How To Get a Personal Loan in 6 Steps

If you’re going to apply for a personal loan — or just thinking about it — there are some things to take care of first, such as checking your credit, researching loan options, and determining what monthly payment makes sense for you.

By understanding how personal loans work and the process of getting one, you’ll be in a good position to find the best personal loan for you.

How do personal loans work?

A personal loan is an installment loan with a fixed interest rate — you receive it in a lump sum and then repay it in equal monthly installments, usually over a period ranging from one to seven years. In February 2024, the average annual percentage rate (APR) on a two-year personal loan was 12.49%, according to the Federal Reserve.

Personal loans are usually unsecured, which means you don’t have to pledge an asset like your car or home as collateral. As a result, the loan approval process can be quick, and you could be approved and get the funds as soon as the same day you apply, depending on the lender. 

However, because there’s no collateral, the lender takes on more risk, which means a higher rate for you relative to secured loans like a home equity loan or auto refinance. Some lenders offer secured personal loans, which may be a good choice if you can’t qualify for a loan based on your credit score, income, or debt-to-income ratio (DTI).

Learn More: How Do Personal Loans Work?

You can use a personal loan for just about any purpose. Popular reasons for getting a personal loan include debt consolidation, home renovations, large purchases, and covering unexpected or emergency expenses.

1. Check your credit score

Your credit score is one of the most important factors lenders look at when you apply for a personal loan. It helps determine whether you qualify for a loan in the first place, as well as the interest rate you’ll pay on your loan.

FICO credit scores range from 300 to 850 and fall into the following ranges:

• Less than 580: Poor
• 580-669: Fair
• 670-739: Good
• 740-799: Very good
• 800 or more: Exceptional

There’s no standard minimum credit score to qualify for a personal loan, but you have the best chance of qualifying if you have at least a good credit score. Additionally, while there are lenders that offer loans to borrowers with fair or poor credit scores, the best scores are generally available to borrowers with very good or exceptional scores.

There are plenty of apps that allow you to check your credit score at any time. Many credit card providers also offer credit score monitoring. If you find any errors when you check your credit, you can report them directly with the three credit bureaus: Equifax, Experian, and TransUnion.

Before applying for a personal loan, be sure to research lenders’ credit score requirements. Applying for a loan can temporarily reduce your credit score, and the last thing you want is to see your credit score go down after applying for a loan you aren’t approved for.

Check Out: How To Build Credit

2. Determine how much money you need

The next step of the personal loan process is deciding how much you need to borrow. When considering how much to borrow, there are several things to keep in mind.

First, think about how much you need to borrow. A personal loan is an installment loan, which means that once it’s approved and you receive the funds, you can’t get more without applying for a new loan. Because of that, it’s important to borrow enough to cover all of the costs.

On the other hand, you don’t want to borrow too much money. Keep in mind that every dollar you borrow will have to be repaid. And the more you borrow, the higher your monthly payments will be.

For example, if you borrow $10,000 with a three-year repayment term and an interest rate of 13%, your payments will be roughly $337 per month. But a loan with the same terms and an amount of $15,000 would result in monthly payments of nearly $170 more. That’s an extra $170 you’d have to make room for in your budget.

Not only that, but the more money you borrow, the more you’ll pay in interest over the life of the loan. In our example above, comparing a $10,000 to a $15,000 loan, the higher loan amount would result in nearly $1,000 more paid in interest over the life of the loan.

Ultimately, you must make sure the amount you request from a personal loan is high enough to cover the necessary costs, but not so high that it exceeds your ability to comfortably repay it.

Check Out: Personal Loan Term Length: What You Need To Know

3. Research lenders and loan options

Before applying for a personal loan, make sure to thoroughly research your loan options. There are many highly-rated personal loan lenders, and it’s important to find one that best meets your needs.

When choosing a lender, there are generally three types to choose from: traditional banks, credit unions, and online lenders. Each of these options has its own pros and cons. A traditional bank or credit union could be a good option if you already have a relationship with that financial institution, such as having your accounts there or having previously borrowed from them.

