interest.

Tips for speeding up the loan application process

If you’re looking for a personal loan, you likely want to get your hands on the money as soon as you can. These tips can help you avoid delays when applying for a personal loan:

  • Check your credit before applying. Know where your credit stands before shopping around for personal loans. This will allow you to narrow down the pool of lenders to those that cater to your specific credit profile.
  • Pay off debt. If you have debt and you don’t need the loan funds urgently, paying some debt off can raise your credit score and lower your debt-to-income (DTI) ratio, which can increase your chances of approval with a competitive rate.
  • Talk to your existing financial institution. Banks and credit unions might be more willing to consider a personal loan application from a customer with whom it’s had a positive, long-standing relationship.
  • Get prequalified. Some lenders have a prequalification process that you can undergo without a hard credit check. You can also get an idea of what your loan rates and terms may be before you apply to determine if moving forward with the lender is worthwhile.
  • Consider online lenders. Many online lenders offer same-day loan decisions, and funds may be deposited into your bank account within a few days after applying if you are approved.
  • Pick loan funds up in person. If your lender has a brick-and-mortar location, ask if there is an option to pick funds up at the branch so you can get the money faster.

How to find the best personal loan rates

To find the best deal on a personal loan for your unique financial situation, compare rates, terms and fees from multiple lenders. You can do this by reviewing lenders’ websites individually or signing up for an online marketplace that allows you to prequalify for multiple loans at one time without impacting your credit.