A personal loan can help you cover a variety of needs, including unexpected payments, debt consolidation, and significant purchases like a new appliance or trip.
Applying for a personal loan may appear frightening, but it is fairly simple. Let's go over the essential processes for applying for a personal loan, as well as what you can do ahead of time to make the process go more easily.
How To Apply for a Personal Loan
When you apply for a personal loan from any lender, you’ll likely go through each of these key steps, which we review in more detail below:
Determine how much you need: Is the loan for a home improvement? A vacation? To consolidate debt? Whatever the need, be sure you understand how much you need, as a first step. Use Investopedia's Personal Loan Calculator to work out repayment costs for different loan amounts with varying interest rates.
Review your finances: With an amount in mind, look at your financial situation. Can your budget support another monthly payment? How is your credit score?
Research and compare lenders: Lender options are limitless. Narrow your options by starting with your current bank and researching lender reviews, including those from Investopedia.
Pre-qualify: Most lenders will allow you to pre-qualify—without damaging your credit score. Go through the process with at least three lenders to review rates, terms, fees, and estimated payment amounts.
Apply: Once you've selected a lender, complete a formal application.
Before Applying for a Personal Loan
Most loan applications take only a few minutes to complete (with funds available the next day—or sooner). However, the process before applying may take longer.
1. Determine How Much You Need
Consider why you're applying for a personal loan and estimate how much you'll need to borrow. This is a key step in getting a personal loan. You can borrow between $250 and $100,000, so honing in on an appropriate amount will prevent you from borrowing more than you need.
2. Review Your Finances
Assess your finances to figure out what you can afford before you apply for the loan. Review your income and expenses to understand your budget, or how much money you have coming in and going out each month. Can your budget handle another monthly payment? How much can you comfortably add?
3. Research and Compare Lenders
Shop around with banks, credit unions, and online lenders to compare loan amounts, interest rates, terms, and fees. Review loan requirements, if they're available. For example, some lenders have a minimum credit score, income, or loan amount requirement, or only offer loans in certain states.
4. Pre-Qualify
Most lenders offer pre-qualification that allows you to view the loan terms you are likely to be approved for. To pre-qualify, you usually only have to enter a minimum amount of information: your personal identifying information, income or employment details, and desired loan amount. The lender will review your information and do a soft credit check, which, unlike a hard inquiry that will occur when you officially apply, won't affect your credit. A soft credit check can give you a preliminary decision, but keep in mind it doesn't guarantee you'll get approved.
5. Apply for a Personal Loan
With the preparation out of the way, and your choice of lender set, you can apply.
Many lenders offer online applications, which are quick and convenient. Some lenders, particularly traditional banks, may require you to apply in person. Either way, the loan application will ask for personal and financial information, like your name, home address, and employment information. You may have to provide additional documents, including your:
State-issued ID
Proof of residence
Income documents, like a bank statement or pay stub
Tax return
After you submit the application, wait for the results, which may come within minutes or may arrive in a few days. You'll receive a decision faster if your application is complete and free of errors.
If you're approved, the next step for how to apply for a personal loan is to review your final loan documents, then accept and sign them. Your loan documents will include the loan amount, interest rate, repayment term, and monthly payment amount. Within a few days of acceptance, you should receive funds in your bank account or in a check, if you opt for that method of payment.