How to Get Approved for a Personal Loan: 6 Steps to Follow
Shopping for a personal loan does not have to be complicated. Understanding where to start, what you need to apply, and how to compare different loan offers can make the process much easier.
A personal loan can be useful when you need to borrow money for a large expense, consolidate debt, make a home improvement, or handle an emergency. But before applying, it is important to understand how lenders evaluate borrowers and what you can do to prepare for the application process.
A personal loan is an unsecured loan that can be obtained from a bank, credit union, or online lender. If you are approved, you receive a lump sum of money and repay it through monthly installments over an agreed loan term.
Personal loans can be used for many different purposes, which is one of their biggest advantages. However, getting approved and choosing the right loan requires more than simply filling out an application.
Your credit score, loan amount, APR, monthly payment, loan term, lender requirements, and overall financial situation can all matter.
Here are six steps that can help you understand how to get approved for a personal loan and how to compare your options.
What Is a Personal Loan?
A personal loan is a type of unsecured loan that allows you to borrow a lump sum of money and repay it through regular monthly payments.
Unlike a secured loan, a personal loan does not require you to put up an asset as collateral.
Personal loans are available from several types of lenders, including:
- Banks
- Credit unions
- Online lenders
Once approved, you receive the borrowed money and repay the loan according to the terms agreed upon with the lender.
One of the main benefits of a personal loan is flexibility. Borrowers can use personal loans for a variety of expenses.
Common reasons for getting a personal loan include:
- Debt consolidation
- Home improvements
- Emergencies
- Large expenses
- Weddings
Personal loan interest rates can also sometimes be lower than credit card interest rates, particularly for borrowers with good credit.
Ideally, a personal loan should help improve your overall financial situation. For example, it may help you pay off debt faster or finance a home improvement that adds value to your property.
However, taking out a personal loan still creates a new monthly financial obligation, so it is important to make sure the payments fit comfortably within your budget.
Step 1: Check Your Credit Score
One of the first things you should do before applying for a personal loan is check your credit score.
Your credit score can play a significant role in whether you qualify for a personal loan and the interest rate you receive.
In general, a higher credit score can make it easier to qualify and can potentially help you receive a lower interest rate.
The transcript describes credit scores ranging from excellent to bad, with an excellent score being 720 or higher and a bad score falling between 300 and 629.
Knowing your credit score before you apply gives you a better understanding of your position as a borrower.
It can also help you identify potential problems before a lender reviews your application.
Check Your Credit Report for Errors
If your credit score is lower than you would like, reviewing your credit report can be an important step.
Credit reports can contain errors.
For example, your report might show a missed payment that you actually made on time.
If you find incorrect information, you can work to fix the errors or dispute mistakes.
Correcting inaccurate information can help ensure that lenders are evaluating your actual credit history rather than incorrect information.
How to Improve Your Credit Before Applying
If your credit score is not where you want it to be, there are steps you can take to improve your overall credit position.
Two important habits highlighted in the transcript are:
- Making credit card payments on time
- Keeping your overall debt low
Consistent, on-time payments can help strengthen your credit profile over time.
Keeping debt under control can also help you become a stronger potential borrower.
If you are not in a hurry to borrow money, taking time to improve your credit before applying may put you in a better position when you eventually compare personal loan offers.
Step 2: Calculate Your Loan Payments
Once you understand your credit score, the next step is to determine how much money you actually need to borrow.
It is important to calculate the total amount rather than simply thinking about the amount you want to receive.
Some lenders charge an origination fee, which can range from 1% to 10% of the loan amount.
That means the amount you need to borrow may need to account for applicable fees.
For example, if you need a particular amount of money for an expense, an origination fee could affect the total cost of the loan.
Understanding the fees before you apply can help you avoid underestimating the amount you need.
Understand APR
After considering the loan amount and your credit score, you can begin getting an idea of the loan’s annual percentage rate, or APR.
APR is an important number because it reflects the overall cost of borrowing.
When comparing personal loans, you should pay close attention to the APR rather than focusing only on the monthly payment.
A lower monthly payment does not necessarily mean a cheaper loan.
The loan term can make a major difference.
Understand Your Monthly Payment
Your monthly payment is another important part of evaluating a personal loan.
