When you need extra cash, a personal loan can help fill your budget shortfall and give you the flexibility to make large purchases with a manageable repayment schedule. If you need funds quickly, want to pay off high-interest debt, or have emergency expenses a personal loan could be right for you.
Use this guide to help you apply for a personal loan suitable for your financial needs.
What is a personal loan?
A personal loan can be used for almost any purpose including paying for home repairs, wedding expenses, consolidating debt, medical bills, moving expenses, and vacations. The interest rate is typically fixed and repayment terms range between 2 – 7 years on average.
Most do not require collateral to secure the loan and you could be eligible to borrow up to $100,000 depending on the lender.
Where can you get a personal loan?
When shopping for a personal loan, the first place many people look are banks, credit unions, and online lenders. Credit unions can offer more favorable rates than banks but may require you to become a member first.
Best personal loan lenders to consider
When looking for the best personal loan lender for your financial needs, it’s important to compare the interest rate, fees, loan amount, and terms from multiple providers. Here are a few of the best lenders for you to consider:
- Avant: Borrowers with poor or bad credit can borrow between $2000 to $35,000 from two to five years. The interest rate can range from 9.95% – 35.99% fixed APR, and a minimum credit score of 550 is required. Once approved you could receive the loan principal in as little as one business day.
- Discover: Great for borrowers looking for a longer repayment term, you could borrow up to $35,000 with a three-to-seven-year term. Interest rates start from 5.99% fixed APR, and you’ll need a minimum credit score of 660. There are penalties for late payments, and no discounts are offered.
- Marcus: You can borrow between $3,500 to $40,000 with terms ranging from three to six years. There are no fees and the interest rate starts from 6.99% fixed APR. You have the option to defer one monthly payment interest-free after making 12 consecutive on-time payments. There is a minimum credit rating of 660.
- Prosper: Best for borrowers looking to do home improvements, you can borrow up to $40,000 with three or five year terms. A minimum credit score of 640 is required to be eligible, however, there is no minimum income requirement and no prepayment penalty. Be mindful of the fees as origination fees start from 2.4% and go up to 5%, there are also late payment fees imposed.
7 simple steps to get a personal loan
Before sending in a personal loan application, there are several steps you need to take into consideration. When you apply for a personal loan, a hard credit check will temporarily ding your credit score, so it’s important to be certain that the personal loan you are applying for best fits your financial situation and funding needs.
Here is a breakdown of how to get a personal loan in 7 easy to follow steps.
1. Calculate how much you need to borrow
When taking out a personal loan, be mindful to borrow only what you need, because interest charges will apply whether or not you use the full loan for its intended purpose. Alternatively, if you underestimate the loan amount, you could be forced to submit another loan application, requiring an additional hard credit check that could negatively impact your credit score.
When you calculate how much you need to borrow, factor into your budget your monthly repayments how long it’s likely to take you to pay back your loan. While lenders will carry out their assessments on your ability to pay back the loan, ultimately the responsibility falls upon you to make on-time repayments. If you miss a payment or default on your loan, it could harm your credit score for years to come making financing options more expensive.
Some lenders may charge an origination fee which you’ll need to take into consideration, as this will reduce the amount that you borrow.
2. Review your credit score
Your creditworthiness is key in determining whether you are eligible for a personal loan. Typically, the higher your credit score, the more favorable your interest rate will be. Some lenders require a minimum of fair credit (580 – 669) for a personal loan and others look for a good credit score (670 – 739) or above.
Reviewing your credit history will help you decide if you need to take any action in improving your credit score before you submit your application. For instance, if you have a high ratio of debt-to-income, you may want to pay down some of your existing debt to improve your chances of approval.
Check for any errors and mistakes on your credit report as this could reduce your chances of approval. If there are mistakes, get them corrected as soon as possible.
3. Prequalify and meet minimum requirements of the loan
When you obtain prequalification for a personal loan, you can check your eligibility, the likely loan amount, and the interest rate you could receive. Prequalification runs a soft credit check which does not impact your credit score.
You’ll need to provide your personal information, the reason for borrowing, and the amount you want to borrow.
While prequalification can give you added confidence when submitting your loan application, there is no guarantee that you will receive final approval.
4. Compare interest rates with multiple lenders
Shopping around and comparing rates from multiple lenders can help you find the best personal loan suited to your financial needs. When reviewing lenders, keep in mind the following factors:
- Cosigners: Depending on your situation, some lenders may require a cosigner to sign for the loan. Having a cosigner with a high credit score can help you secure a lower interest rate and potentially a higher loan amount. If you don’t have a cosigner, you may be able to get a secured loan that requires collateral against the loan.
- Fees: Some lenders charge fees for late payments, application fees, and origination fees. You’ll need to factor some of these costs into your budget, so it’s best to consider them from the start.
- Interest rates: A lower interest rate could potentially save you thousands of dollars on your loan, therefore it’s important to compare rates from a wide range of lenders.
- Discounts: Some lenders offer discounts for autopay and other promotions.
- Eligibility: Keep in mind the minimum credit score required and the acceptable debt-to-income ratio, as this will help determine whether your financial profile is eligible for the loan.
- Loan term: A longer loan term can reduce your monthly repayments however increase the amount of interest you are paying over the life of the loan. Keep in mind what you can afford to pay for your monthly repayments when deciding on a loan term.
5. Submit your application for a personal loan
When you have made a decision on which lender works best for you, you can submit your application for a personal loan.
Many lenders allow you to do this online where you’ll be required to provide personal details, proof of identity, and financial information related to your income. Some lenders, including banks and credit unions, can ask you to visit a branch in-person.
6. Understand your debt obligations
This is vital as any mistakes you make with repayment could affect your credit score. Before accepting the approval, thoroughly read through the terms and conditions of the loan. Keep in mind the obligations for the loan amount, any fees imposed, the repayment date, and the interest rate charged.
7. Loan approval
Approval can be instant for some lenders while others may take a few days or require further documentation from you. You’ll need to sign and accept the loan agreement.
Funds can be deposited into your account in as little as a few days depending on your lender.
Be mindful of when you will start to make repayments and consider setting up autopay if this is offered by your lender.
What if my personal loan application is rejected?
Many factors can impact your approval or rejection of a personal loan. Common reasons can include limited or bad credit history, a high debt-to-income ratio, low income or not providing sufficient documentation with your loan application.
Lenders will provide a letter of explanation if your loan application gets rejected. It’s a good idea to read through this letter and determine what action can be taken to improve the chances of approval for future loan applications.
If your income is not high enough, you could reapply when you have a higher salary or ask a cosigner to be included on the loan. If you have a limited credit history, you could work on building your creditworthiness before reapplying.