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So you’re determined to get a personal loan, but the loan application process seems a little confusing. Before you get started, make sure you know exactly what you need to qualify for a personal loan.
- Check your credit score
- See if you can afford one
- Review lenders and do your research
- Applying for a personal loan
3 requirements to pre-qualify for a personal loan
Like shopping for a home or car, you need to do your homework before pre-qualifying for a personal loan. Here are some personal loan requirements you’ll need to take care of before you start applying for one.
1. Check your credit score
Personal loans are usually unsecured loans or loans that don’t have collateral in case you don’t pay it back. Because it’s not a secured loan, lenders evaluate your credit score to determine your creditworthiness, or how responsible you are with borrowing money and paying it back on time. This is the most important factor when it comes to personal loan requirements.
You can usually check your FICO score for free through your bank, credit union, credit card issuer, or through sites like Mint. You can also pull your credit report for free from all three credit bureaus (Experian, TransUnion, and Equifax) once a year from AnnualCreditReport.com to see more details of your credit history. If you can, try to get any derogatory marks removed from your report to boost your score prior to applying for a loan. If you’re late on monthly payments for credit card debt or other loans, start making payments as soon as possible.
If you have good credit or excellent credit, you’re more likely to pre-qualify for a personal loan with a lower interest rate. If you don’t think you qualify for a personal loan by yourself (maybe you have bad credit), consider finding a cosigner.
2. See if you can afford one
Typically, you borrow money because you don’t have enough to pay for something right now. But keep in mind that you’ll still need to set money aside to start making monthly payments on the loan if you choose to take one out. You’ll need to ensure you can fit a personal loan repayment plan into your budget comfortably.
Personal loan lenders also look at your income and employment status. It’s important to prove you’re able to pay back a loan, so a steady job with consistent income is in your favor. Even with a great credit score, being able to afford a personal loan is a big part of qualifying for one.
Learn More: 12 Personal Loans to Consider When You Are Self-Employed
3. Review lenders and do your research
Lenders have different requirements so you might find you qualify through one and not another. Comparing lenders is a great way to avoid settling on the first one you find. The first one might not be the best one for you. Reviewing each lender’s options and requirements is important to getting one that’s the right fit for your financial needs.
When you’re looking for best personal loan lenders, try to find ones that have:
- Low or no fees — The more fees you have, the higher your monthly payment and loan costs. Try to look for a low origination fee and no prepayment penalty.
- Flexible repayment options — If you need a longer loan term with smaller monthly loan payments, make sure your potential loan offers a repayment period you’re comfortable with.
- Reasonable loan rates — While your credit score and profile are going to determine your interest rate, not all lenders are going to offer the same rate. Find one you’re OK with as long as other factors are in line, like fees and flexibility.
- Discounts — Keep an eye out for discounts, too. For example, some lenders give you a discount if you choose to set up automatic payments with them to deduct the loan amount from your bank account each month. Pay attention to the lender’s requirements on when you need to select this option as some lenders will only provide the discount if you select autopay prior to loan funding.
It’s important to stay open-minded with various lenders. You might not find the perfect one that checks off all your major points. But you might find one that fits most of the bill. Don’t settle, but don’t keep your expectations too high, either.
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How to apply for a personal loan
Once you’ve done all your pre-qualification homework, it’s time to apply for your personal loan. Here’s what you’ll need to do:
- Determine your needs: The more you borrow, the more you’ll need to pay back — with interest. So don’t borrow a higher loan amount than you actually need.
- Gather your paperwork: You’ll need employment information, like pay stubs or anything to verify your income. You’ll also need some personal identification, like a driver’s license and/or social security card.
- Get prequalified: You should compare rates from many different lenders to see which one is the right match for you based on your personal financial situation.
- Choose your lender: Based on low fees, easy repayment terms, and a low-interest rate, it’s time to pick your lender. You’ll be brought to their site and from there, you’ll complete a full application.
- Complete approval: After you complete an application through the lender of your choice, you’ll know right away if you’re approved or not. From there, you can lock in when you’ll get your money and how to get it deposited into your account. Depending on your lender, you could get your funds as soon as the same or next business day.