How to Apply for a Personal Loan in 2024

A personal loan can help you finance a wide range of expenses, such as unexpected expenses, debt consolidation, or large purchases like a new appliance or vacation. 

Applying for a personal loan may seem intimidating, but it’s fairly straightforward. Let’s walk through the key steps for how to apply for a personal loan as well as actions you can take ahead of time to make the process go more smoothly.

How to Apply for a Personal Loan

When you apply for a personal loan from any lender, you’ll likely go through each of these key steps, which we review in more detail below:

1. Determine how much you need: Is the loan for a home improvement? A vacation? To consolidate debt? Whatever the need, be sure you understand how much you need, as a first step.
2. Review your finances: With an amount in mind, look at your financial situation. Can your budget support another monthly payment? How is your credit score?
3. Research and compare lenders: Lender options are limitless. Narrow your options by starting with your current bank and researching lender reviews.
4. Pre-qualify: Most lenders will allow you to pre-qualify—without damaging your credit score. Go through the process with at least three lenders to review rates, terms, fees, and estimated payment amounts.
5. Apply: Once you’ve selected a lender, complete a formal application.

Before You Apply for a Personal Loan

Most loan applications take only a few minutes to complete (and funding can arrive the next day—or sooner). But the process before you apply can take a little longer.

Determine How Much You Need

Consider why you’re applying for a personal loan and estimate how much you’ll need to borrow. This is a key step in getting a personal loan. You can borrow between $250 and $100,000, so honing in on an amount will prevent you from borrowing more than you need. Later in the process, this information can help you narrow down your options since loan amounts vary by lender.

Review Your Finances

Assess your finances to figure out what you can afford before you apply for the loan. Review your income and expenses to understand your budget, or how much money you have coming in and going out each month. Can you budget handle another monthly payment? How much can you comfortably add?

Check your credit score, too, since it will play a role in your loan eligibility and interest rate. Higher credit scores improve your odds of approval and allow you to qualify for lower rates. If your credit score is lower than you expected, review your credit report to see whether it includes errors that need to be disputed.

Research and Compare Lenders

Shop around with banks, credit unions, and online lenders to compare loan amounts, interest rates, terms, and fees. Review loan requirements, if they’re available. For example, some lenders have a minimum credit score or income requirement, or only offer loans in certain states.

Read personal loan and lender reviews and ratings to help you zero in on the best personal loan lenders, and then rank your top choices. Interest rate is always a key consideration, but most borrowers say they prefer lenders with high-quality customer service and a good overall experience, lenders that provide helpful information and prioritize meeting their customers’ borrowing needs, according to J.D. Power.

Pre-Qualify

Most lenders offer pre-qualification that allows you to view the loan terms you are likely to be approved for. To pre-qualify, you usually only have to enter a minimum amount of information: your personal identifying information, income or employment details, and desired loan amount. The lender will review your information and do a soft credit check, which unlike a hard inquiry when you officially apply, won’t affect your credit. A soft credit check can give you a preliminary decision, but keep in mind it doesn’t guarantee you’ll get approved.

Apply for a Personal Loan

With the preparation out of the way, and your choice of lender set, you can apply.

Many lenders offer online applications, which are quick and convenient. Some lenders, particularly traditional banks, may require you to apply in person. Either way, the loan application will ask for personal and financial information, like your name, home address, and employment information. You may have to provide additional documents, including your:

• State-issued ID
• Proof of residence
• Income documents, like a bank statement or pay stub
• Tax return

After you submit the application, wait for the results, which may be within minutes or may arrive in a few days. You’ll receive a decision faster if your application is complete and free of errors.

If you’re approved, the next step for how to apply for a personal loan is to review your final loan documents, then accept and sign them. Your loan documents will include the loan amount, interest rate, repayment term, and monthly payment amount. Within a few days of acceptance, you should receive funds in your bank account.

Alternatives to a Personal Loan

If you need financing for a large expense, but don’t want to use a personal loan, you can consider alternative options. Some of them include:

• Credit card installment plan: You can pay off large transactions with fixed payments with a credit card installment plan. If your purchase is eligible, you can select the installment plan option through your online account.
• Home equity loan or line of credit: If you use your home equity as collateral for a loan, you can usually get a lower interest rate. If you have enough equity and good credit, you can borrow a percentage of your home equity, typically no more than 80%.
• Savings secured loan: You can use your savings account balance as collateral for a loan with a savings secured loan. These loans are generally fixed-rate loans that may allow you to borrow up to 100% of the amount in your savings account. However, if you can’t afford to repay the loan, you will lose your savings to the lender.
• Family loan: Borrowing from family members can provide funds for your expenses, but this strategy does have downsides to consider. Late payments or unpaid loans can potentially damage your relationship.