Key takeaways
- To get a personal loan, you’ll need good credit, a stable income and a steady employment history.
- Bad credit loans are available, but rates can be high and loan amounts may be limited. You’ll qualify for a lower, more competitive rate with good-to-excellent credit.
- Most personal loans are unsecured, which makes them faster and easier to get than collateral-backed loans.
- Shopping for personal loans with multiple lenders could land you the best deal.
Getting a personal loan is relatively simple. Most lenders offer a fully online application process and only require information about your income, credit history and bank account to get a quote. Your final offer requires a hard credit check and proof of your last couple of paychecks.
If you have excellent credit and little debt, you could borrow up to $100,000 from some lenders with repayment terms as long as 7 years. However, if you have fair or bad credit, you may need to take extra steps to increase your approval chances and should expect to pay higher rates and fees with more limits on how much you can borrow.
Knowing the steps required to get a personal loan may help you get quick cash for debt consolidation, home improvement, medical bills or other expenses.
How to get a personal loan in 7 steps
Consumers often choose personal loans because they provide fast access to cash for a variety of needs. In most cases, you don’t need to offer collateral, which means less paperwork and quicker approval. To streamline the process and ensure you snag the best personal loan, follow these seven steps:
1. Know your credit score
Personal loan annual percentage rates (APRs) can range from just below 7 percent up to 35.99 percent, and the rate you receive depends mostly on your credit score. Higher scores (typically 670 or above) translate to lower rates, larger loan amounts and fewer fees. Credit scores fall into the following categories:
| Credit band | Credit score ranges |
| Exceptional | 800-850 |
| Very good | 740-799 |
| Good | 670-739 |
| Fair | 580-669 |
| Poor | 300-579 |
Lenders rely on your credit score to predict how likely you are to repay the debt as agreed — a high credit score demonstrates your history of responsible credit usage, and as a result, you’re more likely to qualify for the lender’s lowest rate. The difference between a loan with excellent credit and a bad credit personal loan can be hundreds of dollars a month and thousands of dollars in overall interest.
Consider working to improve your credit score if you don’t qualify for an affordable rate.
2. Understand lender requirements
Your credit score is typically the most important part of the eligibility puzzle, but lenders also review other criteria when assessing your loan application. While each lender sets its own qualification requirements, familiarizing yourself with common approval metrics can help you ensure you’ll qualify.
- Credit score minimum: Most personal loan lenders require you to have fair credit or better, or a score above 580. Some lenders accept scores below this threshold, but you can expect to pay high rates and fees. Bad-credit lenders may also consider other criteria when reviewing your application, such as your educational background and employment history.
- Debt-to-income ratio: To understand whether you have room in your budget for a loan payment, lenders review your debt-to-income (DTI) ratio. This number, expressed as a percentage, is calculated by dividing your total monthly debt payments by your gross monthly income. Many lenders require a DTI below 50 percent, but to avoid becoming financially overextended, aim to keep your ratio below 36 percent.
- Income: Your income tells lenders how likely you are to be able to repay your loan. The more you make and the more regular your income is, the easier it is for the lender to approve your loan. Some lenders allow you to use a cosigner, which can improve your eligibility and may boost the amount you’re approved for.
- Fund use restrictions: Personal loans are generally a flexible product — you can use funds in nearly any (legal) way you choose. However, some standard no-nos include using the funds for college tuition, investing in the stock market or supporting your small business.
Consider a secured personal loan
Although most personal loans are unsecured, some lenders offer secured options backed by collateral like a car or savings account. The lender can seize your collateral if you default on the loan, but since the lender’s risk is decreased, you may qualify for a much lower interest rate. If you’re certain that you can repay the debt as agreed, a secured personal loan can be a great way to save money — if you have a valuable asset to pledge.
3. Run the numbers
Decide exactly how much you need to borrow and how much you can afford to repay each month. Personal loans are installment loans, which means you receive all your funds at once. If you need additional money, you must reapply for a new loan.
