How To Get A Personal Loan: 8 Steps To Follow

A personal loan can help you reach your financial goals, whether it’s to consolidate and simplify existing debt payments, afford a large purchase, or make repairs to your home. Knowing how to get a personal loan may feel overwhelming, but it can be done. It starts with understanding what lenders look for and what you need to submit an application.

At A Glance: 8 Steps To Get A Personal Loan

The 8 steps to get a personal loan include:

1. Calculate how much you need
2. Find your credit score
3. Research potential lenders
4. Get prequalified
5. Compare Interest rates
6. Read loan terms and pick a lender
7. Apply for the loan
8. Collect loan proceeds

Quick Review: Personal Loans Explained

A personal loan is a type of loan where you borrow a lump sum of money and pay it back to the lender in installments. Personal loans are typically unsecured loans — debt where you don’t need to put up collateral— though some can be secured. Some examples of personal loans include home improvement loans, auto loans, and debt consolidation loans.

The Personal Loan Application Process

Lenders want to be sure you’ll pay back your loan on time so they will ask for specific types of documentation showing your history as a borrower and other personal details. Some information you’ll need to provide on your loan application include your name, Social Security number, pay stubs, contact information and a government-issued ID.

If you’re getting prequalified, you won’t face a hard credit inquiry. However, once you submit a full application, the lender will conduct a hard credit inquiry that could temporarily affect your credit score.

How Banks Determine You Qualify

Banks have different minimum requirements to qualify you for a loan. In almost all cases, information financial institutions will use to evaluate a borrower include income, credit score, debt-to-income ratio (DTI) and – in some cases – collateral.

8 Steps For Getting A Personal Loan

1. Calculate How Much You Need

Determine why you need the loan and how much you need to borrow. For example, if you want to make home renovations, it may be helpful to create an approximate budget for materials or work with a contractor to estimate the overall project cost. Some lenders may charge an application or origination fee which could eat into your loan proceeds, so factor in that cost as well.

2. Find Your Credit Score

Reviewing your credit report and credit score from the three major credit bureaus—Experian®, TransUnion® and Equifax™ — is an important step to getting qualified. You can see where you stand, and what ways you may be able to boost your credit score before submitting an application. It’s also helpful to use when researching which lenders are more likely to work with borrowers with a credit score similar to yours.

3. Research Potential Lenders

You can look at banks, credit unions, and other types of lenders to find one that’s the right fit. When doing your research, consider lenders that loan out the amount you’re looking for, have credit score requirements close to yours and have other features (like financial hardship programs) you want. Don’t forget to look into a lender’s reputation and reviews from existing or former customers.

4. Get Prequalified

Getting prequalified means you submit initial information to see whether a lender will approve you for a loan and at what rates and terms, without impacting your credit score. You can shop different lenders to see what interest rates you may get to find the loan that’s the best for you. Some lenders may offer both prequalification and preapproval, which requires a more detailed process.

5. Compare Interest Rates And Other Terms

Shopping around for the best loan means comparing interest rates and other features of a personal loan.

Some features to compare:

• Repayment terms
• Fees (like application or origination fees)
• Interest rates and APR (annual percentage rate)
• Late payment policies
• Financial hardship policies

Be sure to make comparisons for each feature you feel is important. When it comes to interest rates, it’s far more accurate to compare APRs since it includes all the fees you’ll pay for the personal loan.

6. Read The Loan Terms And Pick A Lender

When you narrow down your choices between lenders, read the loan terms in detail so you know exactly what your responsibilities are as a borrower. You should know exactly how much you’ll pay in fees and interest, your repayment terms, and what can happen if you can’t pay back your loan. Choose the lender and loan that best fits your situation and needs.

7. Apply For Your Preferred Loan

You will need to fill out the application in full to the lender to kickstart the loan process.
Lenders will need the following information:

• State or government-issued ID like a driver's license
• Social Security number
• Proof of address like a lease contract, mortgage agreement or utility bills
• Tax returns
• Proof of income like bank statements or pay stubs

Lenders may need additional information or documentation during the underwriting process, so meet their requests as soon as you can. Once the lender has received all the necessary information, it will use it to determine whether to approve you for a loan.

8. Collect Your Loan Funds

If the lender approves your loan, you will need to provide a way for the lender to give you the loan funds. In many cases you give them your banking details, but some lenders can send payment via check. It could take several hours to several days for a lender to make a decision, and many lenders typically send funds within several business days.

How To Qualify For A Personal Loan

Lenders assess your creditworthiness and whether you're likely to pay back a loan on time. The higher the risk you may pose as a borrower, the less likely you'll be approved for a loan at more favorable rates and terms. Some key factors lenders look at when processing loan applications:

• Credit history and credit score
• Income sources
• Existing debt obligations
• Loan amount
• Debt-to-income ratio

How To Get A Personal Loan With Bad Credit

Though it may be tougher, it is possible to get a personal loan even if you have bad credit. You can look for lenders that are willing to work with those who have bad credit, though you may have to be willing to accept higher interest rates and lower loan amounts. Otherwise, you can consider a secured loan, where you will need to put up collateral. Lenders may be more willing to extend you secured loans because they can take your collateral to recoup their losses if you fail to repay the loan.

If it's available to you, you can ask a co-signer with good credit to apply for a personal loan with you. This person will be legally responsible for paying your loan if you default on it. Have an in-depth conversation about how you plan on paying the loan back. At this time, our friends at Rocket Loans^SM do not allow co-signers.

Alternatives To Personal Loans

If you can’t qualify for a personal loan, you can consider secured loan options like home equity loans or home equity lines of credit (HELOC). Both of these come with risk—you can lose your home if you default on the loan.

Otherwise, you can consider other options like credit cards or borrowing from family and friends.

3 Tips For Successfully Paying Off A Personal Loan

Knowing how to apply for a personal loan is part of the equation. Knowing how to pay off a personal loan is just as important.

1. Borrow The Right Amount

Borrowing only what you need means you’re not overextending yourself financially and that you’re making monthly payments you can afford. Otherwise, if you find it difficult to make payments you could fall behind.

2. Make Monthly Payments On Time

Making on-time payments means you’re not at risk of paying late fees or falling behind on your loan. Consider setting yourself reminders to ensure you’re not missing your monthly payments.

3. Use Autopay

Setting up automatic payments can help you pay off your loan on time without you having to manually transfer your payments. You will need to check your bank account periodically to ensure you have enough funds when it comes time for the lender to draft your account.

The Bottom Line

Personal loans can be an excellent option for consolidating debt with high interest rates, paying for a wedding or home improvement project, or overcoming a financial setback. Because they can significantly impact your finances, shop for the best deal and get prequalified by a few lenders. If you cannot get approved for a personal loan, look for ways to increase the creditworthiness of your application.

If you are ready to apply for a personal loan, submit an application online.