How to Apply for a Personal Loan

The steps for applying for a personal loan are typically quick and easy

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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 (use our monthly payments calculator below to consider your options.)

Consider these four main categories when choosing:

  1. Loan amount: Many lenders will allow you to select the amount you want to borrow from a particular range. 
  2. 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.
  3. 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.
  4. 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.

What Are Personal Loans?

A personal loan is unsecured money borrowed by an individual from a financial institution, another individual, or a business. Payment of the personal loan is guaranteed by the person borrowing the money through a contract, and the loan is repaid according to the terms of that contract. 

Essentially, a personal loan is a form of credit that helps people who need a large sum of money for things such as renovating a home or paying down debt. These loans typically have lower interest rates than other forms of credit such as credit cards. 

How Do Personal Loans Work?

To take out a personal loan, a borrower accepts a certain amount of money with specific terms from the other party on how that money will be repaid. Typically, a personal loan requires the borrower to pay back the loan over a specific period of time, with interest included as an additional amount on each payment. 

Personal loans are typically arranged as an installment loan if you’re borrowing from a financial institution. This means that you agree to pay a specific value back to the lender (usually the total of principal plus interest), regardless of when you repay the funds. They’re typically set up with regular, even monthly payments spread over the life of the loan. This is different from credit cards, which are revolving loans where you’re only charged interest each month if you haven’t paid your balance in full. 

How Much Do Personal Loans Cost?

The costs of personal loans vary pretty widely based on the lender and the borrower’s credit profile. Many personal loans that are given to borrowers with good credit charge interest ranging from 3% to 10% annually. Additionally, you’ll likely be charged an origination fee that ranges from 1% to 6% of the amount of the loan. Your lender may also charge other additional fees. The costs are all wrapped up together to make up the total cost of the loan.

What Do You Need To Qualify for a Personal Loan?

To qualify for a personal loan you’ll generally need a good credit profile, a decent income that can be proved, and a low debt-to-income ratio. If your debt-to-income ratio is relatively low (below 10%) and your credit is strong, then you should have little trouble or worry in qualifying for most personal loans at traditional financing institutions. 

However, every lender has their own specific requirements which must be met in order to approve your loan.

How Long Does it Take to Get a Personal Loan?

The time it takes to get a personal loan varies greatly by lender. It also depends on how fast you’re able to provide any required documentation (such as pay stubs) to your lender during the loan process. Many personal loans can be approved in just a few minutes and fully funded, or deposited into your account, in one to three business days. 

What Can You Use Personal Loans For?

You can use personal loans for most needs. Each lender will have its own restrictions and exclusions on how you can use the funds, but most will prohibit the use of funds on educational expenses or to start or fund a business. 

Generally, you’ll be able to use the funds for anything that your agreement doesn’t specifically spell out as excluded.

Article Sources

The Balance requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy .
  1. TransUnion. "Consumer Credit Origination, Balance and Delinquency Trends: Q4 2019." Accessed Oct. 26, 2020.

  2. LightStream. "Home Improvement Loans." Accessed Oct. 26, 2020.

  3. LendingClub. "Rates and Fees for Personal Loans." Accessed Oct. 26, 2020.

  4. SoFi. "Personal Loans." Accessed Oct. 26, 2020.