The payment needs to fit comfortably within your budget.
It may be tempting to choose a loan based on how small the monthly payment looks, but that number does not tell you the entire story.
A longer loan term can reduce your monthly payment, but you may end up paying more interest over the life of the loan.
For that reason, you should consider both the monthly payment and the total cost of the loan.
Understanding the Loan Term
The loan term is the amount of time you have to repay the personal loan.
A longer loan term generally means lower monthly payments.
However, spreading the payments over a longer period can also mean paying more interest overall.
This creates a tradeoff.
A shorter loan term may result in higher monthly payments, but the loan could cost less in total interest.
A longer term may make the monthly payment easier to manage, but the overall cost may be higher.
The best personal loan is not necessarily the one with the smallest monthly payment.
Instead, it should be a loan whose payments fit comfortably into your budget while also providing reasonable overall costs.
Step 3: Get Pre-Qualified
The next step is to pre-qualify for a personal loan.
Pre-qualification allows you to preview estimated loan offers, rates, and monthly payments before formally applying.
This can be useful because you can get a better idea of what different lenders may offer without immediately committing to a particular loan.
Many lenders allow you to pre-qualify online using a soft credit check.
A soft credit check does not have an impact on your credit score.
This makes it possible to pre-qualify with multiple lenders and compare potential offers.
Why Pre-Qualification Is Useful
Pre-qualification can help you understand the market before submitting a formal application.
Instead of choosing the first lender you find, you can compare different potential offers.
You may be able to compare:
- Estimated interest rates
- Estimated monthly payments
- Potential loan amounts
- Loan terms
This gives you an opportunity to determine which options may fit your needs.
Pre-qualification is therefore a useful part of shopping around for a personal loan.
Information You May Need to Pre-Qualify
When pre-qualifying, lenders may ask for information such as:
- Your name
- Your date of birth
- The reason you want the loan
- Other information related to your financial situation
Providing this information allows the lender to generate estimated loan offers.
It is important to remember that pre-qualification is not the same thing as final approval.
The formal application process can involve additional requirements and a hard credit check.
Consider a Co-Signer
If you are concerned about strengthening your loan application, you may consider applying with a co-signer.
A co-signer is someone with strong credit who can support the application.
Having a co-signer may help strengthen the application in some circumstances.
However, there is an important responsibility involved.
If the borrower misses payments, the co-signer can also be responsible for those payments.
This means that becoming a co-signer is not simply a way to help someone get approved. It creates a financial obligation.
Anyone considering a co-signer arrangement should understand that responsibility before moving forward.
Step 4: Compare Lenders and Shop Around
Once you have started pre-qualifying, the next step is to compare lenders.
Personal loans are available from:
- Banks
- Credit unions
- Online lenders
There is no reason to assume that the first lender you find will automatically offer the best option for you.
Shopping around can help you compare different loan offers.
What Should You Compare?
When comparing personal loans, consider:
- Interest rates
- APR
- Loan amounts
- Monthly payments
- Loan terms
- Fees
- Funding speed
- Application experience
The right lender depends on what matters most to you.
For example, perhaps you need the money quickly.
In that case, funding speed may be particularly important.
Maybe you prefer an easy online application experience.
Or perhaps you need a larger loan amount.
Identifying your priorities before comparing lenders can make the process easier.
Fast Funding vs. Lower Cost
Different borrowers have different priorities.
If you need money quickly, a lender that offers fast funding may be more attractive.
If convenience matters most, you may prefer a lender with a simple online experience.
If you need a large amount of money, the maximum loan amount may become one of the most important factors.
But regardless of your priorities, cost should remain an important consideration.
A convenient loan is not necessarily a good loan if the overall cost is too high.
Step 5: Read the Fine Print Before Signing
Before signing a personal loan agreement, carefully review the terms and conditions.
Do not focus only on the amount you will receive or the monthly payment.
Make sure you understand the full cost of the loan.
Review:
- Fees
- APR
- Loan terms
- Payment arrangements
- Automatic withdrawals
- Other loan features
If you have questions, get answers before signing.
The loan agreement is the document that explains what you are agreeing to, so understanding the details is important.
