How to get a personal loan in 8 steps

How to get a personal loan in 8 steps

A personal loan can help you get out of financial trouble, cover unexpected expenses, pay off debt faster, or make a big ticket purchase. Most personal loans are unsecured and are readily available through banks, credit unions and online lenders.

There are many types of personal loans to choose from including debt consolidation loans, home improvement loans, medical loans and wedding loans. But before applying, you should know that the application process involves several steps. It’s worth familiarizing yourself with those steps so you know what to expect and avoid any surprises.

  1. Run the numbers.
  2. Check your credit score.
  3. Consider your options.
  4. Select your loan type.
  5. Shop around for the best personal loan rates.
  6. Choose a lender and apply.
  7. Submit required documents.
  8. Accept the loan and start making payments.

What information is required before applying for a loan 

Before you begin the process of applying for a personal loan, gather all the documents and information you need along the way. Doing so will allow you to move through each step of the process efficiently and receive your funds as quickly as possible.  

Items you will need include: 

  • Personal identification, such as a driver’s license, social security card or passport. 
  • Proof of income, such as W-2s, paystubs or filed tax returns. 
  • Employer information including company name, your manager’s name and phone number. 
  • Proof of residency, such as a utility bill or lease agreement with your name and address. 

How to get a personal loan in 8 steps

There are many reasons to get a personal loan, such as an unexpected hospital bill or a necessary car repair. 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

The last thing you or your lenders want is for you to take out a personal loan and not be able to pay it back. While lenders usually do their due diligence to make sure you have the ability to repay the loan, it’s smart to run your own numbers to make sure it works.

Start by determining how much cash you need, keeping in mind that some lenders charge an origination fee, which they deduct from your loan amount. Make sure you borrow enough to get what you need after fees.

Use a personal loan calculator to find out what your monthly payment will be. This can be difficult if you don’t know what kind of rates and repayment terms lenders will offer, but you can play around with the numbers 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 if the lender charges an origination fee — and if so, ask what the fee is. Find out how much cash you’ll need after fees and a monthly payment you can comfortably afford.

2. Check your credit score

Most lenders run a credit check to determine how likely you are to repay your loan. Some online lenders have started looking at alternative credit data, though they will usually look at your credit score. 

The best personal loans usually require you to have a minimum of decent credit — usually between 580 and 669. Good and excellent credit above 670, however, will give you the best chance of getting approved with a competitive interest rate.  

If your credit score is low for other reasons, you may still have a chance to get a loan. But interest rates and fees can be very high, 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 be approved for a loan and the lower your interest rate can be. 

Next steps:  Check your credit score and history. If your score is below eligibility requirements and you don’t need a loan right away, work to improve it. 

3. Consider your options

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

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

You also need to consider where to get a personal loan. With traditional banks, for example, if you have bad credit, you may find it difficult to get approved. Some online lenders, however, specialize in working with bad-credit borrowers, and some credit unions have short-term loans that serve as a cheaper alternative to payday loans. 

If you don’t meet certain qualifications and your purchase can wait, take some time to build your credit score so you can qualify.  

Takeaway:   If you don’t meet the eligibility requirements for a fair rate, and you need a loan now, a co-signer, bad-credit loan, or secured loan can increase your chances of approval. 

Next steps:   If you don’t think you’ll get approved, research your loan options or approach a family member or friend in good financial health about being your co-signer. 

4. Select your loan type

After you know where your credit stands and you’ve considered your options, decide which type of loan is best for your situation. Some lenders are flexible about how you use the funds, while others may approve loan applications only if the money is used for specific purposes. 

For example, one lender may allow you to take out a personal loan to fund your small business, while another lender may not allow you to use the borrowed funds for business purposes at all. It’s usually smart to find a lender that you’re comfortable paying for the exact reason you need it. 

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 a loan to cover your current debt, you reduce the number of payments you have to worry about each month and receive a (potentially lower) interest rate. Credit card refinance loans:   Some companies, like Payoff, specialize in loans for people looking to pay off credit card debt. Because personal loan rates are often lower than credit card rates, they can be a great way to clear your credit card balance and pay off debt over a longer period of time. This can be a good option. 
  • Medical Loans:  Since medical expenses are often unpredictable, a personal loan can be a good way to reduce the immediate financial burden and pay off the debt over several years. Emergency Loans: Emergency loans are useful for many purposes. Car breakdowns, minor medical expenses or pipe bursts can be good reasons for taking out these types of loans. Wedding Loans: Weddings and vacations can be expensive, which is why many people turn to personal loans for them. It spreads the payments over several years, so you don’t have to worry about paying for a special occasion all at once. 

