Comprehensive Guide to Loans: Types, Application & Repayment

If you need to borrow money, whether it’s to fund a large purchase or get through a time of financial need, you’ll not only need to know where to go for that money and how to apply for it, but you’ll also want to have a plan to repay it. All of this means you need to start by understanding how to get a loan and how loans work.

In this guide, we’ll cover everything you need to apply for a loan. We’ll go over the details of each type of loan product and how to apply. We’ll even cover how to get a loan if you have bad credit or no credit history at all. Finally, we’ll discuss what you need to look for when applying for a loan and define helpful terminology so you pick the right loan for you.

In this article

• Before you apply for a loan
• How to get a personal loan
• How to get a home loan
• How to get a student loan
• How to get a loan for a car
• How to get a loan with bad credit
• How to get a loan with no credit
• How to get a loan for a business
• What to look out for when you apply for a loan
• Loan terminology you need to know
• FAQs

Before you apply for a loan

Before you apply for a loan, you’ll want to have some basics in order and know the answers to certain financial questions. Here’s a checklist of things to work through before you even start filling out a loan application:

• Check your credit score. Whether you have excellent or poor credit, your creditworthiness will impact the amount you’re eligible to borrow, the terms of the loan, and your interest rate. It's a good idea to check your credit score with the three major credit bureaus: Equifax, Experian, and Transunion. If you have bad credit, consider taking steps to improve your credit score before borrowing, if possible.
• Determine the amount you need to borrow. You should never borrow more than you need. The associated expenses are just not worth it. If you can get help from friends or family or pick up a weekend side job, you’ll be able to borrow less, which will put less of a strain on your finances in the long run. Try to get money from other sources before you take out a loan, and if you still need to borrow, apply only for what you need.
• Understand loan terms. To effectively compare loan offers, you need to understand origination fees and annual percentage rate (APR). You should also know the difference between a soft credit check and a hard credit pull. If you need to review any of this terminology, we’ve included a list of important definitions at the end of this guide.
• Estimate your loan payments. Once you know how much you need to borrow and have a sense of the APR on loans you might be considering, using a loan calculator can help you estimate your monthly payments. Getting a rough estimate of how much your payments will be each month can help you with budgeting.
  
• Understand the pre-qualification process. Getting pre-qualified allows you to see an estimate of what you’ll be approved for and what your APR might be. Lenders use a soft credit check of your credit report to pre-qualify you. Doing this won’t hurt your credit and it puts a lot of shopping power in your hands. You can check to see whether you pre-qualify with a variety of lenders before you decide which loan to officially apply for.
• Have your personal info ready. Before you start the application process, you should have some essential info on hand. You’ll likely need to provide your Social Security number, bank account information, and employment and income information like pay stubs. You may also need to provide identification and proof of your residential address.

Now let’s talk about a variety of loan options you may be considering. It’s important to understand how the various loan types work and what they can be used for before you apply for one.

How to get a personal loan

Personal loans can be either secured or unsecured debt. If they are secured, it means you are putting up collateral, such as a house or a car, that the lender can seize should you fail to pay. Unsecured personal loans don’t have any collateral and therefore can be harder to qualify for or come with higher interest rates.

Personal loans are offered by a variety of financial institutions and can vary greatly in amount. Personal loans tend to be short-term loans that typically last one to five years, and there are often few restrictions on what they can be used for.

Some common uses for personal loans include:

• RVs and boats
• Weddings
• Divorce
• Vacations
• Funeral costs
• Moving expenses
• Debt consolidation
• Medical bills
• Veterinary bills
• Home improvement

You can get a personal loan through a bank, credit union, or online lender. Some of the best personal loans with the lowest rates and fees are available online. You won’t even need to visit a physical location to be approved. To find out more, read our guide on how to get a personal loan.

Some lenders charge something known as an origination fee, which can typically range from 1% to 8% of the loan amount, in addition to interest. The APR on a loan reflects the total cost of borrowing, including both interest and fees. Personal loans can sometimes have APRs that are lower than what you would pay on credit card debt (the average interest rate on a two-year personal loan is just 9.5%, compared to 14.52% on credit cards). However, keep in mind that the lowest interest rates on these loans are reserved for the most creditworthy customers.