How to apply for a personal loan in 6 steps

Written by: Erica Gellerman, CPA
• Updated •8 min read • Leer en español
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In a Nutshell

Applying for a personal loan can be a confusing process if you’re not prepared. Keep reading to learn how to apply for a personal loan and 6 key steps to make the process easier.
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When you need a personal loan for credit card debt consolidation, home improvements or other purposes, where do you go? Do you take the time to shop around — or are you focused on getting money right away?

Comparison shopping is a good idea when you’re making a big financial commitment like taking out a loan. And online lenders have made applying for a personal loan fast and convenient.

Rather than shopping around for personal loans by going directly to multiple lenders, you can use online marketplaces like Credit Karma to research and compare personal loan offers all in one place.

Here’s how to comparison shop — and apply — for a personal loan.

Step 1: Assess your budget

It’s a good idea to figure out how much you can afford to borrow before you take on new debt. By setting up a budget, you can get a good idea of how much you earn each month, where your money is going, and whether you can reasonably take on an additional expense.

Here’s how to figure out whether the loan payment fits into your budget.

  • Determine how much you need to borrow. Knowing how much you need can help estimate what a monthly payment may look like. You can also use a personal loan calculator to see what your monthly payment could look like.
  • Add up your monthly expenses. These include costs for such things as a rent or mortgage payment, utilities, phone bills, insurance premiums, credit card payments, groceries, gas and entertainment.
  • Calculate your take-home pay.
  • Subtract your monthly expenses from your take-home pay.
  • See how much is left. Is it enough to cover a loan payment each month?

If the loan payment barely fits within your budget, then you might want to consider borrowing less money, requesting a longer loan term or finding a different way to pay.

Step 2: Check your credit

Before starting the application process for any kind of loan, it’s a good idea to review your credit.

Credit history and credit scores are among the financial factors lenders will generally consider when reviewing your loan application. Your credit history can affect whether a lender will approve you for a loan and the interest rate it offers you. Good credit can typically make it easier to get a loan and a favorable interest rate.

You can use the Credit Karma app to check your Equifax® and TransUnion® credit reports for free. You’ll need to sign up for an account to use the app and get your credit scores, but it’s always free to join.

Lenders may also consider your debt-to-income-ratio when considering you for a loan — which is the total of all the debt payments you must make each month divided by your gross monthly income. This ratio helps lenders understand how well you’ll be able to manage repayment if they give you a personal loan.

If you have poor credit, there are some things you can do to help improve your credit score. Keeping your credit card use low can help to improve your score. Applying for new lines of credit too often will likely make you appear as a risky borrower to lenders so it’s best to limit how often you apply. Paying on time and in full each month can also help to strengthen your credit score. Your credit score won’t improve overnight but keeping up with good habits will help your credit in the long run.

Step 3: Prequalification

Once you’ve checked your credit, you’re ready to apply for prequalification.

Prequalification is an application process where a lender reviews the information you’ve shared, and gives you a loan offer that you might qualify for. When you get prequalified, the lender will typically pull a soft credit inquiry, which won’t affect your credit scores.

While getting prequalified doesn’t mean you’re approved for a loan, it helps you to understand whether you’re likely to be approved and the loan terms you may qualify for. If you decide you want to pursue an offer you’re prequalified for, you’ll still need to submit a formal application directly with the lender — that will then make a hard inquiry into your credit, which can affect your credit scores.

You’ll typically provide some basic information.

  • How much you want to borrow
  • How you’ll use the money
  • Your annual income
  • Your employment status
  • The last four digits of your Social Security number

Many different types of financial institutions, including banks, credit unions and online lenders offer personal loans. Make sure to shop around to find the best fit for your financial situation.

While lenders look at a variety of factors, strong credit scores generally mean you have a good chance of being approved for loans with good terms.

What can a personal loan be used for?

Some of the most common reasons people get personal loans include consolidating debt, paying for major purchases and getting money for unexpected expenses.

Step 4: Compare loan offers

Once you submit your information, you may receive some information if you prequalify, such as …

  • Loan amount you may qualify for
  • Estimated monthly payment amount
  • Estimated interest and fees
  • Estimated annual percentage rate, or APR
  • Loan term

Again, it’s important to remember that these are potential offers and tentative rates and terms. You’ll get definitive information about the loan a lender’s willing to offer you only after you formally apply directly with the lender.

