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How to Apply for a Personal Loan

The most important steps involve preparation, before you even start the application process.

Written by Ben Luthi / September 5, 2022

Quick Bites

  • Personal loans can offer a lot of flexibility in how you can use your funds.
  • It's crucial to review your credit and compare personal loan offers before you apply.
  • The application process itself is relatively simple and can take just a few minutes.

Personal loans are versatile in that you can use loan proceeds for just about anything you want, albeit with some restrictions depending on the lender.

Before you get a personal loan, though, it's important to assess your creditworthiness and review the various offers that you're eligible to receive. It's also important to determine whether you can avoid borrowing altogether.

7 steps to apply for a personal loan

If you're thinking about applying for a personal loan, here are the steps to take to ensure that you're getting the best terms available for you.

1. Determine whether you need to borrow

Personal loans can be used for a variety of purposes, though some lenders may not allow you to use your funds for educational or business expenses.[1-2]

That said, personal loans can be expensive. Among popular lenders, rates can range from the single digits to as high as 36%, far higher than what you can expect with a credit card.[3-5]

Even if you qualify for a low interest rate, it's important to consider how the monthly payment will affect your budget. If you're using the funds to consolidate debt, cover emergency expenses or renovate your home, it can be worth it. But if you're thinking about getting a personal loan to pay for a vacation or a big-ticket item that you don't need or can put off, the payments and interest charges may not be in your best interest. 

2. Decide how much you need

If you've decided that a personal loan is right for you, think carefully about how much you need to ensure that you don't borrow too much or too little. 

Also, keep in mind that some lenders charge origination fees, which are typically deducted from the loan amount when the lender disburses it to you.[4] If you're borrowing $10,000 and the loan has a 5% origination fee, you'll only end up with $9,500—so, you might need to borrow a bit more to make up for that charge.

3. Review your credit profile

Personal loans are available for consumers across the credit spectrum, but if you want a good chance of securing a low interest rate, little to no fees and a choice of repayment terms, having a high credit score is your best bet. 

"Lenders often base their decision to lend to you on your credit score," says David Haas, co-founder and chief operating officer of PowerPay, a digital lending platform. "Taking time to clean up your credit report can ensure that you get approved for a loan."

You can check your FICO credit score for free through Experian, one of the three national credit bureaus, and you can obtain a copy of each of your credit reports through AnnualCreditReport.com

Good credit is generally considered to be a FICO score of 670 or higher, but a score in the mid-700s or above may give you a better chance of scoring favorable terms.[6-7] And while you're reading your credit reports, look for any inaccurate or fraudulent information that could be hurting your score. You can dispute such items directly with the credit bureaus.[8]

Once you have a good idea of your overall credit health, you can decide to move forward or to take some time to work on improving your credit before proceeding.

4. Shop around

It may be tempting to go with the first offer you see or to borrow from your current bank or credit union. But each lender has its own criteria for determining loan terms, so it's important to take your time to shop around and compare multiple personal loan offers before you apply.

"Every lender has different programs which include the interest rate of the loan, term of the loan and fees on the loan," says Haas. "Your job is to find the best program that fits your needs."

Fortunately, many lenders allow you to get pre-qualified with just a soft credit check, which won't hurt your credit score.[9] This process can give you an initial quote based on information found in your credit reports, making it easier to compare offers with no commitment.

In addition to the interest rate, you'll also want to compare other features, including fees, repayment terms, funding speed, forbearance options and more. Additionally, some lenders are willing to match or even beat competing offers, giving you a bit more leverage as you shop around.

5. Choose a lender

Once you have all of your personal loan offers in one place, use the information you found to decide which lender to use. Note, however, that pre-qualification offers don't always match the final offer. If the lender finds conflicting information or something else that hurts your creditworthiness, you may need to go back to the drawing board. 

