How to Get a Personal Loan in 10 Steps

To get a personal loan, you’ll need to research your credit score and estimated rates to get a feel for payments. Then shop around and find the lender with the best rates before accepting the best lender for you.

Whether you’re working toward paying off high-interest credit card debt or need a little money to get by, a personal loan can offer a solution. Applying for a loan requires several steps, and you’ll want to be sure this is a wise option for your finances before embarking on the process. Here’s what you need to know about how to get a personal loan and the documentation required to qualify. 

How to Get A Personal Loan

Getting a personal loan requires several steps. Here’s your expert guide to help save time, speed up the process and ensure you qualify before you apply and undergo a hard credit pull.

1. Know Your Credit Score

Loan rates are heavily dependent on the applicant’s credit score. Request your credit report and review your score so you’ll have a rough estimate of your interest rates. Interest rates on a personal loan can range from 7% to nearly 36%. The better your credit score, the lower your rates will be. Individuals with a credit score of 800 or more have excellent credit and experience the best rates. In contrast, those with a score below 580 have poor credit and experience the worst interest rates.

A low credit score can also mean you only qualify for a small loan amount. This amount might not be enough to pay off your high-interest debt or improve your financial situation, meaning the loan cannot accomplish what you need.

If your credit is fair or poor, you might take some time to improve it before applying for a loan to improve your rates. Otherwise, you might put yourself in a worse financial situation.

Some ways to build credit and improve your score include:

• On-time payments: Pay your bills on time to show lenders you are a trusted borrower.
• Lower credit card balances: Each month, your credit utilization should be 30% or less. That means if you have a $10,000 credit limit, you avoid spending more than $3,000 on the card. 
• Avoid new lines of credit: New accounts lower your credit score temporarily. If you do this several times in close succession, it will have a large impact on your credit score. Wait five months between new accounts to allow your credit score to rebound with on-time payments.

2. Estimate Your Monthly Payment

When you ask yourself, “How can I get a loan?” consider the monthly payment and whether it’s realistic for you.

A common loan amount is $5,000. Based on this estimate, learn how much a $5,000 loan costs each month. 

The average personal loan interest rate as of June 2024 is 12.35%. Using that and a 5-year term, your payment would be $112.11, or $1,726.52 in interest over the loan's term. 

If you opt for a shorter term of three years at the same interest rate, your monthly payment would be $166.91 and you would pay $1,008.71 throughout the loan term.

3. Review Personal Loan Qualification Information

Ensure you meet the loan qualification requirements before you get too far into the loan application process. Loan qualifications will vary by lender, but some common qualification requirements include the following:

• Credit score: Most lenders will only provide a loan to an individual with fair credit or better. That means if your credit is below 580, you likely won’t qualify for a loan. Common scenarios that prohibit loan qualification include bankruptcies and previous loan defaults. 
• Debt-to-income ratio: If you already have a great deal of debt, it’s challenging to qualify to take on more debt. Lenders use what’s called the debt-to-income ratio (DTI). Most want to see a ratio of 35% or lower. That means if you make $5,000 per month, you should not have more than $1,750 in monthly debt payments.
• Income: To get a personal loan, you need a steady income. Some lenders allow you to apply with a co-signer, which could eliminate this requirement. But avoid applying for a loan you don’t have a plan for paying off.
• Collateral: Some personal loan types allow you to use your assets as collateral, such as your car, home, or personal items. Depending on your credit, getting a secured loan might help you get better rates. But if you fail to make timely payments on your loan, you could lose the item you put up as collateral.

4. Gather the Required Documents for Your Application

During the loan application, the lender will ask for various documents. The process will go faster and smoother if you have these documents handy and ready to upload. Common documentation requirements include the following:

• Proof of identity: You’ll need to upload a state-issued ID, passport or Social Security card to prove you are who you say you are.
• Proof of income: Upload your most recent pay stub or last year’s tax statement to show you have regular income.
• Residency: Lenders want to know where you live and be able to verify that. You can upload a utility bill with your name and address listed or your rental agreement that shows your address. You might need documentation for the last several years.

