How To Get A Personal Loan In 5 Simple Steps – Forbes Advisor

To apply for a personal loan, first ensure your credit is as strong as possible. From there, explore lenders that offer personal loans with the features you’re looking for and gather the data you’ll need to apply.

Depending on the lender, you may get an interest rate estimate before officially applying or receive a decision within minutes of hitting submit. But with many personal loan options available from both traditional and online lenders, it’ll take some research to find one that fits your goals and budget. Here’s how to do it.

How To Get a Personal Loan: Step-By-Step

Getting a personal loan can be a straightforward process if you know what to expect. Understanding your credit score and prequalifying with multiple lenders will make it easier to shop for the most competitive terms, and having the right documents prepared can speed up the process. Follow these steps to get a personal loan:

1. Check Your Credit Score

Before applying, check your credit score to evaluate whether you’ll meet minimum credit score requirements. While some lenders publicly share this information, not all do. As a rule of thumb, you need to have a good credit score to get a personal loan—meaning a FICO Score of at least 670. Some lenders offer personal loans for fair credit or bad credit (below 670), but these loans typically come with higher interest rates.

Your credit score helps determine the annual percentage rate (APR) you’re given and the amount you’re allowed to borrow. Typically, lenders offer the best rates and terms to borrowers with excellent credit.

You can access your credit score using free credit score websites like Credit Karma. Likewise, many banks, lenders and credit card issuers now offer free access to scores, even to those who aren’t active customers or account holders.

2. Prequalify for Personal Loans

Many lenders let you prequalify for a personal loan without resulting in a hard inquiry on your credit report. This means you can check available rates and terms without damaging your credit score.

You can use a lender’s prequalification tool to compare offers and gauge how likely you are to get approved for a personal loan at a competitive rate. Requesting prequalification may also help you avoid getting dinged with hard inquiries for loans you won’t qualify for.

When visiting a lender’s website, look for an invitation to submit your information, such as a button that says “Check Your Rate.” When you fill out a prequalification form online, you may be asked about your income and housing payments, how much you want to borrow, how you plan to use the loan and your ideal loan term. Having this information on hand before you start can speed up the prequalification process.

3. Compare Your Offers

Once you complete the prequalification process, you’ll see the personal loan terms you could be offered. If you’ve prequalified for multiple loans, it’s crucial to compare each offer to help you understand the best loan for your situation. In particular, you should compare the following:

• APR. Your APR tells you how much it will cost you to borrow the money you qualify for, which includes interest and fees. A higher APR can drive up the cost of the loan over time.
• Loan term. Your loan term is how long you have to repay your loan, typically between two and seven years. Longer loan terms have lower monthly payments but could cost you more interest over time.
• Loan amount. Your loan amount is the amount of money you can borrow. Choose a loan that offers what you need with a monthly payment that meets your budget.
• Monthly payment. Your monthly payment is how much you’ll owe every billing cycle, typically every 30 days. Shorter loan terms result in higher monthly payments, while longer repayment terms may come with more affordable payment options.
• Origination fee. Some, but not all, providers charge origination fees that can increase the overall cost of borrowing. These fees typically range from 1% to 8% of the loan amount, but they may be as high as 10%. You’ll either have to pay this up front as a closing cost or finance it as part of your loan balance.
• Prepayment penalty. Some lenders will charge a prepayment penalty if you pay off all or part of your loan ahead of schedule. Fees typically start around 2% of the outstanding principal balance and may fall to zero over the first several years of the loan.

If you want to negotiate different terms on a loan offer, a personal loan calculator can help you adjust loan variables—like the rate and loan term length—to create a loan scenario you can pitch to the lender.

4. Complete and Submit Your Application

Once you prequalify for a loan, a lender will give you a window of time—potentially several weeks—to proceed to a formal application. The information you’ll need to complete your application will vary by lender. However, you can expect to fill in basic contact information and details that help confirm your identity, such as your Social Security and driver’s license numbers.

In addition, you may be asked about your:

• Household income
• Job status, including whether you’re self-employed or out of work
• Employer and profession
• Homeownership or rental status
• Monthly rent or mortgage payment
• Home equity, if you own a home
• Checking and savings account balances
• Assets and investments

Once you submit your application online or in person, a lender will check your credit again. This time, a hard inquiry will appear on your credit report, which can damage your score by up to five points for one year. The application review process can take a few hours to a few days, depending on the lender.

5. Close, Manage and Repay Your Loan

If a lender approves your application, you’ll receive final loan documents that outline your loan details. Take time to review the applicable loan terms, including the interest rate, loan repayment term, loan amount and monthly payments.

Once you sign your loan documents, your lender will typically direct deposit the funds into your bank account. This can take anywhere from 24 hours to one week, depending on the lender and your bank; online lenders typically disburse funds quicker.This marks the beginning of your repayment terms. To ensure you don’t miss a payment, enroll for autopay or set up calendar reminders. Some lenders offer rate discounts of up to 0.5% for borrowers who enroll in autopay.

Applying for a Personal Loan With Bad Credit

Getting a personal loan with bad credit isn’t impossible, but it’ll likely require some extra attention and steps on your part. If you discover you have a low credit score while preparing to apply for a personal loan—or you’re already aware of a bad credit score—consider these tips to improve your approval chances:

1. Add a co-signer, if possible. Some, but not all, personal loan lenders permit co-signers. A co-signer is someone who legally agrees to repay the loan if you’re late on payments or in default. Their credit score is taken into account during the application process and can help boost your chances of getting a personal loan with bad credit.
2. Find a bad credit lender through prequalification. Some lenders offer a prequalification process to see what terms you may receive if you submit a formal application. By prequalifying with multiple lenders, you can find those that accept bad credit borrowers and have a loan to offer you.
3. Take time to improve your score. To your best ability, improve your score before applying. Because payment history accounts for 35% of your FICO Score, you can cover a lot of ground by paying down existing debt and making future payments on time or early. Also consider other fast credit-building strategies like becoming an authorized user, opening a secured credit card, requesting a credit limit increase or opening a credit-builder loan.

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