How To Apply for a Personal Loan

Life is expensive. If your refrigerator breaks down, your car needs repair, or you have an emergency, you might not have the funds to pay for it. You’re not alone — about 37% of adults report they would need to borrow money to cover a $400 emergency, according to the Federal Reserve. 

Fortunately, a personal loan allows you to pay for almost any expense in fixed monthly installments over a period of years. You can even use a personal loan for planned expenses, like a wedding or home improvement project. It’s easy to apply online, and you can sometimes receive funds the same day or within a few business days of applying. 

We’ll walk you through the process, step by step, so you can find the best personal loan for your needs. 

1. Check your credit

The loan options available to you depend on your credit score. Start by checking your free credit reports at AnnualCreditReport.com. Check for common errors that could be damaging, such as:

• Accounts that aren't yours
• Debts listed multiple times
• Accounts labeled delinquent, even though you paid on time
• Incorrect balances or credit limits

If something doesn't look right, you can dispute the error with the credit reporting agency.

Many lenders require a good credit score, or a FICO score of at least 670. But some lenders, like Upstart, look at a wider variety of factors and may approve a borrower with bad credit. If you can take the time to improve your credit before applying for a personal loan, you'll likely qualify for a lower interest rate.

Check Out: How To Get a Low-Interest Loan

2. Compare personal loan rates

Before you get too deep in the process, consider which loans you're eligible for and the rate you might get. Check your credit score against each lender's minimum credit score requirement (below) to get a sense of which might approve your application. Your credit score also indicates where you might fall within the range of personal loan rates each lender offers. 

For example, if you have bad credit (a FICO score less than 580), you might only qualify with a few of the lenders below and may be approved for a loan with an annual percentage rate (APR) above 30%.

3. Calculate your gross annual income

Add up the income you receive from various sources, before taxes and deductions, including:

• Wages and salaries from full-time and part-time employment
• Bonuses and commissions
• Self-employment income or extra money from a side hustle
• Retirement benefits
• Trust payments or pension income
• Investment income or rental revenue
• Alimony or child support
• Social Security or disability benefits

While you're calculating the total, gather documents like tax returns, pay stubs, and bank statements. You'll likely need to provide proof of income when you formally apply. Note that some lenders have minimum income requirements, so knowing your income can help you narrow down your options.

4. Calculate your DTI

Your debt-to-income ratio (DTI) refers to the percentage of your gross monthly income that you spend making the minimum payments on all your debts. Lenders use your DTI to determine if you can handle an additional loan payment on top of your existing debts. To calculate your DTI:

1. Divide your gross annual income by 12 to get your monthly income.
2. Add up your monthly minimum payments for your credit cards, mortgage, auto loan, and other outstanding debts.
3. Divide your total monthly debt payment by your gross monthly income.
4. Multiply the answer by 100 to get a percentage.

For example, let's say your gross monthly income is $5,000 and your mortgage is $1,300. You also have a $200 minimum credit card payment and a $300 auto loan. Your DTI would be 36%.

($1,300 + $200 + $300) / $5,000 = 0.36

Some lenders set a maximum DTI, while others are more flexible. If your DTI is greater than 35% or 36%, you may have more difficulty getting approved for a loan.

5. Determine how much you need to borrow

You should never borrow more than you need. Before applying for a personal loan, consider your existing resources. 

For example, determine whether you can partially cover your financial need by getting cash out of your emergency fund, liquidating your investments, or asking for help from friends or family. If your income is low, you could also explore government benefits before taking out a loan.

Calculate how much money you still need to cover the large purchase or emergency expense. When comparing your loan options, eliminate lenders that don't offer the amount you need.

Related: How Much of a Personal Loan Can I Get?

6. Determine an affordable payment range

Take the monthly income you calculated in the steps above and subtract your recurring monthly expenses, such as rent, utilities, and insurance. Set aside some money for savings as well. 

