Personal Loans: Secrets you need to know and  How to Apply


Navigating the world of personal loans can seem daunting, but with the right guidance, securing the funds you need is achievable. By understanding factors like credit score requirements, loan amounts, and repayment terms offered by different lenders, you can make an informed decision on the best personal loan option for your situation.

Typically, personal loans carry annual percentage rates (APRs) ranging from around 12% for excellent credit to over 21% for poor credit, with loan amounts and terms varying across lenders . Following key steps such as checking your credit score, calculating potential payments, comparing lenders, getting pre-qualified, reviewing agreements carefully, and setting up automatic payments can streamline the personal loan process.

Assess Your Creditworthiness

Assessing your creditworthiness is a crucial step before applying for a personal loan. Lenders typically require several documents to verify your identity and financial information, including:

  • Application form with personal details (name, contact info, date of birth, Social Security number) 
  • Proof of identity (driver’s license, passport, etc.) 
  • Proof of income ( tax returns, pay stubs, bank statements) 
  • Proof of address (lease, utility bill, mortgage statement) 

Lenders may also want information about your credit score, the purpose of the loan, and your monthly expenses.

Credit Score Requirements

Credit score requirements for personal loans vary across lenders, but many give preference to borrowers with good or excellent credit scores (690 and above). The typical minimum credit score to qualify for a personal loan is between 560 to 660. Borrowers with fair or bad credit may still qualify for personal loans, but often at higher interest rates of up to 36%.

Credit Score RangeCredit Score Category
720+Excellent
690-719Good
630-689Fair/Average
300-629Bad

To improve your chances of getting a personal loan, consider:

  • Making payments on time 
  • Disputing credit report errors 
  • Decreasing credit utilization 

Before applying for a personal loan, it’s recommended to do the following:

  • Review your finances, including your credit score and credit report 
  • Check your credit score 
  • Calculate the estimated loan payments based on the loan amount, APR corresponding to your credit score, and loan term

If you don’t get approved for a personal loan, you can try:

  • Getting a co-signer 
  • Applying for a secured personal loan
  • Working on improving your credit score 
  • Considering a credit card instead 

Personal loans are often unsecured, so approval depends on credit score and income. Before applying, it’s recommended to check your credit score, assess your financial situation and budget, consider a co-borrower or co-signer, look into using collateral, and explore alternatives to borrowing.

Determine Your Borrowing Needs

Before applying for a personal loan, it’s crucial to determine how much money you need and can afford to borrow. Run the numbers to calculate the exact loan amount required, estimate the monthly payment, and include any origination fees. This step involves:

  1. Identifying the Purpose: Choose the personal loan type that best fits your specific needs, such as debt consolidation, home improvement, medical expenses, emergencies, or special events .
  2. Calculating Loan Amount: Determine the precise loan amount needed by adding up all expenses or debts you want to consolidate . Consider options like fast funding for emergencies or long-term planning for larger expenses.
  3. Estimating Monthly Payment: Use an online loan calculator to estimate your monthly payment based on the loan amount, interest rate, and repayment term. Ensure the payment fits comfortably within your budget.
  4. Factoring in Fees: Account for any origination fees or prepayment penalties that may be charged by the lender . These fees can as well impact the total cost of the loan.
  5. Assessing Credit Impact: If consolidating debt or taking a loan to improve credit, consider whether a bad credit loan can help boost your credit score in the long run.

By thoroughly assessing your borrowing needs and running the numbers, you can make an informed decision on the appropriate loan amount and terms, minimizing the risks associated with personal loans, such as accumulating too much debt or missing payments that could impact your credit score.

Research and Compare Lenders

When researching and comparing personal loan lenders, there are several key factors to consider

  • Annual Percentage Rate (APR): This is the total cost of borrowing, including interest rate and fees. Compare APRs across lenders to find the most affordable option.
  • Loan Amounts: Lenders offer different loan amount ranges. Ensure the lender provides the amount you need.
  • Repayment Terms: Loan terms typically range from 1-7 years. Longer terms mean that lower monthly payments but more interest paid over time.
  • Credit Score Requirements: Each lender has minimum credit score requirements. Check if you meet their criteria.
  • Funding Time: Some lenders offer faster funding than others, which may be important for emergencies.
  • Co-Borrower/Collateral Options: If you have poor credit, look for lenders allowing co-borrowers or secured loans using collateral.
  • Additional Features: Some lenders provide credit-building tools, rate discounts for autopay, or flexible payment options.

To get started, you can get pre-qualified for personal loan offers from multiple lenders, which involves a soft credit check and provides estimated rates and terms. This allows you to compare offers without impacting your credit score.