5. Review Loan Options

There are many types of personal loans, each with pros and cons. As you consider your options, consider these factors that might help you determine the best type for you: 

• Funding speed: When you need money fast, you don’t have an option but to apply for a fast-funded loan. Some loans allow for funding the next business day. Others require a few days to fund. If you’re dealing with a car repair you can’t wait on because you need reliable transportation to your job or your furnace goes down in the dead of winter, a fast personal loan might be a good move based on your needs. But if you have the flexibility to wait, other loan types can provide better rates.
• Terms: A shorter-term loan will mean you pay less in interest, but it also means you have a higher monthly payment. Balance monthly payments with the total cost of the loan to find an affordable option based on your needs.
• Debt consolidation: One motivator for a personal loan is consolidating high-interest debt, such as credit card debt. A personal loan can help you move from many monthly payments to just one and could cut your interest rates in half, depending on your current credit card bills.
• Paying down debt to improve your credit score: If your credit score is currently low due to a high debt-to-income ratio, a personal loan for bad credit could help you consolidate that debt at a lower rate so you can pay it down. Then once your DTI is low enough, you can convert that loan into one for good credit to lower your rates once your credit score improves.

6. Select Your Loan Type

Spend some time familiarizing yourself with the various loan types. Each comes with its own set of terms and interest rates. Here’s an overview of each:

• Debt consolidation loans: The most common reason to apply for a personal loan is for debt consolidation. This allows you to take out one loan to pay off various higher-interest loans, such as credit card debts. That way, you qualify for a lower interest payment.
• Home improvement loans: When your home needs improvements or renovations, a home improvement loan can aid in completing those improvements. A home equity loan can offer the tools to improve your home’s value or make it more livable.
• Medical loan: Medical care is extremely costly. Expenses can come out of nowhere and are hard to budget for. A medical loan allows you to spread those expenses out over many years instead of paying them as a lump sum.
• Emergency loans: When you encounter a surprise expense that you must pay immediately, an emergency loan is a good option. 

7. Shop Multiple Lenders for the Best Rates

Review rates from multiple lenders. During this phase of shopping for a personal loan, the key is to not fully apply to multiple lenders that do a hard credit pull. Multiple hard credit pulls will impact your credit score, but you also want to know you’ve secured a good interest rate.

Many lenders will pre-qualify you for a loan, giving you APR estimates based on your basic financial information. So long as everything you provide is accurate, those are the rates you’ll get once you apply.

As you look for the best rates, consider seeking prequalification with lenders you have a financial relationship with. That way, it’s seamless to pay your loan and you’ll have familiar tools. Depending on where you bank, this might not produce the best results, but it’s worth checking into.

8. Select Your Lender

Select your lender by balancing the best rates and customer service experience. Now, you’re ready to complete the application. 

Please allow about a half hour to complete the application. During the application, you might need to input what you’ll be using the loan for, which is a common practice for lenders. 

At the end, you will see the rates and terms that apply to you based on the information you input. You can see how different repayment periods change your monthly payments and the total interest you’ll pay for the loan. Read the materials carefully to avoid surprise expenses or fees.

9. Upload Documentation

Your lender will require that you provide proof of the financial information you input. Some commonly required materials include paystubs, tax returns, proof of non-traditional income and any other information the lender deems necessary. The more timely you are with uploading this information, the smoother your loan process will move through the process.

Once you’ve completed this process, you might see changes in your terms. If that happens, it’s likely due to discrepancies between what you originally input for your finances and the actual details from your documentation. 

Talk to your lender about rate changes and terms for a better explanation. 

10. Accept the Loan

Accept your loan terms and await final approval. You’ll likely receive your funding within a few business days, at most. 

Make your monthly payments on time. This will help protect your credit and access to loans in the future. If you can, add a little extra to every payment to pay the loan down quickly and reduce the total cost of the loan. 

Inject Thousands of Dollars into Your Finances

A personal loan can help you inject several thousand dollars into your finances. This can help you reduce the total interest you pay by consolidating debt or avoiding collections with other types of debt, such as medical debt. Follow the step-by-step guide to start the process of acquiring your loan now.

Frequently Asked Questions