How to apply for a personal loan

Illustration of a celebrating person when their personal loan application is approved.

If you need money for a big purchase or an unexpected bill, a personal loan can help you get the funds you need. You can use a personal loan to pay for a wide variety of household expenses, like medical bills, home repairs, or even a wedding.

Wondering how to apply for a personal loan? You’re in the right place. Below, you’ll find a step-by-step guide on how to do just that.

Key takeaways

  • A personal loan is an amount of money borrowed from a lender (such as a bank, credit union, or state-licensed lender) for personal use. You receive the money in a single payout and repay the loan over time.
  • You can use a personal loan to pay for a wide variety of household expenses, such as medical bills, home or car repairs, or even a wedding.
  • Before you apply, it helps to check your credit report, gather all required documents, and find the right lender. Once you do these three things, applying for a personal loan is simple.

Here’s a quick preview:

  • What is a personal loan and how does it work?
  • How to apply for a personal loan
    1. Get your credit report and check it for errors
    2. Figure out how much money you need for your personal loan
    3. Know your rights
    4. Gather the documents
    5. Research potential lenders
    6. Get prequalified
    7. Officially apply for a personal loan
    8. Sign your loan agreement
  • Get prequalified for a personal loan today—no credit history required

What is a personal loan and how does it work?

What’s a personal loan? And how does a personal loan work? Before you apply for a personal loan, it’s helpful to understand how the process works. A personal loan is an amount of money borrowed from a lender for personal use. Banks, credit unions, and state-licensed lenders can all provide personal loans.

Once you apply and are approved for a personal loan, you typically receive your money within a day or two. The money is then yours to spend.

But remember, personal loans aren’t free.

After you receive your money, you’ll have to pay it back over time. Each month, you’ll need to make regular, fixed payments. These payments are based on the amount you borrow and the loan’s:

  • Repayment term. Your loan’s repayment term is the amount of time you have to pay back the entire loan. Personal loan repayment terms are normally between 12 months and five years but can be even longer.
  • APR. Lenders charge interest and fees on the money they lend you. Basically, this is the cost of borrowing money. Lenders are required by law to disclose the annual percentage rate (APR) of loans so that borrowers can compare loan offers. The APR is made up of the interest and fees you pay on the loan. Here’s how it works:
    • Interest. Interest is the percentage of the loan amount that you pay to borrow money.
    • Fees. Certain fees are also included in the APR. These can include but aren’t limited to processing fees and loan origination fees.

Fees and interest are added together to determine your APR. The higher the APR, the more you’ll owe on the loan. The lower the APR, the less you’ll owe.

Once you’ve paid off the loan in full, you’ve finished the whole loan process.

If you need more money, you can apply for another personal loan or refinance your current loan.

How do I apply for a personal loan?

Now that you know how personal loans work, let’s take a look at the eight steps for applying.

  1. Get your credit report and check it for errors

When you apply for a personal loan, lenders will take a look at your credit score. A credit score is a three-digit number between 300 and 850 that people use to help figure out how likely you are to make your payments on time. The higher your credit score, the better.

A high credit score shows you generally make good credit choices, like paying off past debts on time. In contrast, a low credit score tells lenders that you have had past problems with debt such as being late on payments. But it’s not just your payment history that impacts your credit score. Identity theft, too many new credit or loan applications, and a number of other things can lower your score.

If you have what financial institutions call a “thin file,” you might not even have a credit score. A thin file means the credit bureaus don’t have enough information on your credit history to create a score. But don’t worry. Some personal loan lenders (like Oportun) look at more than just your credit score.

Your credit score comes from your credit report. Since your credit score is so important, it’s a good idea to review your report before applying for a personal loan. You can check your credit report at AnnualCreditReport.com. This site allows you to get a credit report for free from each of the major credit bureaus once every 12 months. These national credit bureaus include:

Because of COVID-19, you can request your credit report for free once a week until April 2021 using AnnualCreditReport.com.

If you notice any errors, make sure to notify the credit bureau right away. They can help you fix any mistakes—which could raise your score.

  1. Figure out the amount you need to borrow

After checking your credit report, the next step is to decide how much money you want to borrow.

Here are three important factors to consider:

  • Your loan’s purpose. Start by calculating how much money you need to cover the costs of your personal expense, whether it’s a medical bill, home repair, or large purchase. You don’t want to take out more than you need. Just enough to cover expenses.
  • Your monthly budget. The more money you borrow, the higher your payments will be. So it’s important to consider how much you can afford to pay back each month. When your loan payments fit your monthly budget, it’s easier to pay back your loan on time. (And making payments on time is key to building good credit.)
  • Your eligibility. Lenders have the final say in how much money they’ll lend you. Some lenders have minimum salary and credit score requirements. Generally, smaller loans are easier to qualify for than larger loans.
  1. Know your rights

Federal law requires lenders to inform borrowers about the cost of credit, which is detailed in the Truth in Lending Act (TILA).

