How to Get a Personal Loan: 7 Steps to Better Approval Odds

Personal loans are a flexible type of financing that allows you to borrow money from banks and lenders and use that money however you see fit. You can typically use these loans however you want, with some offering interest rates as low as 5.91%. For references, that’s lower than most credit cards and other higher-interest forms of financing. 

However, knowing how to get a personal loan can help you find a lender who meets your needs, making it easier to qualify for the lowest rate possible. Let’s take a look at how to get a personal loan from a bank, credit union, or other type of lender.

Table of Contents:

• Step 1: Know Your Credit Score
• Step 2: Calculate the Loan Payments You Can Afford
• Step 3: Compare Lenders
• Step 4: Get Pre-Qualified Personal Loan Offers
• Step 5:  Select a Lender and Apply
• Step 6: Always Read the Fine Print
• Step 7: Get Funded

Step 1: Find Out Your Credit Score

Before applying for a personal loan, it’s a good idea to find out your credit score. Remember, your credit score impacts your chances of qualifying for a loan, and it can also influence the amount you’re approved for and the interest rate you get on the loan. 

Check your credit score by contacting your bank, credit union, or financial institution to see if they offer free credit reports. If not, you can check your credit report for free through AnnualCreditReport.com or you can see your credit score for free with our credit report card tool.

Most credit bureaus categorize your score as excellent, very good, good, fair, and poor. Here are the ranges for each category:

• Excellent: 800 to 850
• Very good: 740 to 799
• Good: 670 to 739
• Fair: 580 to 669
• Poor: 300 to 579

What Your Credit Score Means for Your Approval Odds

The higher your score is, the better terms you’ll likely receive. Lower scores can make it tough to qualify for a loan. 

If your score is in the good range or better, you may be able to qualify for a great personal loan. If it’s in the fair or poor range, you may want to try to improve your score before you apply. Here are a few tips to help:

• Make at least the minimum required payment on all debts in full and on time each month.
• Pay as much debt as possible to lower your total credit utilization. Try out different strategies to help you pay off debt fast, even if your income is low or stagnant.
• Avoid applying for new lines of credit or loans until you’ve gotten your new personal loan.
• Review your credit report and dispute any errors as soon as you find them.

Over time, you’ll likely see an increase in your credit score, making it easier to qualify for a personal loan.

Step 2: Calculate the Loan Payments You Can Afford 

Before you apply for a loan, it’s a good idea to figure out exactly how much you need to borrow and how much you can afford to repay. Remember, the more you borrow, the larger your monthly payment will typically be. But the size of your loan isn’t the only thing you need to pay attention to. You need to consider the interest rate you’re likely to qualify for. 

Different lenders calculate interest rates in different ways, but the higher your score is, the lower your interest rate will typically be. For example, if your credit score is in the good, very good, or excellent range, you may qualify for rates as low as 5.91%.

You may be able to ask for interest rate ranges based on your credit score from each lender you’re considering. You can use this information to determine how much you’ll likely pay each month. You could do this by getting prequalified with several lenders and comparing the rates or by using the lender’s rate calculator on their website. Be sure to also consider any origination fees the lender may charge for processing your loan.

Take a look at your current budget and consider how much money you can devote to your personal loan payment. If you’re already maxing out your budget, taking on a personal loan may not be in your best interest. But if you have room in your budget or can adjust your budget’s categories to free up money, you may be able to take on a loan with ease.

Step 3: Compare Lenders

Though you can choose to apply for a personal loan with your current bank or credit union, it’s a good idea to compare your options with different lenders. This may mean expanding your search to online lenders (those without brick-and-mortar locations or branches), local and national banks, and credit unions in your area. 

Compare the types of personal loans each lender offers, their credit score requirements, and their typical repayment terms. For example, lenders may offer fixed-rate loans, variable-rate loans, secured loans, and others, all of which may benefit your financial situation differently. Shopping around and comparing lenders could help you get lower interest rates on your loan.

Also, pay attention to the different types of personal loans each lender provides. For example, you may be able to qualify for a better personal loan by working with a co-signer or applying for a joint loan with a family member or spouse. 