Company
SoFi personal loans logoVisit
Best for
Best for
Overall
Key benefit
Key benefit
Unemployment protection if you lose your job while in repayment on this no-fee loan
Visit
Best for
Best for
Editor's pick
Key benefit
Key benefit
Skip one payment per year if you run into a financial hardship
Best for
Best for
Fair credit
Key benefit
Key benefit
You can qualify with a 600 credit score and three or more years of credit history
Best for
Best for
Good credit
Key benefit
Key benefit
The lowest APRs advertised among national lenders, and a “Rate Beat” program to boot
Best for
Best for
Debt consolidation
Key benefit
Key benefit
Have Marcus disburse loan funds directly to your creditor/s

6. Submit your application

Now that you're ready to apply for a loan, visit the lender's website and start the application process. You'll typically need to provide some basic information about yourself, including your name, date of birth, Social Security number, address and contact information.[10] 

You may also need to provide some documentation, such as[10]:

  • A copy of your government-issued photo identification

  • Proof of income, such as a W2, pay stubs, bank statements or even tax returns

  • Proof of address, such as a utility bill, rental agreement or mortgage statement

If you're applying with a cosigner and the lender allows that, you may also need to furnish that information for them as well.[11]

This process typically only takes a few minutes to complete, and you should receive a response within a business day or two.[12]

7. Review the offer and sign the agreement

Once the lender sends you an offer, review the terms and conditions of the loan agreement to determine if it's the right fit. If everything is acceptable, you can sign the agreement and provide your banking information to receive the loan funds.

Depending on the lender and when you apply, it can take anywhere between a few hours and several days to receive the funds.[4, 12] As soon as the funds land in your account, set up automatic payments to ensure that you never miss a payment.

Frequently asked questions

What is the average interest rate on a personal loan?

The average interest rate for a two-year loan is 8.73%, according to the Federal Reserve.[5] However, your loan rate will depend on the lender, your creditworthiness, how much you want to borrow, the repayment term and other factors.[13]

What is a good loan interest rate?
Where can you find a personal loan?

Personal Loan: Fixed: 7.99-23.43% APR (with all discounts)

*Personal Loan Disclaimer Fixed rates from 7.99% APR to 23.43% APR APR reflect the 0.25% autopay discount and a 0.25% direct deposit discount. SoFi rate ranges are current as of 8/1/22 and are subject to change without notice. Not all rates and amounts available in all states. See Personal Loan eligibility details. Not all applicants qualify for the lowest rate. Lowest rates reserved for the most creditworthy borrowers. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, income, and other factors. See APR examples and terms. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account.


Article Sources
  1. "How Can I Use My Loan?," Lending Club, https://help.lendingclub.com/hc/en-us/articles/213706318-How-can-I-use-my-loan-.
  2. "What can I use a SoFi Personal Loan for?" SoFi, https://support.sofi.com/hc/en-us/articles/360039728332-What-can-I-use-a-SoFi-Personal-Loan-for-.
  3. "Personal Loan Rates," Wells Fargo, https://www.wellsfargo.com/personal-loans/rates/.
  4. "Personal Loan Rates & Fees," Lending Club, https://www.lendingclub.com/loans/personal-loans/rates-fees.
  5. "Consumer Credit," Federal Reserve, Aug. 5, 2022 https://www.federalreserve.gov/releases/g19/current/.
  6. "What is a Credit Score?" myFICO, https://www.myfico.com/credit-education/credit-scores.
  7. Jacqueline DeMarco, "Is There a Minimum Credit Score for Getting a Personal Loan?" SoFi, May 17, 2022, https://www.sofi.com/learn/content/credit-score-for-personal-loan/.
  8. "How do I dispute an error on my credit report?" Consumer Financial Protection Bureau, October 19, 2021, https://www.consumerfinance.gov/ask-cfpb/how-do-i-dispute-an-error-on-my-credit-report-en-314/.
  9. Frank Gogol, "Soft Pull Personal Loans: What They Are + Your Options," Stilt, May 16, 2022, https://www.stilt.com/blog/2018/07/soft-credit-check-personal-loans/.
  10. "Personal Loans Application Checklist," Wells Fargo, https://www.wellsfargo.com/personal-loans/checklist/.
  11. "What documentation do you need for a personal loan?" Oportun, Dec. 17, 2020, https://oportun.com/financial-education/what-documentation-do-you-need-for-a-personal-loan/.
  12. "How Long Does It Take To Get A Personal Loan?" Credit Union of Southern California, https://www.cusocal.org/how-long-does-it-take-to-get-a-personal-loan.
  13. "What is a Good Interest Rate: Tips to Getting the Best Personal Loan Interest Rate," Lending Club, https://www.lendingclub.com/loans/resource-center/personal-loan-interest-rates.

About the Author

Ben Luthi

Ben Luthi

Ben has been writing about money since 2013. He's been on staff at NerdWallet as a credit card writer and for Student Loan Hero, where he covered student loans and other personal finance topics. Ben's work has appeared in U.S. News, The New York Times, Experian, FICO, Credit Karma, Bankrate and more

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