How to Get a Personal Loan: 10 Steps

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Personal Loans

Updated Nov 20, 2024

9-min read

Written by Deb Hipp

Expertise: Mortgages, personal loans, credit cards, insurance, debt

Deb Hipp is a freelance writer with more than a decade of financial writing experience about mortgages, personal loans, credit cards, insurance, and debt.

Learn more about Deb Hipp

Reviewed by Erin Kinkade, CFP®

Expertise: Insurance planning, education planning, retirement planning, investment planning, military benefits, behavioral finance

Erin Kinkade, CFP®, ChFC®, works as a financial planner at AAFMAA Wealth Management & Trust. Erin prepares comprehensive financial plans for military veterans and their families.

Learn more about Erin Kinkade, CFP®

If you need cash to consolidate debt, make a large purchase, or use it for another purpose, you might consider a personal loan. Getting a personal loan is easier than you might think.

Read on for 10 steps to take when you’re ready to get a personal loan.

Check your credit report and credit score.
Review or create a budget.
Calculate your loan payments.
Understand your eligibility requirements.
Get your documentation in order.
Research lenders.
Prequalify.
Select a lender and apply.
Review your loan documents.
Sign the loan.

What Can a Personal Loan Be Used For?; Is It Hard to Get a Personal Loan?

1. Check your credit report and credit score

Before shopping for a personal loan, review your credit report to understand how lenders may view your creditworthiness. You can request a free copy of your credit report on the AnnualCreditReport website from all three major credit bureaus—Experian, Equifax, and TransUnion.

Your credit report won’t show your credit score, but many credit cards’ benefits include free credit score monitoring. If you don’t have a credit card, you can sign up for free credit monitoring at companies such as Capital One’s free CreditWise plan to monitor and help improve your credit score.

Lenders’ requirements for personal loans vary, ranging from 300 to 680. If your credit score is good to excellent, your chances of getting a personal loan with desirable terms are typically better.

An infographic showing credit ranges from 300-579 bad to 800-850 excellent

If you have fair or bad credit, you might be able to get a personal loan. However, the rate will likely be much higher than if you have a good or excellent credit score.

Review your credit report for errors or negative marks that should have dropped off after seven years. If you find errors or charges to dispute, notify the creditor to correct the mistakes.

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2. Review or create a budget

To find out how much you can afford to pay each month on a personal loan, look at your current budget. If you don’t have a budget, several apps can help you create a budget, manage your finances, and save money for emergencies. You can also create a budget using online templates. You can also get free help creating a budget by meeting with a credit counselor at a nonprofit credit counseling agency.

3. Calculate your loan payments

Once you know how much you can afford for a loan payment each month, you can calculate loan payments for various loan scenarios with our personal loan calculator. Input the loan amounts you have in mind using different interest rates and repayment terms to calculate how much your loan payments may be.

For example, we used the calculator to create these scenarios:

If you get a $5,000 loan at a 10.73% interest rate with a three-year term, your monthly payment would be $163, and you’d pay a total of $5,870 for the loan.
If your rate for the same amount is 17.80%, your monthly payment would be $180, and the total repayment amount would be $6,489.

Experiment with various loan amounts, rates, and loan terms to get an idea of what you can expect to pay each month and how much you can afford. With this information, you’ll have a much better idea of how to get a personal loan and what you can afford.

How to Calculate Personal Loan Payments

4. Understand other eligibility requirements

Having a good credit score goes a long way with lenders. However, lenders also determine your creditworthiness and loan terms for a personal loan based on other factors, including:

Income: Lenders ask about and verify your income to gauge whether you can afford to make the loan payments each month.
Employment history: Lenders may ask for proof of employment so they know that you have an income source. They may also look at whether you’ve had steady employment over the years, which indicates stability.
Debt-to-income ratio: Lenders also take a look at your credit report to learn how much debt you currently have. This way, they can determine the risk of loaning you money and the likelihood that you can loan payments each month.
Collateral: For secured loans, you’ll need collateral such as a bank account or car, to secure the loan. That way, if you default on the loan, the lender can seize the property to recoup the loan amount—and in exchange for the collateral, you might qualify for a lower rate.