Review All Fees
Fees can increase the overall cost of borrowing.
As mentioned earlier, some lenders charge an origination fee that can range from 1% to 10% of the loan amount.
You should understand whether a lender charges this type of fee and how it affects your loan.
Do not assume that a low monthly payment automatically means a low-cost loan.
The APR and total cost should also be considered.
Be Careful With Automatic Withdrawals
Some personal loans allow or require automatic withdrawals from your bank account.
Automatic payments can be convenient because they can help you make payments on time.
However, there is also a potential issue if the account balance is too low when the payment is withdrawn.
A low-balance alert can help you monitor your account and potentially avoid overdraft fees.
If you use automatic withdrawals, make sure you understand when the payments will be taken from your account.
Look for Consumer-Friendly Features
Some personal loans may offer features that can provide additional flexibility.
The transcript highlights examples such as:
- Unemployment plans
- Hardship plans
- The ability to change your payment date
- Sending borrowed funds directly to creditors for debt consolidation
These features can be useful depending on your situation.
For example, a hardship or unemployment plan could become important if your financial circumstances change.
Similarly, the ability to change a payment date could make managing your monthly cash flow easier.
If you are taking out a personal loan for debt consolidation, the ability to send funds directly to creditors may also simplify the process.
Step 6: Complete Your Personal Loan Application
Once you have compared lenders and selected an option, you can formally apply for the personal loan.
The specific requirements can vary by lender, but you will likely need several types of documentation.
Common requirements mentioned in the transcript include:
- Identification, such as a passport or driver’s license.
- Proof of address, such as a utility bill or lease agreement.
- Proof of income, such as pay stubs or tax returns.
Having these documents ready can make the application process easier.
It also helps you avoid unnecessary delays caused by searching for documentation after you have already started the application.
Submit the Application
After gathering the required information and documents, you can submit your formal application.
At this stage, the lender may conduct a hard credit check.
This is different from the soft credit check that may be used during pre-qualification.
A hard credit check can cause your credit score to drop by a few points.
The transcript also states that a hard credit check remains on your credit report for two years, regardless of whether you are ultimately approved.
Because of this, it is useful to do your research and compare potential offers before submitting formal applications.
Soft Credit Check vs. Hard Credit Check
Understanding the difference between these two types of credit checks is important when shopping for a personal loan.
Soft Credit Check
A soft credit check can be used during pre-qualification.
It does not affect your credit score.
This allows you to potentially pre-qualify with multiple lenders and compare offers without causing the same type of credit impact associated with a formal application.
Hard Credit Check
A hard credit check generally occurs when you formally apply for a loan.
According to the transcript, it can cause your credit score to drop by a few points and remains on your credit report for two years.
This is one reason why pre-qualification can be useful before committing to a formal application.
What Happens After You Are Approved?
If you are approved for the personal loan, the lender will send you the funds.
The transcript states that most lenders send funds within about a week.
Once the money arrives, the responsibility shifts to managing the loan and making the required monthly payments.
Your next step should be to create a plan for repaying the loan.
The loan should fit into your monthly budget so that you can make payments consistently throughout the loan term.
When Is the First Payment Due?
The transcript states that first payments are typically due within 30 days.
Knowing the payment schedule is important because the loan immediately becomes part of your monthly financial obligations.
Before accepting the loan, make sure you understand:
- The payment amount
- The payment date
- The loan term
- The APR
- Any applicable fees
Having this information clearly understood can make managing the loan easier.
What If Your Personal Loan Application Is Denied?
Not every personal loan application will be approved.
If you are rejected, one of the most important things you can do is understand why the application was denied.
The reason for rejection can help you identify what needs to change before applying again.
Potential areas to work on include:
- Building your credit
- Paying down debt
- Improving your overall financial position
If your credit score is holding you back, improving your credit may strengthen future applications.
If your existing debt is too high, paying down debt may improve your situation.
The key is to treat a rejection as information that can help you understand what needs improvement.
Don’t Use a Personal Loan for Every Expense
Although personal loans can be used for many different purposes, not every expense necessarily makes sense for a personal loan.
The transcript specifically advises against using a personal loan for things such as a beach vacation or the newest flat-screen TV.
