Applying for a loan may require more time and effort than applying for a credit card, but with our three-step guide, you can get all your questions answered and choose the best personal loan for your situation.
Step 1: Pre-qualify and compare offers
Pre-qualifying for a personal loan gives you a preview of the rates, monthly payments and terms you might receive before you officially submit your application. Most online lenders and some banks offer pre-qualification, which you can do on your desktop or mobile device, in about five minutes.
Will pre-qualifying affect my credit score?
Pre-qualifying for a personal loan will include a soft inquiry, which does not affect your credit score.
Credit scores are usually a big factor in determining your eligibility for a personal loan. If you’re concerned about your score, you can check your credit report for free and fix any errors before you pre-qualify.
There are also lenders who cater specifically to borrowers with bad credit, meaning a FICO score of 629 or lower.
What do I need to pre-qualify for a personal loan?
In order to pre-qualify, you will need to provide some or all of the following information:
Purpose for the loan, such as funding home improvements, consolidating debt or paying moving expenses.
Requested loan amount. Lenders typically offer personal loans from $1,000 to $50,000.
Your desired monthly payment and loan repayment term. Terms typically range from two to five years.
Basic personal information such as your name, date of birth, address, income, education and monthly mortgage or rent payment.
Some lenders also request your Social Security number during pre-qualification.
How long will it take to pre-qualify?
Pre-qualifying can take a few seconds or minutes after you submit your information. If you qualify for a loan offer, a new page will appear showing your potential rates and terms.
You may also receive an email from the lender with contact information for customer service and a list of next steps to help you complete the application.
Step 2: Choose your loan and gather documents
With offers from multiple lenders in hand, it’s time to compare your options and choose one loan application to move forward with.
How do I choose the best personal loan?
One of the most important things to keep in mind when choosing a personal loan is the annual percentage rate, or APR, which is your total cost of borrowing. This takes into account your interest rate and all additional fees. The lower the APR, the lower the cost of the loan. APR will vary based on certain factors, like your credit score and income.
Make sure you can comfortably afford the monthly payments. Research any features that are especially important to you, like flexible payment options, help building your credit score or direct payment to creditors if you’re consolidating debt.
What do I need for my loan application?
Once you’ve chosen a loan with the rate, terms and features that best fit your budget and match your borrowing needs, it’s time to complete the application. You will need to provide some or all of the following:
Proof of address.
Proof of employment status.
Education history, including the highest degree you’ve earned and graduation date.
Financial information, including total savings, retirement assets and outstanding debt.
Social Security number if it wasn’t provided during pre-qualification.
Step 3: Submit your application and get funded
Make sure you’ve carefully read the loan’s terms and conditions, and then hit submit.
The agreement certifies that all the information you’ve submitted on the application is correct. It also authorizes the lender to take steps to verify your information, such as contacting your employer and pulling your credit reports.
How will my loan application affect my credit score?
Unlike pre-qualifying, submitting the formal loan application triggers a hard credit inquiry. This can shave up to five points off your FICO score and remain on your credit report for just over two years.
How long will it take for my application to be approved?
If everything checks out, you could be approved that same day. If you need to provide additional documents, approval will take longer. In this case, the lender will reach out to you directly and let you know what additional materials to submit.
How long will it take to get funded?
After you are approved and sign the loan agreement, how quickly you receive the money will likely depend on the type of lender you choose. Many online lenders can provide same-day funding. Most traditional lenders, like banks, will have the money to you in five days or sooner.
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Once you’re funded, expect your first loan payment to be due within 30 days. If you’ve opted in to automatic bank payments, the funds will be debited from the bank account you provided. Make sure to add your monthly payment amount to your budget to stay on top of your debt repayment.