How to Apply for a Personal Loan: Step by Step Guide

Get Personal Loan Rates

on LendingTree's secure website

Applying for a personal loan is a simple process, and it can usually be accomplished online. But taking out a personal loan isn’t a decision that should be taken lightly, and it’s important to understand what you’re getting into, like the costs of borrowing and whether or not you can afford the monthly payments, before jumping in.

How to apply for a personal loan

While the personal loan application process can be relatively simple, we would recommend following the thought process below when applying.

Step 1: Figure out how much money you need

Before applying for a personal loan, you need to know how much money you need and have a plan for how you’ll spend that cash. Not only will this prevent you from overborrowing (and paying interest on the excess amount), but it will also enable you to know exactly how the money will be used, and how it will better your financial situation.

Remember: When used incorrectly, a personal loan can get yourself further into debt. But if you use the funds to your advantage, they can alleviate financial pressure and help you save money.

Step 2: Check your credit and finances

In general, the better your credit score, the better your interest rate. Knowing where you stand makes it easier to understand the kinds of loans you might be able to qualify for, or if you’re likely to qualify at all. Lenders usually look for a credit score of around 660 or higher, but there may be options for those with lower scores (but again, you’d likely pay the price in the form of a higher interest rate).

You can check your credit score without affecting your credit with services such as My LendingTree. (Note: ValuePenguin is owned by LendingTree.) Your credit card issuer may also allow you to access your FICO score for free.

You should also take a look at your general finances like your monthly budget to figure out how much you could afford to pay toward your loan each month, and for those with little to no financial breathing room, identify places where you could cut back and create room for payments. Be sure to include all of your financial obligations, such as other debt payments and nonnegotiables like rent and food when making these calculations.

Step 3: Research lenders and apply for prequalification

As with any loan, it’s important to shop around before deciding on a lender. That’s because it will enable you to compare the various rates and terms for different lenders and find what works best for you. You can start your search by looking at online lenders and banks that offer personal loans.

Some of those lenders may offer prequalification with a soft credit check, which won’t affect your credit score. That means they could tell you if you’re likely to qualify based on basic information, including:

  • Your annual income
  • Credit score tier; and
  • Desired loan amount

You may also get a potential APR or range as well as loan terms with your prequalification.

Make sure that you’re familiar with each lender’s requirements and terms, including their fee schedules. Then use that context to narrow down your options and select the lender that works best for you.

Step 4: Gather required documents

Now that you know your lender, you can apply for your personal loan. In order to fill out the application, you’ll need to be able to provide documents that verify things like your identity and income. In general, lenders will want the following:

  • Personal information like name, date of birth, Social Security number and driver’s license number
  • Contact details like your phone number and an email address
  • Proof of employment like your employer’s contact information
  • Bank account information

Step 5: Apply

You can typically apply for a personal loan online, in-person or over the phone, depending on which lender you choose. Once you submit the application, the lender will perform a hard credit check. That means it will impact your credit score, and may lower it temporarily.

How to apply for a personal loan at a bank

While most banks will let you apply online, some of them may require you to go in person to complete your application, if for example, you aren’t already a customer. In that case, you may need to gather physical copies of some documents and make an appointment to fill out an application.

On the plus side, some banks offer relationship discounts, meaning you’d get a slightly lower interest rate if you already have an account with the lender. That might be something to consider when looking at online-only lenders as compared with bank-based personal loans.

How to apply for a personal loan with bad credit

A bad credit score can make it difficult to qualify for a personal loan, but it doesn’t mean you don’t have options. There are lenders who cater to borrowers with less than stellar credit. But be sure you can afford to repay the loan before signing up — a higher interest rate, especially paired with a shorter loan term, will impact your monthly payment.

You may wish to explore alternative options as well. Some lenders, for example, will accept a creditworthy cosigner. It’s also a good idea to expand your search, if for example, you limited it to bank-based loans. But be sure to look out for and avoid predatory loans, like payday loans. Those often come with extremely high interest rates, with typical APRs of almost 400%, and can leave borrowers trapped in a debt cycle.

Regardless of whether or not these techniques work for you, it’s a good idea to start rebuilding your credit by adhering to all of your payment due dates and, if possible, lowering your revolving debt.

Is a personal loan right for you?

A personal loan is a flexible financing option, whether you need to cover an emergency expense or fund a big purchase. With fixed rates and repayment terms, your monthly payments will be predictable and you’ll know precisely when your loan will be repaid.

As a traditional personal loan is unsecured, you don’t need to provide collateral to be approved for a loan. However, that means many lenders will put a lot of weight on your credit and finances when reviewing your application for a loan. For bad credit borrowers, a personal loan can be an expensive form of credit.

You can find personal loans online and at brick-and-mortar financial institutions. With so many options, you’ll want to shop lenders and compare rates and terms to ensure you’re getting the best deal for your financial situation.

Devon is a San Francisco-based freelance writer covering all things personal finance. Her work has been featured in publications such as the L.A. Times, Marketwatch, CNBC and USA Today, among others.