Then, look at your budget or past credit card statements to determine how much money you’ll need for things like groceries and entertainment. You may need to cut some expenses, like streaming services or meals out, to make room for your loan payment. 

Personal loan lenders typically offer repayment terms between two to seven years or more, depending on the reason for funding. Some lenders, like BHG Financial, offer loans up to 10 years for RV financing or home improvements. 

7. Compare lenders

• Eliminate options you don’t qualify for: Determine which lenders you can likely qualify with based on your credit score, income, and requested loan purpose, and exclude the rest. 
• Check the funding time: If you need fast cash, narrow down your options to lenders that offer same-day or next-day funding. 
• Consider loan amounts and repayment terms: Make sure the lender you choose offers the loan amount you need with a repayment term you can afford. 
• Research lender reputation: Check third-party websites like Trustpilot to get a sense of the lender’s reputation for customer service. 
• Evaluate perks and discounts: Some lenders may offer autopay discounts and other savings opportunities, free resources, digital tools, or other perks. Decide if any of these are important to you. 

Check Out: Best Fast Personal Loans

8. Prequalify

Many lenders offer a prequalification process that relies on a soft credit check. This allows you to get an estimate of the rate and term options the lender may offer without impacting your credit score. Lenders typically provide an estimated APR, which considers the interest rate and upfront loan fees, to make it easy to compare borrowing costs across lenders. 

You can prequalify with multiple lenders all in one place via Credible and other loan marketplaces. If the lender doesn’t provide an estimated monthly payment, plug the loan amount, rate, and term into a personal loan calculator to ensure the payment will be affordable. 

Note that your final rate may vary slightly, and prequalifying doesn’t guarantee you’ll receive a loan offer when you formally apply. Most lenders conduct a hard credit pull when you formally apply which could impact your credit score.

Learn More: Does Applying for a Loan Hurt Your Credit Score?

9. Gather documents

Before you apply for a personal loan, you should know what documents you need to apply. The lender may use a range of documents to verify your personal information and decide whether you've got the income and credit history to qualify for a loan and what rate to offer.

Some of the documents you can expect to provide include:

• Recent pay stubs and/or W2: Your lender uses these documents to verify your income. If your income differs from what you said during your prequalification, the loan you receive from your lender may be different from your prequalification quote.
• Utility bills: Your lender will look over utility bills to verify that the address on your application matches where you actually live.
• Tax return: Lenders may use your tax return to verify your individual income or household income.
• Copy of driver's license or Social Security card: These two forms of identification further help the lender verify that you are who you say you are.
• Employer verification: Your lender may ask you for a letter from your employer stating whether you're employed and how long you've been employed.
• Payoff letters: If you're using your loan to consolidate debt, your lender may ask you for payoff lenders from the accounts you want to consolidate. The letter lets the lender see the amount that pays off the account in full.

10. Apply

Review your loan offers and choose the lender and term that best meet your needs. Note that when you proceed with the application process, you’ll likely need to authorize a hard credit check. This will temporarily cause a small dip in your credit score. 

The lender may ask you to upload documents to verify your identity, address, income, and employment information. For example, you may be required to provide recent pay stubs or tax returns. 

If your application is approved, you’ll have the chance to review your final offer before accepting the loan. Read through your loan agreement carefully before signing to initiate the transfer of funds.

Don't Miss: How To Get Approved for a Personal Loan

How long does it take to apply for a personal loan?

The time it takes you to apply for a personal loan can range from less than an hour to a few hours, depending on how easily you can find certain documents that applications usually require. Here are the application steps and the time each might take:

1. Check your credit (less than five minutes)

You can typically check your credit score through a free credit monitoring service or your bank account in just a minute or two. If none of those tools are available, it will take you five minutes or less to set up a credit monitoring service.

2. Calculate your gross monthly income (up to 15 minutes)

You'll need to calculate gross monthly income to complete the next step in the process: estimating your debt-to-income ratio (DTI). Your gross income should include wages, tips, dividends you earn from investments, capital gains, any income you get from rental properties, alimony, and pensions.

