Personal loans are unsecured loans from banks, credit unions, or other lenders, and they have become popular over the last decade. The number of consumers with personal loans has more than doubled since 2010, so you’re clearly not alone if you find yourself in need of some extra cash. In fact, by the end of 2019, TransUnion found that more than 20 million consumers had a personal loan.
If you’re ready to consolidate high-interest credit card debt or make a large purchase, a personal loan can be a good option. Applying for a personal loan is generally simple. Learn how to apply for a personal loan now so you’re ready to submit your application in the future.
Step 1: Search Lenders for the Best Preapproval Rates
The tremendous growth in personal loans has been driven by financial tech startups like LendingClub, Avant, Prosper, and SoFi, just to name a few. That’s made the entire industry digitally-savvy, and you’ll have plenty of opportunities to shop around online before you commit to a personal loan lender.
Many lenders will let you get a ballpark idea for what interest rate you may qualify for and what your monthly payment could be if you fill out a quick online form. These forms will likely ask you for:
- The size of the loan you need
- What you’ll use the money for
- How long you’d like to take to repay the money
You may also need to give some personal information about yourself, too, such as your address, income, and credit score. It’s important to know this information before submitting it, so be sure to check. Remember: Checking your credit score will not impact your actual score.
While officially applying for a personal loan almost always temporarily dings your credit score, checking your options through a preapproval form may only do a soft credit check. This means you can look at different lenders to see what you may qualify for with each one before officially submitting your personal loan application. The best lender will offer a good interest rate and adequate repayment options.
Step 2: Compare Loan Terms and Pick a Lender
Once you know what you could be preapproved for with each lender, you can narrow them down based on which has the best terms for your needs.
Consider these four main categories when choosing:
- Loan amount: Many lenders will allow you to select the amount you want to borrow from a particular range.
- Interest rate: This is what the lender charges to lend you money. The higher the interest rate, the higher your monthly payment will be and the more you’ll pay back cumulatively. Most personal loan lenders will offer fixed interest rates.
- Loan term: Most lenders will offer personal loan terms between 24 and 60 months, though some may fall somewhere in between, and others may offer extra long repayment terms, such as 84 months or even up to 144 months.
- Origination fee: These are fees deducted off the top of your loan, reducing the amount of money you actually receive. Origination fees are generally a percentage of the personal loan amount, from 1% to 6% in many cases. Not all lenders charge an origination fee.
Even if you have bad credit, you may be able to qualify for a personal loan. However, you’ll usually not have as many options—and the ones you have probably won’t be as good. Some lenders may limit how much you can borrow based on your credit score. Higher credit scores tend to yield lower interest rates.
If your credit score is less than excellent, consider specific personal loans for borrowers with fair or bad credit.
Step 3: Submit the Application
Once you’ve selected a personal loan offer, you’ll move on to the formal loan application. Your lender will have saved the information you’ve given them already in the preapproval form, but will now need a few more details.
At this point, your lender will often ask for:
- Social Security number, to verify your identity and pull your credit reports
- Driver’s license number
- Employment information, and other sources of income
- Monthly housing costs
- Bank account balances
- Retirement account balances
This information allows the bank to gauge your ability to repay the loan.
In most cases, your initial preapproved offer will include a range of interest rates, and sometimes that range is very wide. Your final offer after you submit the application will include loan terms that fall in that range based on their underwriting, but you will have the final say on whether to accept them.
Step 4: Accept the Offer and Receive the Funds
Once you’ve filled out the application, the lender’s decision whether to lend to you or not often comes right away. The final offer will include your interest rate, loan amount for which you’re approved, and repayment terms.
Once you make your final decision to move forward and accept the offer, you can get your money as soon as the same or next business day, though some lenders may take longer to deposit the funds (and it may depend on your bank, too).
Your loan will most likely be deposited directly into your bank account, so you may need to give the lender your account and bank routing numbers, though some lenders may cut you a check and send it by mail instead.
The Bottom Line
Applying for a personal loan is an easy process, especially now that it can be done online. As long as you have your personal and financial information handy, you could potentially apply, be approved, and receive your money all in the same day. Do your research and consider all of your options to ensure you find the right personal loan lender for your situation. Be sure to look into alternatives to personal loans, too.
TransUnion. "Consumer Credit Origination, Balance and Delinquency Trends: Q4 2019." Accessed June 10, 2020.
LightStream. "Home Improvement Loans." Accessed June 10, 2020.
LendingClub. "Rates and Fees for Personal Loans." Accessed June 10, 2020.
SoFi. "Personal Loans." Accessed June 10, 2020.