Step 4: Get Pre-Qualified Personal Loan Offers

Once you find a few lenders you’re interested in, you may want to get pre-qualified for personal loans with several lenders. Pre-qualifications give you a general idea of the amount of money you’ll be approved for and the interest rates you could expect from each lender you apply for pre-qualification with. And they do so with a soft credit check. Soft credit checks typically won’t hurt your credit score, even if you have several soft checks done at the same time.

Compare those pre-qualification offers in detail. This can help you find the right online personal loan for your needs or narrow down your options from different local lenders.

Step 5: Select a Lender and Apply

Ultimately, the best personal loans for your needs come from the lender who offers you the best loan at the best rate. If you’re looking for personal loans for bad credit, you may need to accept a loan that has a higher interest rate or a much lower loan amount. Your pre-qualification should help you choose. 

But once you find a lender, you’ll want to apply for the loan. Application requirements can vary, but most lenders require:

• A government-issued photo ID like a driver’s license or passport
• Verification of your address from a utility bill, lease, or mortgage
• Proof of income from your pay stub or previous year’s tax return
• Bank statements showing activity and balances in your checking and savings accounts

Your loan officer should help you identify the necessary documentation and tell you how to get approved for a personal loan through their institution. Once they have this information, they’ll run a hard credit check to verify your financial situation and credit score. 

Unfortunately, hard credit checks can cause your credit score to drop by a few points, but your score should recover if you make payments on time.

Step 6: Read the Fine Print

Before you take out a personal loan and sign all of the required paperwork, take the time to read the loan agreement in full. Familiarize yourself with the repayment terms, interest rate, required monthly payment, and other similar details. If you have any questions or notice anything of concern, speak with your lender immediately.

It’s a good idea to watch for information on repayment terms and prepayment penalties—fees that lenders charge if you pay the loan off early. 

For example, some lenders require you to sign up for automatic payments to ensure that you’re never late. Others may include details about variable APR, meaning your interest rate could change throughout the year. Lenders must provide you with this information before you accept the loan under the Truth in Lending Act (TILA).

If anything doesn’t sound right or you’re uncomfortable with the loan terms, you may want to work with a different lender.

Step 7: Get Funded

Once you agree to the loan’s terms and sign off on all of the required paperwork, your lender will finalize the loan and issue you the funds. Typically, lenders issue personal loans in a single lump sum, but some may send them in installments. You’ll know which method the lender will use when you read the loan’s terms. 

How long does it take to get a personal loan? It depends on your lender. Some lenders will issue funds within 24 hours of approval, but others may take up to seven business days to send the money to your account.

Keep in mind that once you close on the loan and accept the funds, you’ll need to start making payments on the loan. Check out these tips to help you pay off debt fast.

How to Get a Personal Loan FAQ

Here are some frequently asked questions about getting personal loans.

How Can I Be Eligible for a Personal Loan?

The eligibility requirements for personal loans can vary from lender to lender. However, most lenders will look at the following to determine if they want to issue a loan:

• Your credit report
• Your credit score
• The type of collateral backing the loan (if applicable)
• Your income
• Your debt-to-income ratio

Contact each lender you’re considering applying with to learn more about their requirements.

How Can I Get a Personal Loan the First Time?

If you’re applying for a personal loan for the first time, there are a few things you can do to set yourself up for success. First, make sure you understand where your credit score sits before applying. 

Then, get quotes from several lenders who offer loans to individuals with credit scores like yours. Once you find a lender and a loan you’re comfortable with, apply for the loan and let the loan officer guide you through the process.

How Can I Get a Personal Loan With Bad Credit?

To get a personal loan with a bad credit score, you can look for lenders who offer secured loans (typically backed by collateral) as well as lenders who offer credit-building loans. These loans may help you build your credit score if you make payments on time and in full each month.

Ready to apply for your personal loan? 

Now that you know how to get a personal loan, you can start looking for a loan that meets your needs. Just remember to research your options in detail, and don’t hesitate to compare offers from different lenders so you can find the best loan at a great rate. Get pre-approved for a personal loan and explore your options all in one easy-to-use portal.

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