Takeaway:   Find a lender that offers loans designed for your specific needs. 

Next Steps:   Search the Bankrate Personal Loan Marketplace to find a loan that’s right for you and your lending needs.

5. Shop around for the best personal loan rates

Avoid settling for the first offer you get; Instead, take your time and shop around for the best interest rate possible. Compare multiple lenders and loan types to get an idea of ​​what you qualify for. 

 You can get personal loan offers from banks, credit unions and online lenders. If you’re a longtime account holder at your bank or credit union, consider checking there first. Often, showing that you’ve made positive financial choices over the years means that your bank or credit union may be willing to look into recent credit mistakes or give you a better rate. 

Some online lenders allow you to get pre-qualified with a soft credit check, which won’t affect your credit score. Check with the lenders you are considering to see if they offer a prequalification process. Use this option to get complete information about the rates available to you.  

Lenders who do not offer a pre-qualification process run a strict credit inquiry as part of the loan application process. To limit the impact of hard inquiries on your credit score, it’s best to shop your rates over a 45-day period to count them as a single inquiry for credit-scoring purposes. 

Takeaway:   Don’t settle for the first offer you get. Compare multiple lenders and loan types and check pre-qualification options before applying to avoid an impact on your credit. 

Next steps:  Shop around and compare offers, rates and fees to find loans with competitive rates. Get pre-qualified if this is an option.

6. Select a lender and apply

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

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

Each lender differs in what information is required on the application, but you will generally need to provide your name, address and contact information, your income and employment information, and the reason for the loan. 

 The lender will also ask you to share how much you want to borrow. It can give you some options to consider after a soft credit check. You will also have the opportunity to review the full terms and conditions of the loan, including fees and your repayment period. Read the loan agreement carefully to avoid hidden charges and other pitfalls. 

Takeaway:   All lenders have different eligibility 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 your chosen lender. Once you are ready to apply, gather all the information you need for the application and apply as directed.  

7. Provide the required documents

Every lender is different when you need to apply. Once you submit your application, your lender will ask you to provide some additional documents. For example, you may need to upload or fax a copy of your latest pay stub, a copy of your driver’s license or proof of residence. 

The lender will let you know if any documents are required from you and how to get them to the right person. The faster you provide the information, the sooner you will receive a decision. 

Takeaway:  Be prepared to submit additional documents as requested during the application process. 

Next Steps:   Gather pay stubs, proof of residency, driver’s license information, and W-2 in advance to expedite the application process. Submit all requested documents to your lender quickly to get your decision as soon as possible. 

8. Accept the loan and start making payments

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

Once you’re approved, start tracking when your payments are due and consider setting up automatic payments from your checking account. Some lenders offer interest rate discounts if you set your account to autopay. 

Consider paying extra every month. While a personal loan may be cheaper than a credit card, you’ll save money on interest by paying off the loan sooner. Adding even a small amount to your monthly payment can help you do just that.  

Takeaway:  You can get funds as quickly as one to two business days after approval and acceptance of loan terms. Once you’re approved, start thinking about how you’ll pay off your balance. 

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

Tips to speed up the process

If you are looking for a personal loan, you want to get the money as quickly as possible. These tips can help you avoid delays in applying for a personal loan”

  • Check your credit report before applying. Know where your credit stands before shopping for a personal loan. Good credit can make it easier to qualify for a personal loan at a low interest rate. Plus, it’s an easy way to spot and correct mistakes right away to avoid problems when you’re applying for a loan. Pay off debt. If you have debt and don’t need loan funding urgently, paying off some debt can boost your credit score and lower your DTI ratio, increasing your chances of approval.
  • Talk to your existing financial institution. Banks and credit unions may be more willing to consider a personal loan application from a customer with whom they have a positive, long-term relationship.
  • Get pre-qualified. Some lenders have a pre-qualification process that you can do without a strict credit check. You can also get an idea of ​​what your loan rates and terms might be before you apply to determine if it’s worth going forward with a lender.
  • Consider online lenders. Many online lenders offer next-day loan decisions, and if you’re approved, the money can be deposited into your bank account within days of applying.
  • Raise loan funds personally. If your lender’s location is brick-and-mortar, ask if there’s an option to pick up funds at a branch so you can get the money quickly.

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