3. Determine how much you need to borrow (less than 5 minutes)

This step will likely be the quickest of the process, as you probably already have a number in mind. If not, take a couple of minutes to pick a loan amount that meets — but does not exceed — your needs.

4. Determine an affordable payment range (a few minutes to one hour)

If you already have a budget, this step could take just three or four minutes. If you don't have a budget, it could take up to an hour to create a budget and figure out how big of a monthly payment you can comfortably afford.

5. Compare lenders (up to 30 minutes)

This step can take some time since you'll need to search for multiple loan features, such as minimum credit score allowed (if you have bad credit), funding time, minimum and maximum loan amounts, and lender perks.

6. Prequalify (five to 10 minutes or more)

The time this step requires depends on how many lenders you want to prequalify with and how you go about prequalifying. Prequalification quotes can give you a sense of what different lenders may offer you. You can prequalify at individual lender sites, or you could prequalify with multiple lenders at once using a personal loan marketplace (using a loan marketplace is quicker).

7. Compare quotes (10 minutes or more)

With prequalification quotes in front of you, create your own list of top lenders or use a list of the best personal loan lenders to help narrow down your options. Compare loan amounts and monthly payments as well as origination fees and APRs. Prequalification quotes aren't guaranteed offers, but they can give you a sense of which lenders may best suit your needs.

8. Gather your documents (10 minutes to an hour)

Rounding up your documents can be time-consuming if you don't know where they are. Forms such as W2s or tax returns may take a phone conversation or emails to track down. However, if you know where your paperwork is, this step could take less than 10 minutes.

9. Apply (up to 15 minutes)

Most personal loan applications are straightforward and take less than 10 minutes. However, it could take longer if you're missing paperwork.

"To expedite this process, gather necessary documents like pay stubs, tax returns, and bank statements beforehand, said Bruce McClary, senior vice president of membership and media relations at the National Foundation for Credit Counseling. "Ensure your application is filled out accurately and completely to avoid delays and respond promptly to any requests for information from the lender."

How to get a lower interest rate on a personal loan

• Compare lenders: You should prequalify with at least 3 different lenders to make sure you’re getting the best rate. 
• Consider using collateral: Secured loans typically come with lower interest rates. If you have an asset like a home or vehicle that you can offer the lender in case you fail to repay the loan, you may be able to get a lower rate. 
• Take advantage of discounts: Some lenders offer autopay discounts or other savings opportunities to help you get a lower rate. 
• Apply with a cosigner or co-applicant: When you apply with a cosigner or joint applicant, the lender will review that person’s income and credit score in addition to your own. If you have a friend or family member who has good credit and their own income, applying with that person may help you get a lower rate. Just know they’ll be responsible for the loan if you can’t make payments.

Check Out: Co-applicant vs. Cosigner

How to qualify for a personal loan with bad credit

Start by looking for bad-credit lenders and prequalifying to see if you’re eligible. You may need to adjust the amount you’re applying for based on the results. You can also narrow down your options to lenders that offer secured loans or allow cosigners or joint applicants. 

If you’re still struggling to get a loan, you may consider lenders that offer personal installment loans with no hard credit check, or emergency lenders. 

These lenders are more welcoming to bad-credit borrowers, but they also tend to charge much higher rates. For example, OppLoans does not conduct a hard credit check and reports payments to the credit bureaus, but rates can be as high as 179%. 

Just stay away from short-term loans like payday loans. These are often predatory and can charge APRs well over 400%, depending on your state. 

Check Out: Payday Loans vs. Personal Loans

Learn More:

• Best Personal Loan Rates
• What Are the Requirements for a Personal Loan?
• What Can't You Use a Personal Loan For?
• Where Can I Get a Personal Loan?
• How Long Does It Take To Get a Personal Loan?
• How To Improve Your Personal Loan Application
• How Does a Personal Loan Affect Your Credit Score?
• How To Start an Emergency Fund