How to Apply for a Personal Loan

Personal loans are a flexible and versatile financial product. You can use personal loans for just about anything, whether it’s financing home improvements, paying for a wedding, or debt consolidation.

Qualification is often easy, too. Some online lenders process applications and fund loans as soon as the next business day.

There’s a lender for almost everyone, and, depending on your credit history, you can probably find a loan at a better interest rate than you’d get with other forms of financing, such as credit cards. This guide will help you to understand how to apply for a personal loan. 

In this guide:

• How to apply for a personal loan in 5 steps
• What do you need to apply for a personal loan?
• Where to apply for a personal loan

How to apply for a personal loan in 5 steps

To apply for a personal loan, take these five steps:

1. Check your credit score
2. Determine whether you need a co-applicant or cosigner
3. Set your budget
4. Apply for pre-qualification
5. Compare quotes and choose a lender

1. Check your credit score

Your credit score will impact whether or not a lender approves you to borrow a personal loan as well as the interest rate you’re offered.

Many lenders have minimum credit score requirements, so it’s helpful to understand your creditworthiness and know the score you need for a personal loan before you apply.

The good news is there are lenders that offer loans to people with all different credit scores. But lenders that cater to fair or poor credit tend to charge higher rates or may want you to put up collateral for a secured personal loan. 

Check your credit score and, if possible, take steps to improve it before applying to get a more affordable offer and qualify for a less risky unsecured personal loan.

2. Determine whether you need a co-applicant or cosigner

A co-applicant or cosigner with good credit or excellent credit could help you get approved for an unsecured loan with favorable terms and lower interest rates if your credit isn’t good enough to get them on your own.

This could give you a boost if you’re just starting to build credit or you’re prepared to rebuild bad credit. But it’s a risk to the co-applicant or cosigner if you can’t fulfill your financial commitment. Only take this step if you’re confident about making monthly payments for the duration of the loan.

How is a cosigner different from a co-applicant on a personal loan?

The main difference between a co-applicant and a cosigner is that a co-applicant benefits from borrowing along with you, while a cosigner does not.

Personal loan co-applicants are jointly responsible for repaying debt and typically borrow for a shared benefit. Married couples borrowing a personal loan for home improvement is a common example, though you don’t need to be married to apply jointly.

A personal loan cosigner, on the other hand, agrees to guarantee the loan for you, but doesn’t use the money. They aren’t expected to repay the loan unless you’re unable to. 

In either case, the co-applicant’s or cosigner’s financial information is evaluated alongside yours to determine loan eligibility, rates, and terms; and whether or not the loan is repaid shows up on their credit report.

3. Set your budget

Decide how much you can borrow based on what you can afford, in terms of loan payments and total cost. If you can only fit a small monthly payment into your budget, a large loan amount could mean repaying for years and paying thousands in interest.

Our personal loan calculator shows you how interest rates and loan terms could affect your monthly payment and total cost. Determining your target loan amount and repayment budget also narrows your search for the right lender.

>> Read more: The 50/20/30 Rule for Budgeting

4. Apply for pre-qualification

Once you know how much you want to borrow, get quotes from several lenders by providing a few key pieces of financial information.

You can request quotes online in a few minutes from most lenders, but may need to visit a local bank or credit union to speak with a loan officer if you want to go with a community institution.

Pre-qualification should require a soft credit check, which won’t impact your credit report. Lenders use this information in a process called underwriting to determine whether they’ll likely allow you to borrow and at what interest rate. 

5. Compare quotes and choose a lender

Getting pre-qualified by several lenders is important so you can compare rates and terms. Compare quotes from at least three lenders to find the lowest rates and best terms before you apply.

When comparing quotes, pay attention to:

• Origination fees or application fees you have to pay upfront for the loan.
• Whether you’d be charged a prepayment penalty for paying off your loan early.
• Discounts, such as an autopay interest rate reduction for connecting your checking account to make automatic payments, that could lower your cost.
• Time to funding, which is the amount of time it takes to get your money after you’re approved.
• Minimum and maximum loan amounts.
• Repayment terms, which dictate how long (in months or years) you have to repay your loan.
• The interest rate, which is what you’ll pay on top of repayment to borrow funds.

Compare loans’ annual percentage rate—which represents total costs with fees—not just monthly payment or interest rate, to choose which lender is best for you. 

Once you’ve checked out the details and chosen a lender, you can move on to submitting a full application.

What do you need to apply for a personal loan?

All lenders will look for qualifying credit and sufficient income to determine your eligibility for a personal loan. Typically you’ll need to provide some basic personal loan documentation to prove these and other qualification requirements.

Beyond these, the application process and qualification requirements vary by lender. Many lenders use an online application, but some may require you to finish the process at a brick-and-mortar location.

>> Read more: How do Personal Loans Work?

Information you need to complete your loan application

Most personal loan applications require you to provide this personal information:

• Your Social Security number.
• Your address.
• Your ID, which provides proof you’re a U.S. citizen or resident.
• Details about your job.
• Information about your bank account and other financial accounts.
• Details about other debt you’re repaying and your debt-to-income ratio.
• Information about the loan purpose and the amount you need to borrow.

Where to apply for a personal loan

You have lots of options when choosing where to apply for a personal loan, including brick-and-mortar banks, credit unions, and online lenders.

If you already bank with a financial institution, you can start your search for a lender there in case of any customer loyalty perks. But still, compare the loan options you receive with other lenders to find the best deal.

Check out our list of the best personal loan lenders to easily pre-qualify and compare rates and terms online.