How to apply for a personal loan

Personal loans can be lifesavers when you need money fast, and it only takes a few minutes to apply for one—even if you've never applied for a loan before. You'll gather a few documents, prequalify in minutes, compare lenders and offers, and then finalize your loan with a complete application. Here's your step-by-step, easy-peasy, super simple guide to applying for a personal loan.

What you need before applying for a personal loan

You may not need much to apply for a personal loan. Often, lenders can get your banking, employment, and income information directly from your bank or employer. But it's smart to be prepared. The information you may need could include:

• Your ID (driver’s license or passport)

• Social Security or other tax ID number

• Proof of income, like pay stubs, W-2s, tax returns

• Employment information covering at least two years

• Bank account details

Step by step: How to apply for a personal loan

What are the steps to apply for a personal loan? The actual application process is quick and easy once you've gotten your information and documents together. You may want to spend a little time comparing offers and choosing the right loan. 

Step 1. Check your credit score and review your budget

It's easy to check your credit score for free. All three credit bureaus—Equifax, Experian, and Transunion—offer free credit reports and scores to anyone who signs up for a free account with them. And your bank or credit card issuer may provide access to your score for free as a benefit. 

You'll also want to decide how much you want to borrow, as well as how the loan payments will fit into your budget. The size of your monthly payment will depend on the interest rate and loan term. 

An easy way to explore your options is with an online loan payment calculator. For instance, how much will a $1,200 loan cost per month? A loan calculator lets you change up the rate and term to find out. The table below shows the results:

Step 2. Prequalify for loans

The fastest and easiest way to find out what you could qualify to borrow and what the payments would be is to prequalify with a few lenders. Most personal loan providers allow you to prequalify risk-free. 

To prequalify, you'll answer a few questions about your finances and the loan you want. Then, the lender will perform a soft credit check to get an idea of your credit standing. Soft credit pulls don't have any impact on your credit scores.

If you seem like a good fit, the lender will provide you with a prequalification offer that includes how much you could qualify for and the rate you're likely to receive if you apply.

Step 3. Review and compare offers

You’ll probably receive offers with different loan amounts, interest rates, and repayment terms, and you'll need to compare them and make your choice. Here's what to consider:

• Is the loan amount enough to accomplish my goal? Loan fees are deducted from the loan amount. Make sure the amount you actually receive will be enough. 

• Are the monthly payments affordable? Make sure you know where the money to make your payments will come from, and don't take on a loan you can't comfortably afford. 

• What are the loan fees? Some lenders will charge an origination fee on top of the interest fees.

If you're trying to decide between two or more loans, compare their APRs. APR—short for annual percentage rate—shows the total loan cost per year, including its interest and extra fees. APR helps you compare loans with different interest rates and fees. 

For instance, say you're looking for a five-year, $10,000 loan. One prequalification offer has a 15% interest rate and zero extra fees, while the second loan has a 12% rate and an extra $1,500 in fees. The first loan's APR is 15% and the second loan's APR is 19.4%. That makes the first loan cheaper overall even though its interest rate is higher.

Step 4. Complete your application and submit your documents

Once you decide on a loan, it's time to formally apply and finalize your approval. For this step, you might need additional documentation, like paystubs, bank statements, and other paperwork. 

You'll also submit a formal application—online, in person, or over the phone. This involves completing a simple form or answering a few questions and authorizing a hard credit inquiry. You may need to supply copies of your documents or just upload pictures of them with your phone. 

Once your application and documents have been reviewed, you'll receive a final decision. If approved, your loan should be funded within a few business days. Usually, lenders transfer money into your checking account, but sometimes they pay off your accounts directly (if you're consolidating debt). You might also be able to request a check or debit card. 

What personal loan lenders look for when you apply

Lenders consider a number of factors when making a decision:

• Credit score, which indicates how well you have managed your debts up to now

• Debt-to-income ratio, or DTI, which is how much of your income currently goes toward your housing expense and debt payments

• Job and income stability to make sure you'll be able to make future payments

• Loan amount requested, which affects the loan payment and affordability

• Loan purpose, because some lenders only approve loans for certain purposes

These factors affect your loan approval, but they also determine the terms you're offered. People with more appealing qualifications get better loan terms like a lower interest rate. 

Documents needed for a personal loan

You won't need to provide documents to prequalify for a loan, but you will to get your money. Here is a list of documents that lenders typically request: 

• Proof of identity such as a copy of your driver's license or other photo ID

• Proof of income, which could range from just a pay stub (for a wage earner) to several years of tax returns (if you're self-employed)

• Employer contact information to verify your employment

• Proof of address (sometimes) like a utility bill

• Bank information for funding (bank name, account number, and routing number)

How to improve your chances of personal loan approval

It's a common question: How do I apply for a loan with bad credit? 

Start with risk-free prequalification. It will tell you where you stand quickly and takes very little time. If a lender tells you your application needs some work, here are steps you can take:

• Reduce credit card balances to lower DTI and credit utilization. This could raise your credit score and also make your debt more affordable. 

• Check your credit report for errors. Disputing errors and having them removed could improve your credit score.

• Request a smaller loan amount. This gets you a lower payment, making the loan more affordable.

• Add a co-signer if available to boost your overall creditworthiness or add income to your profile.

• Choose a longer repayment term, which could lower your monthly payment and reduce your DTI. 

Ready to get started? You can check your rates with Achieve Personal Loans now with no impact to your credit scores.