Personal Loans: A Comprehensive Guide to Application & Approval

There are many reasons you might want to get a personal loan. You could use their lower interest rates to consolidate some of your higher-interest credit card debt, cover home improvements or other large expenditures. No matter your reasons for getting a personal loan, you may be wondering how to get a personal loan and what the next steps are. In this article, we'll walk you through the process so you can make an informed decision.

Steps To Taking Out A Personal Loan: At A Glance

Before you take one out, you'll want to know how personal loans work. Personal loans are an unsecured type of lending, which means that if you default on your loan, there is no collateral (like a car or your house) that the lender can take.

1. Calculate how much you
2. Find your credit score
3. Research all types of lenders
4. Compare interest rates
5. Get prequalified
6. Read the fine print
7. Finalize the application

Follow the steps below when applying for a personal loan to make sure you find the best one for your situation.

1. Calculate How Much You Need

The first step for getting a personal loan is figuring out how much you will need to ask for from the lender. Do your research and calculations to find your desired loan amount, monthly payment amount and length of the loan that make the most sense for you.

2. Find Your Credit Score

Next, you'll want to check your credit score before starting the application process. Your credit history can affect your chances of getting approved for a personal loan. Be sure to look through your credit report for any mistakes or misreported inquiries and dispute any claims before applying for a loan.

Every time you apply for a credit card or loan, a hard inquiry appears on your credit report. If you have several recent inquiries on your report, that can be a red flag to lenders. That may increase your chances of being denied or not getting the best interest rate. If you’re rate shopping or comparing offers and terms, a series of hard inquiries made within a short period of time may only count as one inquiry. This will minimize impact on your credit score.

3. Research All Types Of Lenders

A variety of lenders offer personal loans, including:

• Banks
• Credit unions
• Online lenders

You should carefully consider each lender, their origination fees and the loan terms they offer before choosing one or two to apply to.

4. Compare Interest Rates

Interest rates for personal loans vary, but they are usually higher than secured loans like home equity loans or auto loans. This is because a secured loan has collateral attached to it. If you default on your home equity loan, the lender can foreclose on your home. With an unsecured loan like a personal loan, there is no such collateral.

In addition to looking at the interest rate, you'll also want to calculate the APR of the loan. The APR includes any fees, points or other costs of the loan as well as the interest rate. Looking at the APR can help you better understand the true cost of your chosen financing option.

5. Get Prequalified

Next, you'll want to pick a lender or two and get prequalified. The difference between prequalification and preapproval is that a prequalification is generally less involved and will often not result in a hard pull on your credit. Getting prequalified can help you get a handle on your estimated monthly payment and loan terms. Remember, just because you get prequailfied with a particular lender doesn't mean that you have to stick with them for the final loan.

6. Read The Fine Print

The Truth in Lending Act of 1968 governs many aspects of all varieties of the lending process. The Truth in Lending Act helps protect consumers from unsafe or predatory lending processes. Your lender should share with you upfront the total costs and let you know that you have the option to get quotes from different lenders. Make sure to ask your lender questions about your loan estimate and make sure that you understand your rights and responsibilities as a borrower.

7. Finalize The Application

Once you've compared interest rates, fees and terms between lenders, you're ready to submit your application. The exact application requirements will vary by lender, but here's an idea of some of the information you'll want to have on hand:

• A form of identification:
  • Driver's license
  • Valid passport
  • State or government ID
  • Birth certificate
  • Social Security card
• Proof of address:
  • Rental lease
  • Mortgage statement
  • Utility bill
• Verification of income:
  • W-2 from your employer
  • Pay stubs
  • Bank statements showing verifiable income
  • Tax returns

Once you submit your final application, the lender will do a hard credit check and prepare to finalize the loan.

How To Get A Personal Loan With Bad Credit

It is harder to get a personal loan with poor credit, but it is possible. Here are some of the ways that you can find a personal loan for borrowers with a bad score, including:

• Getting a co-signer
• Shortening the length of the loan
• Decreasing the amount of the loan
• Using a different type of loan

Depending on the urgency with which you need a personal loan, you may also want to wait until you can improve your credit. Improving your credit score will drastically increase not only your chances of being approved for a personal loan but also the interest rate you'll get if you are approved.

The Bottom Line: Knowing How To Get Approved For A Personal Loan Can Save You Money

Following a few simple steps can help you get a personal loan. First you will want to figure out how much you need and know your own credit score. Then, do careful research and calculations to thoroughly compare lenders and loan terms. Finally, get prequalified, read the fine print and disclosures that your lender sends you and gather your documents. You'll be ready to apply for your personal loan in no time.

It's important to understand the process and how to best prepare before you start applying for loans. Knowing requirements and loan limits will help make the process smooth and get you the best deal available. If you think that you're ready to continue the personal loan process, you can fill out an application today.