Be sure to consider any origination fees when determining how much to borrow. Some personal loan lenders charge origination fees of up to 12 percent of your loan amount, and the cost is typically deducted from your loan funds before you receive them. If you select a lender that charges this fee, you may need to borrow a larger amount to account for the fee.
Bankrate tip: Once you’ve zeroed in on your loan amount, run some numbers using a personal loan calculator. Experiment with longer terms if you want to keep your payment lower or shorter terms if you want to pay the balance off quickly.
4. Gather documentation
You’ll need to provide documentation to verify the information in your application, and gathering these documents ahead of time can speed up the process later.
Some lenders may verify this information electronically, but most will ask you to provide:
- Proof of identity: Lenders typically accept your birth certificate, certificate of citizenship, driver’s license, passport, Social Security card or a state-issued ID.
- Income verification: You can provide a pay stub, bank statements, tax returns or even 1099 forms if you’re self-employed.
- Proof of address: Lenders may ask for copies of utility bills, lease or rental agreements, property tax bills or credit card statements as proof of address. You may also have to provide previous addresses if you’ve recently moved.
- Statements from creditors for debt consolidation: If you plan to use a personal loan for debt consolidation and want the lender to handle repayment of your creditors, you’ll need copies of loan agreements and credit card statements.
- Banking information: For the fastest funding turnaround, provide banking information such as routing and account numbers. Alternatively, lenders may ask you to directly link your account through a secure service like Plaid.
Be prepared to take pictures or scan your documents and make sure the images are legible. Lenders won’t accept documents they can’t read.
5. Shop around for the best personal loan rates
Shop around and only apply with lenders that clearly list personal and financial approval requirements that meet your needs. Compare several lenders and loan types to get an idea of what you qualify for. Avoid settling for the first offer you receive — by comparing multiple loan offers, you can zero in on the most affordable option.
If you’ve been a longtime account holder with your bank or credit union, see if it’s willing to give you a better rate or offer you any perks or discounts. You can also search the Bankrate personal loan marketplace to find the most competitive loan that best meets your borrowing needs.
Prioritize lenders that offer prequalification
Loan prequalification involves entering some basic information and previewing your potential eligibility and interest rate. This process doesn’t require a hard credit inquiry, so your credit score won’t be impacted. Prequalification isn’t a firm loan offer, and your loan details may change when you formally apply, but it can be a great way to narrow your list of potential lenders.
6. Pick a lender and apply
Compare quotes from at least three lenders to get an idea of what you qualify for. Review each offer’s APR, repayment term, fees, monthly payment and overall cost of borrowing. A long repayment term may offer a lower monthly payment, but remember that you’ll pay more in interest over the life of the loan, sometimes to the tune of thousands of dollars.
Once you’ve picked the lender with the best offer for your needs, you’ll start the application process, which typically can be completed online. Alternatively, you may have to apply in person at your local bank or credit union branch.
Keep in mind the terms of your offer could change depending on the documents you provide. Ask the lender to explain any changes to your interest rate or loan amount after your initial application.
7. Accept the loan and start making payments
If your loan application is approved, the lender will prepare your final loan documents. Once you agree to the terms and sign the loan contract, many lenders will disburse funds directly to your bank account within one business day at most lenders. It could take up to a week to receive loan funds if you prefer a physical check or work with a smaller bank or credit union.
Keep track of when your payments are due, and consider setting up automatic payments to streamline the process. Some lenders even offer interest rate discounts if you use autopay.
Consider paying extra toward the loan principal each month, even if it’s only a small amount. While personal loans are often cheaper than credit cards, you’ll still save money on interest by paying the loan off early.
How Bankrate experts used personal loans to improve their finances
Bottom line
Getting approved for a personal loan can be a simple process. Increase your chances of approval by taking some steps ahead of time, like knowing your credit score and understanding lender requirements. Doing some research before you apply could make the difference between a green light for financing or a loan denial. Compare lenders to find the best rates and terms for your specific financial situation.
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