How to Get a Personal Loan

Applying for a personal loan can seem daunting. Lenders may review your credit history, ask for proof of income and request other financial information before approving your application. Fortunately, the process is usually straightforward and can be made much less stressful by following a few simple steps.

Step 1: Decide Whether You Really Need a Personal Loan

A personal loan can be a significant financial commitment. You're agreeing to repay a large sum of money over an extended period of time, often with interest and fees that can add substantially to the total cost.

Personal loans typically carry higher APRs than many other forms of borrowing. Unless you repay the loan early, you could end up paying thousands of dollars in interest over its lifetime. And that assumes you've secured a reasonable deal. Some forms of borrowing, such as payday loans, can be far more expensive and difficult to escape.

Missing payments can also damage your credit score and make it harder to access affordable credit in the future. Before moving forward, make sure a personal loan is genuinely the right solution and that you've considered any viable alternatives.

Step 2: Work Out How Much You Need to Borrow

Once you've decided that a personal loan is appropriate, the next step is determining how much you need to borrow.

The simple advice is: don't borrow any more than necessary.

Personal loans are an expensive form of credit. Borrowing more than you need will increase your monthly payments, raise the total amount of interest you'll pay and make the debt harder to manage over time.

Step 3: Examine Your Credit Reports

It's very likely that lenders will review your credit history when evaluating your application. While many people know their credit score, fewer take the time to review their actual credit reports.

Checking your reports before applying gives you the opportunity to identify and correct any errors that could hurt your approval odds.

In the United States, there are three major credit bureaus: TransUnion, Equifax and Experian. Different lenders may use different bureaus, so it's worth reviewing all three reports rather than relying on just one.

Step 4: Check Your Rates With Multiple Lenders

Most lenders now allow you to check your rates online without affecting your credit score. This process, often called prequalification, lets you estimate your eligibility and potential loan terms before formally applying.

You can apply directly with individual lenders or use comparison websites that allow you to check offers from multiple lenders at once.

Taking the time to compare offers could save you hundreds or even thousands of dollars over the life of the loan. We discuss this topic in more detail in our guide on shopping around for a personal loan.

The prequalification process is usually similar across lenders. You'll typically be asked for:

• Your name, address and date of birth
• Your Social Security number
• Employment and income information
• Details about your monthly housing costs and other financial obligations

You generally won't need to provide documentation at this stage, though lenders may request supporting documents later if you decide to proceed.

Step 5: Choose the Best Loan for Your Situation

If you weren't able to prequalify with any lenders, you may need to explore alternative options or work on improving your financial profile before applying again.

If you've received multiple offers, you'll need to decide which one is best for you. There is no universal answer. The right choice depends on your financial circumstances, borrowing needs and attitude toward debt.

When comparing offers, try to balance two competing goals:

• Minimize the amount you pay in interest and fees
• Keep the monthly payment manageable

The two most important variables are usually the APR and the loan term.

The APR represents the cost of borrowing, so lower is generally better. You should also pay close attention to origination fees, as they reduce the amount of money you actually receive. If the fee is deducted from the loan proceeds, you may need to borrow slightly more than expected to cover your expenses.

The loan term also matters. A longer term will reduce your monthly payment, but you'll generally pay more interest over the life of the loan. A shorter term may save money overall, but the monthly payments will be higher.

The best loan is usually the one that keeps borrowing costs as low as possible while still leaving you with a payment you can comfortably afford. For more information, check out our guide for getting a good deal on your personal loan.

Step 6: Complete the Application Process

Up to this point, you've only prequalified. To receive the loan, you'll need to complete the lender's full application process.

While requirements vary by lender, you'll usually be asked to provide:

• Proof of identity (e.g. driver's license or passport)
• Proof of address (e.g. utility bill or driver's license showing your current address)
• Proof of income (e.g. recent pay stubs, bank statements or tax returns)

At this stage, the lender will typically perform a hard inquiry on your credit report. Unlike the soft inquiry used during prequalification, a hard inquiry will appear on your credit report and may have a small negative impact on your credit score.

You'll also need to provide a bank account where the funds can be deposited, although some lenders may offer the option of receiving a paper check.

Step 7: Sign the Loan Agreement and Receive Your Funds

If your application is approved, the lender will send you a loan agreement. This document outlines the terms of the loan, including the interest rate, repayment schedule, fees and your obligations as a borrower.

Read the agreement carefully. This is your last opportunity to ask questions, clarify concerns or decide not to proceed.

Up until this point, you can generally walk away from the loan, although any hard inquiry performed during the application process will remain on your credit report.

Once you sign the agreement, you're legally bound by its terms. The lender will then disburse the funds using your chosen method, usually through direct deposit or, in some cases, by paper check.

Many lenders can fund loans within one or two business days, though timing varies.

Final Thoughts

Getting a personal loan is often easier than people expect, but that doesn't mean you should rush through the process. Take the time to compare lenders, understand the true cost of borrowing and make sure the monthly payment fits comfortably within your budget.

A little extra effort upfront can save you a significant amount of money over the life of the loan and reduce the risk of financial stress later on.