How to Get a Loan: How to Apply

How to get a personal loan in 10 steps

If you’re ready to apply for a loan, follow these steps to increase your chances of approval:

1. See if you can afford it

The first step is to determine how much you can afford to borrow. Think about how much money you need, how much debt you have and how much you can afford to pay each month. Use a loan calculator to experiment with different loan terms to find out exactly how much you can afford.

2. Check your credit score

Your credit score has a big impact on your loan terms and ability to qualify for credit. People with high credit scores have access to the lowest interest rates, reducing the total cost of borrowing. Having a low credit score or no credit score tends to come with high interest rates and extra fees.

To avoid surprises, check your credit score before you apply for a personal loan. The requirements vary from one lender to the next. You generally need at least 580 to qualify for a loan, though a score in the 700s is necessary to guarantee a favorable rate of interest. Some lenders specialize in personal loans for bad credit, but remember that a low score will cost you more money.

3. Decide what type of loan you need

“Personal loan” is a broad term that includes several types of loans. Before you apply for funding, determine which of these loans you need:

• Wedding loan: Some lenders offer loans to help borrowers pay for their weddings. You can use this type of personal loan to cover flowers, decorations, catering and other wedding-related expenses.
• Home improvement loan: If you need to make critical repairs or add a new room to your home, consider a home improvement loan. You can use the funds to purchase supplies, pay contractors or cover demolition costs.
• Debt consolidation loan: If you have several credit cards, personal loans and other debts, it may make sense to combine them with a debt consolidation loan. When you take out this type of personal loan, you may be able to qualify for a lower interest rate and/or a lower monthly payment. Debt consolidation loans also make it easier to manage your finances, as you only have to make one monthly payment instead of multiple payments to different creditors.
• Payday loan: Many companies offer payday loans with no credit check, so this is an option for borrowers with low credit scores or limited experience managing debt. These personal loans come with high interest rates, so don’t apply for a payday loan unless it’s an emergency and you’ve exhausted your other borrowing options. There are also instant cash advance apps that can help see you through to the end of the month if you’re struggling.
• Online loan: Online lenders may approve you when traditional lenders won’t. Consider this type of personal loan if you have poor credit or don’t have much credit history.
• Emergency loan: You may need an emergency loan if you have to pay for car repairs or cover an unexpected medical bill. How much you can borrow depends on your credit history and other financial circumstances.

4. Shop around and compare lenders

Some lenders offer better terms than others. Consider these factors when you’re comparing your options:

• APR: The annual percentage rate on a personal loan is how much you pay each year to borrow money. It’s expressed as a percentage, and it includes all fees and interest. APR is a bit different from the interest rate on a loan, as it doesn’t include loan interest and fees. The higher your APR, the more it costs to borrow money, so compare rates carefully before choosing a lender.
• Loan terms: The terms of a loan include the interest rate, the repayment period, the monthly payment amount and the payment due date. Some lenders also charge a prepayment penalty, which is a fee for paying off your loan early.
• Fees: You may have to pay a loan origination fee, which is a one-time fee that compensates the lender for processing your application and distributing the loan funds. It may be a flat fee or a percentage of your total loan amount.
• Monthly payments:  The payment amount on a personal loan can vary based on the loan amount and your interest rate. Comparing interest rates, fees and other terms can help you find a lender with lower-than-average monthly payments.

5. Choose a lender

Once you compare payments, fees and other terms, choose a lender. Be sure to read the fine print before you sign anything. Just because a lender charges the lowest interest rate doesn’t mean it’s the best fit for your needs. For example, one lender may have a lower interest rate than the others, but perhaps it charges a 10% origination fee.

6. Apply for prequalification

The next step is to prequalify for the loan. Prequalification involves submitting basic information to the lender and asking them to determine if you’re likely to qualify. Note that prequalification isn’t a guarantee that the lender will approve your application. It’s just one step on the road to taking out a personal loan.

You typically need to submit your name, contact information, desired loan amount and employment data. This step doesn’t have any impact on your credit score.

7. Gather your loan documents

When you’re ready to apply, be prepared to provide the following:

• Loan application: You’ll need to fill out an application before the lender considers your request. Include your legal name, address, telephone number and other requested information.
• Government-issued ID: The lender needs to verify your identity, so have your driver’s license, passport or state ID card with you when you apply for the loan.
• Proof of income: Before issuing a loan, the lender needs to verify that you can afford the payments. Have your pay stubs and tax returns available to make the process as easy as possible.
• Bank statements: If you’re self-employed, be prepared to provide bank statements, payment records and other documents to show the lender that you have a steady source of income.
• Proof of address: Your lender may ask you to provide a copy of your lease or a recent utility bill to verify that you live at the address you provided.

8. Submit your application

This is one of the easiest steps in learning how to get a loan. All you have to do is submit the application. This does affect your credit score, as the lender uses the information you provide to pull a copy of your credit file.

Once you submit an application, it may take as little as a few days up to 1 week or more to get approved. You can speed up the process by completing every field on the application and having all requested documents ready for the loan officer.

There’s no guarantee you’ll be approved, but you may be able to increase your chances of approval by paying your bills on time, keeping your debt at a manageable level and asking a friend or family member to serve as a cosigner. Another option is to apply with a co-borrower, or a person who agrees to share responsibility for the loan.

9. Get funded

If you’re approved, it typically takes between a day and a week for the funds to show up in your bank account.

10. Start making payments

When you sign the loan agreement, your lender will give you an amortization schedule, which lists your payment due dates. Make sure you submit your first payment by the due date listed in this document.

Common personal loan requirements

Lenders will have a list of requirements for getting a loan improved, which may include:

• Credit score and history: To get the best loan terms, you should have a credit score of 740 or higher. Lenders also want to see that you have a history of making on-time payments.
• Income: The amount of income you need depends on the loan amount you request. You should have a steady source of income to help the lender feel confident in your ability to repay the loan.
• DTI: Aim to have a debt-to-income ratio of less than 40%. DTI compares the amount of debt you have with the amount of income you bring in. The higher your DTI, the more difficult it is to make an additional monthly payment.

What to do if your application is denied

Your lender may deny your application for the following reasons:

• You don’t have enough income to support the required monthly payments.
• Your credit report shows that you have a history of making late payments.
• You have an eviction, court judgment or other negative record on your credit report.
• The requested loan amount is too high for someone with your income.

If your preferred lender won’t approve you, consider applying for a no-credit-check loan or looking for alternative funding sources. For more advice, we have a separate guide on what to do when a loan is denied.