LenderAPR RangeLoan AmountsLoan Terms
SoFi8.99% – 29.99%$5,000 – $100,0002 – 7 years
Discover7.99% – 24.99%$2,500 – $40,0003 – 7 years
Upgrade8.49% – 35.99%$1,000 – $50,0003 – 7 years
Upstart7.80% – 35.99%$1,000 – $50,0003 – 5 years
LightStream7.99% – 25.49%$5,000 – $100,0002 – 7 years

</Comparison Table>

Some top lenders for personal loans include SoFi, Discover, Upgrade, LightStream, and Upstart, each offering competitive rates, loan amounts, and repayment terms. It’s crucial to shop around and compare offers from multiple lenders to find the best fit for your needs and financial situation.

Complete the Application Process

The steps to get a personal loan are straightforward: get prequalified with multiple lenders, compare all loan terms, choose a lender and apply, review the offer, and accept the loan. Before applying, it’s crucial to:

  1. Pre-qualify with Multiple Lenders: Submit pre-qualification applications to several lenders to compare rates, terms, and fees without impacting your credit score. This allows you to identify the most favorable offers.
  2. Review Lender Requirements: Gather necessary documentation such as proof of identity (driver’s license, passport), income verification (pay stubs, tax returns), and proof of address (utility bill, lease). Lenders may also require information about your credit score, loan purpose, and monthly expenses.
  3. Complete the Formal Application: Choose the lender with the best terms and complete their formal loan application, providing all required personal and financial information.
StepAction
1Pre-qualify with multiple lenders
2Review lender requirements and gather documents
3Complete formal application with chosen lender
4Provide any additional requested documents
5Review and sign loan agreement
6Receive funds and set up automatic payments

</Comparison Table>

  1. Provide Additional Documents: Submit any supplementary documents requested by the lender, such as updated pay stubs or bank statements.
  2. Review and Sign Agreement: Carefully review the loan agreement, ensuring the terms match the initial offer. Sign the agreement once satisfied.
  3. Receive Funds and Set Up Payments: The funds will typically be disbursed within 1-2 business days after approval. Make sure to set up automatic monthly payments to avoid late fees.

By following these steps and being prepared with the necessary documentation, you can streamline the personal loan application process and increase your chances of approval 

FAQs

How Do I Apply for a Personal Loan?

To apply for a personal loan, follow these five steps below:

  1. Identify your financial need and the amount you require.
  2. Verify your eligibility for the loan.
  3. Calculate your potential monthly payments.
  4. Contact your chosen bank or lending institution.
  5. Provide the necessary documentation for the loan application.

What Steps Should I Take to Ensure My Personal Loan Application Is Approved?

To increase the likelihood of your personal loan application being approved, you should:

  1. Determine the loan amount you need by assessing your financial obligations.
  2. Check your credit score and also review your credit history.
  3. Compare prequalified loan offers from multiple lenders.
  4. Collect all necessary documentation required for the loan application.
  5. Submit your application for a personal loan.

How Many Recent Pay Stubs Are Required When Applying for a Personal Loan?

When applying for a personal loan, lenders typically require proof of a steady income to ensure you can repay the loan. This usually involves providing recent pay stubs from the past 30 days as part of your income verification documents.

How Can I Boost My Likelihood of Securing a Personal Loan?

To enhance your chances of obtaining a personal loan, consider the following tips:

  1. Improve your credit score with small, manageable steps.
  2. Accurately calculate the loan amount you need.
  3. Consider adding a cosigner to your application to strengthen it.
  4. Explore various lenders instead of settling for the first option.
  5. Carefully review your application before submission to avoid errors from occurring

References

[1] – https://www.lendingtree.com/personal/
[2] – https://www.bankrate.com/loans/personal-loans/documents-required-for-personal-loan/
[3] – https://www.nerdwallet.com/article/loans/personal-loans/credit-score-need-get-personal-loan
[4] – https://www.investopedia.com/articles/personal-finance/010516/how-apply-personal-loan.asp
[5] – https://www.bankrate.com/loans/personal-loans/how-to-get-personal-loan/
[6] – https://www.nerdwallet.com/article/loans/personal-loans/how-to-get-a-personal-loan
[7] – https://www.investopedia.com/how-fill-out-personal-loan-application-7643049
[8] – https://www.investopedia.com/compare-personal-loans-different-lenders-7974017
[9] – https://www.nerdwallet.com/personal-loans
[10] – https://www.cnbc.com/select/best-personal-loans/
[11] – https://www.experian.com/blogs/ask-experian/personal-loans-what-to-know-before-you-apply/