Whether you’re looking to consolidate high-interest debt, finance home improvements or pay for a big-ticket expense, a personal loan can help you accomplish your goal. Personal loans offer relatively low interest rates and fixed monthly payments. Plus, you can use the funds for almost any purpose. So how do you apply for one?
Follow these steps when applying for a personal loan so you can increase your chances of approval and secure the best loan for your situation.
1. Check your credit.
2. Shop around for the best deal.
3. Calculate your payments.
4. Gather documentation.
5. Complete the application.
Steps Needed to Take Out a Loan
1. Check your credit.
Before you start applying for personal loans, it’s important to get an idea of where you stand credit-wise. Personal loans are unsecured, so your credit history and score will have a major impact on whether or not you’re approved and at what interest rate, says Kyle Enright, president of digital lender Achieve in San Mateo, California.
Some lenders require a minimum number of years of credit history, he says, as well as a minimum credit score. “Each lender is different, but in general, the higher the applicant’s credit score, the better the interest rate (they) will receive,” Enright says.
It’s important to note that each credit reporting agency calculates your credit scores with its own algorithm. That means you need to make sure the raw information on each credit report is accurate, according to Enright. You can visit AnnualCreditReport.com to obtain free copies of your reports from each of the three major credit bureaus (Equifax, Experian and TransUnion). Review these reports for any inaccuracies or negative marks that could bring your score down.
Keep in mind that credit reports don’t include credit scores. However, Enright says that many banks, credit unions and credit card issuers offer credit scores to customers at no charge. You can check your online banking portal or statements to find out. Enright noted that you can also purchase your score from FICO.
If your score doesn’t fall into the good to exceptional range (670 or higher), it can be worth taking some time to improve your credit before applying for a loan.
2. Shop Around for the Best Deal
Once your credit is in good shape, you can start comparing offers based on your needs. That includes choosing a lender that’s committed to helping you evaluate your individual situation, and suggest what could work for you, says Enright.
“Many potential borrowers benefit by working with a lender that has loan consultants who will work with them to determine the best terms and rates,” he says. You’ll also need to decide whether you want to go with an online-only lender or more traditional bank or credit union, as that could impact the level of personal attention you receive.
Then there’s the loan itself. Enright says you should compare fees, rates and discounts among several lenders. Many will allow you to submit a few personal details online to receive an instant quote without a hard pull on your credit.
Keep in mind that these quotes are just estimates, and you’ll need to go through the application process to officially be approved and see your final terms. However, getting quotes online (or over the phone, if you prefer) will give you an idea of what’s available based on your desired loan amount, repayment term and credit score.
3. Calculate Your Payments
Once you’ve narrowed it down to a few lenders, use the calculator below to estimate your monthly payment. Simply input your desired loan amount, the loan term and interest rate. When deciding on the repayment term, remember a longer loan term may mean lower monthly payments, but it also means higher overall interest costs. Try looking for the shortest term you can get while still having a manageable monthly payment.
By trying different combinations from different lenders, you can figure out which one is best for you.
4. Gather Documentation
After choosing the loan offer you want to pursue, it can be helpful to gather necessary documents before sitting down to fill out the application. You’ll need to provide plenty of documentation around your personal information and financial details.
Income is a common requirement among lenders that you’ll need to document with pay stubs and/or tax returns, Enright says.
“Often, the loan cannot exceed a certain percentage of the applicant’s gross annual income,” he says. You may also need to provide employment information for the past few years to prove that your income is stable.
Additionally, Enright says you’ll need to provide your checking account and routing numbers so your loan funds can be deposited, so make sure to have this information available. “With some lenders, if a consumer is getting a loan to consolidate and pay off credit card debt, there also is an option to have the lender pay their creditors directly,” he says.
Finally, you’ll need to provide personal identifying information, such as a Social Security number, so the lender can perform a credit check.
[Read: Best Credit Cards.]
5. Complete the Application
Once you have all of your documents laid out, you can go through the application process. Most lenders have the option to complete an application online and upload your necessary paperwork. Usually, this takes less than 10 minutes.
It’s important to ensure that all the information you provide on your application is accurate. Otherwise, it could delay approval and disbursement of your funds. If everything goes right, you should receive your loan quickly.
“Every situation is different, but approval and loan funding can be completed in as little as three days,” Enright says.
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How to Take Out a Loan in 5 Steps originally appeared on usnews.com
Update 03/15/24: This story was previously published at an earlier date and has been updated with new information.