For some purchases, there may be cheaper alternatives.
A zero-percent credit card is mentioned as one possible alternative in appropriate circumstances.
Cash may also be preferable if you already have enough money available and using it does not create financial problems.
The key idea is to consider whether taking on a new loan is actually necessary.
Choose the Lowest APR When Comparing Loans
When you have several personal loan offers to compare, it can be tempting to choose the loan with the smallest monthly payment.
But this can be misleading.
A lower monthly payment may simply result from a longer loan term.
Instead, when comparing different personal loans, pay close attention to the APR.
The loan with the lowest APR is generally the cheaper loan overall among the options being compared.
This is why comparing monthly payments alone can lead to the wrong conclusion.
A loan that appears more affordable each month could cost more over the entire repayment period.
How to Make the Personal Loan Process Easier
Getting approved for a personal loan becomes easier to manage when you prepare before applying.
Start by understanding your credit score.
Then determine exactly how much money you need.
Consider any applicable fees.
Estimate the APR and monthly payment.
Think carefully about the loan term.
Pre-qualify with multiple lenders where possible.
Compare the offers based on the factors that matter to you.
Read the fine print.
Only then submit a formal application.
This approach can help you avoid making a rushed decision.
A Simple Personal Loan Checklist
Before applying for a personal loan, consider the following checklist:
Before Applying
- Check your credit score.
- Review your credit report for errors.
- Determine how much money you actually need.
- Consider potential origination fees.
- Estimate your monthly payment.
- Compare different loan terms.
During Pre-Qualification
- Pre-qualify with multiple lenders.
- Compare estimated rates.
- Compare estimated monthly payments.
- Consider different loan amounts.
- Determine which lender best fits your priorities.
Before Signing
- Read the complete loan terms.
- Review the APR.
- Check all fees.
- Understand the payment schedule.
- Review automatic withdrawal arrangements.
- Look for hardship or unemployment features.
- Understand any co-signer responsibilities.
After Approval
- Make sure you know when the first payment is due.
- Set up a repayment plan.
- Monitor your monthly budget.
- Make payments according to the loan agreement.
Final Thoughts
Getting approved for a personal loan does not have to be complicated, but preparation is important.
A personal loan is an unsecured loan available through banks, credit unions, and online lenders. If approved, you receive a lump sum and repay it through monthly installments over the loan term.
The first step is to check your credit score because your credit can play a significant role in both qualification and the interest rate you receive. If your credit report contains errors, work to correct them. Making payments on time and keeping your overall debt low can also help strengthen your credit position.
Next, determine how much you actually need to borrow and account for potential fees. Some lenders charge origination fees ranging from 1% to 10% of the loan amount. Consider the APR, monthly payment, and loan term together rather than looking at only one number.
Pre-qualification can then allow you to preview estimated offers using a soft credit check that does not affect your credit score. This makes it possible to compare multiple lenders before committing to a formal application.
When comparing lenders, consider what matters most to you. You may care about fast funding, an easy online experience, or the ability to borrow a larger amount. Whatever your priorities, compare interest rates, APRs, loan amounts, monthly payments, and terms carefully.
Before signing, read the fine print. Understand every fee and the total cost of the loan. Pay attention to automatic withdrawals and look for consumer-friendly features such as hardship plans, unemployment options, flexible payment dates, or direct payment to creditors for debt consolidation.
Finally, complete your application with the required documentation, which may include identification, proof of address, and proof of income.
Remember that pre-qualification and formal approval are different. A formal application may involve a hard credit check, which can cause your credit score to drop by a few points and remain on your credit report for two years.
If you are approved, most lenders send funds within about a week, and the first payment is typically due within 30 days.
If you are denied, find out why. Building your credit and paying down debt may help strengthen your position before you apply again.
Most importantly, do not choose a personal loan based solely on the monthly payment. When comparing different personal loans, look closely at the APR because the loan with the lowest APR is generally the cheaper option overall.
A personal loan can be useful for emergencies, debt consolidation, home improvements, and other large expenses. The best approach is to be prepared, understand your financial situation, compare lenders carefully, read the terms, and have a clear plan for managing the monthly payments before taking on the debt.