The TILA requires all lenders to inform borrowers of these details about their personal loans:

  • Total loan amount
  • APR
  • Total number of payments
  • Monthly payment amount
  • Late fees
  • Prepayment penalty
  • Finance charges

As you research lenders, make sure they give you all of this information. It’s your right to know these details so that you can make an informed choice.

  1. Gather the required documents

Illustration of a clipboard with a list and check marks indicating all required documents for the personal loan application are ready.

In addition to your credit report, lenders look at other financial information to determine your eligibility. To speed up the application process, it’s helpful to gather your personal loan documentation ahead of time.

Here’s what you usually need to apply for a personal loan:

  • Government issued ID or Social Security number
  • Proof of address (utilities bills are great for this)
  • Proof of income (pay stubs or W-2)
  • Contact information of your employer
  • Contact information for personal references
  • A list of your recurring monthly debt payments
  1. Research potential lenders

At this point, you’re ready to research lenders. Different lenders have different loan costs, interest rates, fees, and eligibility requirements. It’s important to find the lender that’s right for you.

To find that lender, start by looking up a few online. As you check out their websites, ask yourself these questions:

  • Does the lender require a credit history?
  • What’s the minimum and maximum loan amount offered?
  • Which APRs do they offer?
  • How long are their loan terms?
  • Do they offer affordable payments?
  • Are the payments monthly, every two weeks, or on another schedule?
  • Do they charge any origination fees or prepayment penalties?
  • Do they have locations you can visit in person?

Once you’ve answered these questions, you’ll have a better idea of which lenders are right for you.

  1. Get prequalified

Once you have compiled a list of potential lenders, it’s time to see if you prequalify. Lenders will typically ask for the following information for prequalification:

  • Name
  • Income
  • Home address
  • Desired loan amount

They’ll also request a “soft inquiry” of your credit report. Unlike hard inquiries, soft inquiries don’t lower your credit score. They allow lenders to see some information from your credit report, but not the full details.

After reviewing this information, the lender will decide if you’re eligible for a personal loan. If you are, they’ll present you with an offer. Loan offers are usually available within a few minutes when you apply online. The offer will explain details about the loan you qualify for, including:

  • Total loan amount
  • APR
  • Loan term
  • Estimated monthly payments
  • Fees and prepayment penalties
  • Whether the loan is secured or unsecured
What’s the difference between a secured loan and an unsecured loan?

The simple answer: A secured personal loan requires you to provide collateral for your loan, while an unsecured loan does not. Collateral is something of value that you own, like your house or car. If you fall behind on loan payments, your lender can take this collateral to cover part, or all, of your repayment. With this added security, lenders feel more comfortable lending money. We’ve broken down what that means for borrowers in another blog.
  1. Finish your personal loan application

Getting prequalified doesn’t mean you’re officially approved for the loan. You’ll need to complete the application process to see if you’re approved. During this process, lenders often ask for additional documents to verify your:

  • Identity
  • Home address
  • Income
  • Total debt
  • Recurring monthly expenses

Your final loan application will include a “hard inquiry” of your credit report, which can temporarily lower your credit score.

After you submit your application, lenders will review them. If you apply online, many lenders will let you know their decision within a few minutes, or sometimes within a couple hours.

  1. Sign the loan agreement

    Illustration of someone signing their name on a personal loan application over the computer

Once you’re approved for a personal loan, there’s one last step: review the loan terms and sign the contract.

After everything is signed, you should receive your money fairly quickly. Some lenders make your money accessible within a few hours. After you get the money, you can put it toward whatever personal expenses you need it for.

At this point, you also become responsible for making payments. If your lender offers automated payments, consider setting those up. Automated payments withdraw money directly from your bank account so that you never miss a loan payment.

Oportun: Get prequalified for a personal loan today—no credit history required

Now that you know how to apply for a personal loan, why not start the process today?

If you have a limited credit history, or no credit history at all, Oportun is here to help. We provide affordable, budget-friendly personal loans, ranging from $300 to $10,000. Within minutes, you can find out if you prequalify for a personal or secured personal loan. Plus, you can visit us at hundreds of locations across the country. Best of all, you don’t need a credit score to apply.

All our personal loans offer:

  • Fixed, affordable payments
  • Months instead of weeks to pay off
  • Money in as little as two hours

Find out if you prequalify for a personal loan with Oportun today.

 

Sources:

Experian. What’s a Good Personal Loan Interest Rate?
Experian. What is the best term length for a personal loan?
Federal Trade Commission. Truth in Lending Act.
Consumer Financial Protection Bureau. What’s a credit inquiry?