Online lenders also have some major advantages. Because they don’t have physical locations, their overhead tends to be lower, which can result in lower fees and interest rates for borrowers. Additionally, some have more lenient eligibility requirements and offer loans to borrowers with poor or fair credit.

It’s helpful to decide ahead of time what you need when it comes to your loan amount and repayment term, as well as your credit score and your desired APR. Knowing these factors upfront can help you narrow down your lender options quickly.

4. Prequalify with multiple lenders

Many lenders allow you to prequalify for a personal loan, meaning you’ll go through a soft credit check to determine whether you’re likely to qualify for a loan and what your estimated APR, amounts, and terms are. 

Because prequalification doesn’t negatively affect your credit score, it presents an opportunity to shop around with different lenders to see which could offer the best option for you.

5. Compare lenders

Once you’ve prequalified with multiple lenders, you’re almost ready to apply for your loan. You can take the loan offers you’ve received from each lender to decide which is the best fit.

Some factors to keep in mind when deciding between lenders are:

• Loan amounts
• Repayment terms
• APR
• Credit score requirements
• Income and DTI requirements

Check Out: What Is Debt-to-Income Ratio?

In most cases, the best lender is the one that offers the loan amount and repayment term you want at the best rate. However, don’t overlook fees. A high origination fee or other fees could overshadow small savings in interest, so it’s important to run all the numbers.

Check Out: Best Personal Loans With No Origination Fee

6. Apply for a personal loan

The final step in getting a personal loan is completing the application process. First, the application process usually involves completing an online form. The lender is likely to ask for information and/or documentation about your:

• Credit history (including your SSN for a credit check)
• Employment
• Income (including pay stubs, tax returns, or W-2s)
• Assets (including bank or investment account statements)
• Other debts
• Government ID, such as birth certificate, driver’s license, etc.

Depending on the information you provide, the lender may approve your application right away. This is more likely for borrowers with excellent credit and a high income. However, it could also be that the lender needs additional time to look over your application. In that case, you could wait up to a week for a response.

Learn More: How Long Does It Take To Get a Personal Loan?

What to do if your loan application is rejected

Depending on your credit score, income, or the contents of your credit report, it’s possible that your personal loan application will be denied. In that case, you have several options for how to proceed:

1. Review your credit report for errors: A 2021 Consumer Reports survey found that more than one-third of respondents found errors on their credit reports. If there are inaccurate negative marks on your credit report, you could quickly boost your score by having them removed. You can do so by disputing them directly with the credit bureaus.
2. Improve your credit score: Before applying for another personal loan, consider spending some time boosting your credit score. The best ways to do this are by improving your payment history and reducing your credit utilization, as those are the most important factors that make up your credit score.
3. Consider other lending options: There are many personal loan lenders to choose from, some of which offer loans to borrowers with poor and fair credit. If you’ve been denied a loan from one lender, you may qualify for a personal loan from another.

Learn More: What to Do if You're Denied a Personal Loan

Getting a personal loan FAQ

What makes me eligible for a personal loan?

Each lender has its own eligibility requirements for personal loans. Most lenders will consider your credit score, the contents of your credit report, your income, and your DTI.

What is the minimum income for a personal loan?

There’s not necessarily one minimum income necessary for a personal loan. Some lenders may have minimum income requirements in place, but also important is your debt-to-income ratio, which indicates to a lender whether you’re likely to be able to fit the loan payments into your budget.

How long does it take for a personal loan to process?

In some cases, you could have the money from your personal loan within 24 hours of approval. However, other lenders may take up to a week to process your loan and send the funds.

How soon do you pay back a personal loan?

When you get a personal loan, you’ll usually have to start making payments on it the very next month. Depending on your lender, your repayment term may last anywhere from one to seven years.

Related Articles:

• Personal Loans Guide
• How To Get a Low-Interest Loan
• How To Get a Small Loan
• How Does a Personal Loan Affect Credit Score?
• Can You Pay Off a Personal Loan Early?
• Secured vs. Unsecured Loans
• Best Personal Loans for Excellent Credit
• Best Personal Loans With a Cosigner