Things to consider

When you’re reviewing your loan options, be sure to compare each loan …

  • APR — This is how much it will cost you to borrow money, including the interest rate and any potential fees. Learn more about APR and why it’s important.
  • Loan term — Generally, loans with a longer term have a lower monthly payment. But they could cost more in interest in the long run.
  • Origination fee — Some lenders charge this fee for making a loan.

All of these factors can affect the total cost of your personal loan.

Step 5: Apply

Once you comparison shop and choose an offer, you can complete your loan application.

Remember, prequalification doesn’t guarantee that you’ll be approved for a loan. You’ll still need to submit additional information to the lender in order to complete your application.

Documentation you may need

The lender will tell you exactly what you need to submit. Some information might include …

  • Monthly housing cost
  • ID verification
  • Social Security number
  • Income verification

Finalizing your loan approval will typically result in a hard credit inquiry — this may affect your credit scores, but shouldn’t do any long-term damage.

How to speed up the process

The time it takes a lender to review your loan application and make a decision will vary. But the more organized you are, the faster the approval process is likely to be.

Here are some tips to help make the process go more smoothly.

  • Double check to make sure that your documents are accurate and complete.
  • Include every page of multipage documents, even ones marked “intentionally left blank.”

When printing online documents, be sure that the full URL is included on the bottom of each page.

Step 6: Close on your personal loan

Once you’ve submitted your loan application, the lender will review it, decide whether to approve you for the loan, and send you final loan documents if you’re approved. These documents typically detail the terms of your loan, including the interest rate, length of the loan, the loan amount and your monthly payments.

Once you’ve reviewed the details, you’ll sign the documents and your funds will be deposited into your account. With online lenders this can happen quickly, sometimes in as little as a day.

How much can you borrow with a personal loan?

How much you can borrow with a personal loan depends on the lender and your credit profile. Some lenders may offer personal loans up to $100,000. But large personal loans are not offered by every lender and may be harder to qualify for. 

You can also borrow a relatively small amount in a personal loan. Some lenders offer personal loans as low as a few hundred to a few thousand dollars. 

How long does it take to get a personal loan?

The application process for a personal loan generally doesn’t take very long if you have all of your documents handy. Once you apply, lenders then need time to review your application, which may take up to a week or longer.

Some lenders offer same day financing upon approval and some lenders may take a few days to transfer the funds. If you need the funds quickly, make sure to see what the lender’s policy is on funding.

Bottom line

With so many lenders offering personal loans, it’s in your best interest to shop around and find a lender that will offer you the best terms. People who shop and apply for personal loans online have the highest levels of overall satisfaction among personal loan borrowers, and the majority say they completely understand their loan applications, according to a J.D. Power consumer survey.

FAQs about how to apply for a personal loan

What are the types of personal loans?

There are two types of personal loans — secured and unsecured. Unsecured personal loans aren’t backed by collateral. The lender decides whether you qualify based on your financial history. If you don’t qualify for an unsecured loan or want a lower interest rate, some lenders also offer secured loans. Secured personal loans are backed by collateral, such as a savings account or CD. If you’re unable to make your payments, your lender typically has the right to claim your asset as payment for the loan.

Does applying for a personal loan impact your credit score?

Creditors may review your credit reports and scores when you apply to open a new line of credit. This typically causes a hard inquiry, which may lower your credit scores by a few points regardless of whether you’re approved or declined.

What is the best place to get a personal loan?

Personal loans can be a good option for getting cash to help you to consolidate debt or pay for emergencies, like home or car repairs. But before you sign up for a loan, research your lender options — including banks, credit unions and online lenders.

*Approval Odds are not a guarantee of approval. Credit Karma determines Approval Odds by comparing your credit profile to other Credit Karma members who were approved for the personal loan, or whether you meet certain criteria determined by the lender. Of course, there’s no such thing as a sure thing, but knowing your Approval Odds may help you narrow down your choices. For example, you may not be approved because you don’t meet the lender’s “ability to pay standard” after they verify your income and employment; or, you already have the maximum number of accounts with that specific lender.

About the author: Erica Gellerman is a personal finance writer with an MBA in marketing and strategy from Duke University. She’s also the founder of The Worth Project: a weekly money newsletter you actually want to read. Her work has b… Read more.