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5. Get your documentation in order

Before you apply for a loan, gather all the documentation you must provide on the application. The table below lists documents your lender will likely accept.

Required	Examples
2 forms of identification	Valid driver’s license, State-issued ID cardU.S. passport, Birth certificate, Military ID, Citizenship certificate, Utility bills with your current address
Proof of address	Utility bills with a matching address to your ID, Rental agreement, Voter registration card, Vehicle registration, Government-issued IDHome, auto, or renters insurance card
Income sources	Bank statementsPay stubs, W-2, or 1099 statements, Proof of child support, Alimony statements, 2 years of tax returns, Proof of disability benefits, Pension or trust statements, Retirement disbursements, Documentation of dividends, Rental income documentation

6. Research lenders

Once you have an idea of how much you can afford to borrow, how much your monthly payment might be, and how much you’ll pay in interest for various loan terms, it’s time to shop for a personal loan. You have several options for applying:

Online lenders: With an online marketplace or on lenders’ websites, you can provide basic information on an application to review loan offers. Many lenders initially do a soft pull on your credit, which won’t affect your credit score. Once you submit the information, you can often view loan offers on the website or by email listing the loan amount you qualify for, the interest rate, and the loan term. Your offers might also include the estimated payment.
Brick-and-mortar banks: If you already bank somewhere, you might be able to get a personal loan at your bank. However, most banks have stringent eligibility requirements. Depending on your credit history, you may be able to find a lower interest rate using an online bank or a loan marketplace.
Credit unions: Credit unions often have less strict approval requirements than banks. For example, if you have a lower credit score but a consistent employment history and a high income, you might qualify for a credit union personal loan.

To find the best loan, compare interest rates, loan terms, and the total amount, including interest. Add the monthly payment amount to your budget to ensure you can make timely payments.

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7. Prequalify

It’s smart to prequalify to see how much you may be able to borrow based on your credit history and financial situation. If you apply for prequalification online, most lenders perform a soft pull on your credit, which won’t affect your credit score. That way, the lender can determine from your basic financial and personal information how much you may be able to borrow.

Once you know the amount you can borrow, you can check out our loan calculator with various rates and loan terms to get an idea of monthly payment amounts.

8. Select a lender and apply

We recommend starting with our list of the best personal loans, where you can see each lender’s interest rates, income requirements, loan terms, funding speed, and who it’s best for. An excellent way to compare lenders is to prequalify with an online loan marketplace.

Tip

Our favorite is Credible.

Once you select a lender and loan offer, it’s time to apply for the loan. When you apply, lenders ask for more detailed information and documentation and usually perform a hard pull on your credit, which may lower your credit score by a few points. If you have a lower credit score, you might get a better rate and loan terms on a personal loan if you apply with a cosigner or a co-applicant.

If you apply but your loan request is denied, I first recommend understanding the reason for the denial. Are there errors on your credit report? If so, you can have those corrected and might then be approved.

If your credit report is accurate, you might need to wait and improve your financial condition by paying down debt, limiting new loan applications, increasing income, or decreasing expenses.

If you need a loan in the short term, consider a trustworthy cosigner—for instance, a financially responsible parent or friend.
Erin Kinkade, CFP®

Co-Applicant Personal Loan Advice & Options

9. Review your loan documents

When you get your loan documents, review them before you sign anything. Look for information about your monthly payment and fees, such as origination fees, which can range from 1% to 10% of the total loan amount and are deducted from loan proceeds. Also, watch for late-payment fees, loan application fees, early payoff fees, and whether the lender charges an annual fee.

How to Avoid Personal Loan Scams

10. Sign the loan

Depending on the lender, you can often sign the loan documents electronically. If you sign in person at a local bank or credit union, you’ll sign with a loan officer. Many lenders provide funding the next day or within a few days.

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