A personal loan is a versatile financing option that can help you cover various expenses, such as emergencies, debt consolidation, or big purchases like a new appliance or vacation.
Applying for a personal loan may seem daunting, but it’s quite simple. Let’s go over the main steps for how to apply for a personal loan and what you can do beforehand to make the process easier.
What to know Before applying for a Personal Loan
- Figure out how much money you need and how much you can afford to pay back each month to avoid borrowing too much.
- Check your credit score and credit report to see how lenders will evaluate you as a borrower.
- Research lenders and then get pre-qualified to narrow down your personal loan options.
- Prepare copies of required documents to save time.
How to Apply for a Personal Loan?
When you apply for a personal loan from any lender, you’ll likely follow these main steps, which we explain in more detail below:
1.Figure out how much you need: What is the purpose of the loan? Is it for a home improvement? A vacation? To consolidate debt? Whatever the reason, make sure you know how much you need, as a first step.
2.Review your finances: With an amount in mind, look at your financial situation. Can your budget accommodate another monthly payment? How is your credit score?
3.Research and compare lenders: Lender options are abundant. Narrow your options by starting with your current bank and researching lender reviews.
4.Pre-qualify: Most lenders will let you pre-qualify—without hurting your credit score. Go through the process with at least three lenders to compare rates, terms, fees, and estimated payment amounts.
5.Apply: Once you’ve chosen a lender, fill out a formal application.
Before You Apply for a Personal Loan ,Most loan applications take only a few minutes to complete (and funding can arrive the next day—or sooner). But the process before you apply can take a little longer.
1.Figure Out How Much You Need
Think about why you’re applying for a personal loan and estimate how much you’ll need to borrow. This is a crucial step in getting a personal loan. You can borrow between $250 and $100,000, so finding an amount will prevent you from borrowing more than you need. Later in the process, this information can help you narrow down your options since loan amounts vary by lender.
2.Review Your Finances
Evaluate your finances to see 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?
Check your credit score, too, since it will affect your loan eligibility and interest rate. Higher credit scores increase your chances of approval and allow you to qualify for lower rates. If your credit score is lower than you expected, review your credit report to see whether it contains errors that need to be disputed.
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 or income requirement, or only offer loans in certain states.
Read personal loan and lender reviews and ratings to help you find the best personal loan lenders, and then rank your top choices. Interest rate is always a key factor, but most borrowers say they prefer lenders with high-quality customer service and a good overall experience, lenders that provide useful information and prioritize meeting their customers’ borrowing needs, according to J.D. Power.
Lenders that ask for an upfront fee or that guarantee approval are often scammers.
4.Pre-Qualify
Most lenders offer pre-qualification that lets you see the loan terms you are likely to qualify for. To pre-qualify, you usually only need to provide a few details: your personal identifying information, income or employment details, and desired loan amount. The lender will check your information and do a soft credit check, which unlike a hard inquiry when you officially apply, won’t impact your credit. A soft credit check can give you an initial decision, but remember it doesn’t assure you’ll get approved.
5.Apply for a Personal Loan
With the preparation done, and your choice of lender made, you can apply
Many lenders offer online applications, which are fast and easy. Some lenders, especially traditional banks, may ask you to apply in person. Either way, the loan application will require personal and financial information, like your name, home address, and employment information. You may have to submit additional documents, such as your:
- State-issued ID
- Proof of residence
- Income documents, like a bank statement or pay stub
- Tax return
After you send the application, wait for the results, which may be in minutes or may take a few days. You’ll get a decision quicker if your application is accurate and error-free.
If you’re approved, the next step for how to apply for a personal loan is to look over your final loan documents, then agree and sign them. Your loan documents will show the loan amount, interest rate, repayment term, and monthly payment amount. Within a few days of agreement, you should get funds in your bank account.
Loan applications involve a hard credit pull, which can lower your credit score. If you’re comparing multiple lenders, your applications will be counted as one credit inquiry if they are done within a 14-day window. That limits harm to your credit score.
Alternatives to a Personal Loan
If you need financing for a large expense, but don’t want to use a personal loan, you can explore other options. Some of them are:
1.Credit card installment plan: You can pay off large transactions with fixed payments with credit card installment plan. If your purchase is eligible, you can choose the installment plan option through your online account.
2.Home equity loan or line of credit: If you use your home equity as collateral for a loan, you can usually get a lower interest rate. If you have enough equity and good credit, you can borrow of your home equity, typically no more than 80%.
3.Savings secured loan: You can use your savings account balance as collateral for a loan with a savings secured loan. These loans are usually fixed-rate loans that may let you borrow up to 100% of the amount in your savings account. However, if you can’t afford to repay the loan, you will lose your savings to the lender.
4.Family loan: Borrowing from family members can provide funds for your expenses, but this strategy does have drawbacks to consider. Late payments or unpaid loans can possibly damage your relationship.
How Much Can You Borrow With a Personal Loan?
You can generally take out a personal loan for up to $100,000, but several factors affect the amount you can borrow with a personal loan. Maximum amounts vary by lender and your state. Lenders will look at your credit history, ability to pay, and other factors to decide your loan amount.
How Long Does It Take to Get a Personal Loan After You Apply?
It can take several business days to get a personal loan. First, the lender will review and approve your application. You’ll have to look over and accept the loan agreement. After signing, you could get your funds the next day or it may take several business days to get your funds, depending on the lender.
Can You Return a Personal Loan If You Don’t Use It?
Depending on the lender and the loan terms, you may be able to return a personal loan if you don’t use it. Some lenders may offer a cancellation period, usually within a few days of receiving the funds, where you can return the loan without any fees or penalties. However, not all lenders offer this option, so you should check the loan agreement carefully before you apply. If you can’t return the loan, you may have to pay it back with interest, even if you don’t use it.
Your credit score may change after you pay off a personal loan, depending on the details in your credit history. If you have no other active installment loans on your credit report, your credit mix may suffer and your credit score may go down.
NOTE:
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