How to get a personal loan: Requirements and how to qualify

A personal loan provides cash in the form of a one-time lump sum that you can use to cover financial emergencies, major purchases, and more. You’ll pay this off over time in fixed monthly installments. Because personal loans are often unsecured, you won’t have to provide collateral.

Here’s how to get a personal loan in seven steps, including the requirements to qualify and the application process.

1. Ask yourself: Is a personal loan a good idea?

Whether a personal loan is a good idea depends on your situation. Here are a few scenarios where a personal loan could make sense:

• You prefer fixed payments spread through a few years. Most repayment periods are between one and seven years, depending on the lender. Personal loans also typically have fixed interest rates, so your monthly payment and rate will be the same for the life of the loan. As a result, you know precisely how much to budget each month to pay back the balance.
• You’re looking for flexibility in how you use the funds. You can use the loan proceeds for nearly any expense. Some common uses for a personal loan include high-interest debt consolidation, home remodels, major life events, and vehicle repairs.
• You don’t want to put collateral on the line. Since most personal loans are unsecured, lenders won’t require you to use your assets (like a car, home, or cash reserves) as collateral to qualify. However, because this is riskier for the lender, your rate could be higher compared to loans backed by collateral. Your loan amount could also be lower.

Compare: Secured vs. unsecured loans

2. Review personal loan requirements

While exact requirements can vary by lender, here are some typical guidelines:

• Good credit: The required credit score for a personal loan depends on the lender. In most cases, you’ll need a good credit score, which typically means a score of at least 670. Select providers consider scores below 580, but they might require collateral or only offer lower loan amounts. Also keep in mind that you’ll need good to excellent credit to qualify for the best rates.
• Positive payment history: On-time payments are a key indicator of your ability to repay future loans. Even if your credit score has room to improve, you’ll have an easier time qualifying for a personal loan if you consistently pay your bills on time.
• Low debt-to-income (DTI) ratio: Your DTI ratio compares your income to your monthly debt payments. Lenders generally want to see a DTI ratio of 36% or less, which demonstrates that you have ample cash flow to afford another monthly payment. While you might qualify with a DTI ratio of up to 50%, your options might be more limited.
• Sufficient income: Minimum income requirements for personal loans vary by lender — for example, a lender might require at least $25,000 in total individual or household income. You’ll need to demonstrate a consistent income and employment history to qualify for favorable loan terms.
• Be at least the minimum age: You must typically be at least 18 years old, although certain states and lenders require a higher minimum age.

Find out: How personal loans affect your credit score

3. Check your credit

Before you apply, check your credit reports and credit score to see where you stand.

• Review your credit reports. Getting your credit reports from the three major bureaus — Equifax, Experian, and TransUnion — will give you an idea of what lenders will see when they review your credit history. You can visit AnnualCreditReport.com to access weekly online reports from all three bureaus for free. If you find any errors, dispute them with the corresponding credit bureau.
• Check your credit score. There are multiple, legitimate places to track your credit score for free. For example, your current bank or credit union might provide this information. You could also sign up for an online credit-monitoring service.

4. Figure out how much loan you can afford

Consider how much you can afford to pay each month without straining your budget. Estimating the monthly payment you can afford will also help you understand what repayment term options could suit your needs.

You can use a personal loan calculator to estimate what various payment options could look like with different rates and terms.

5. Gather any documents you might need

Prepping your various financial and personal documents can help to speed up the application process. The most common documents that lenders want to see include:

• Proof of identity: Social Security number, government-issued ID, permanent physical address, email address, and primary phone number
• Income verification: Recent pay stubs, bank statements, and monthly mortgage or rent payment details
• Employment verification: Work email address, work phone number, or employer contact information.

Depending on your application profile, your prospective lender might request additional documentation to verify specific details. For example, a lender could ask for your most recent tax return to confirm financial details or a utility bill to verify your home address.

Also, decide in advance which bank account you want to deposit your funds into. To combat fraud, lenders will typically ensure this account is in your name during the application process.

6. Compare offers from multiple lenders

Comparing your options from as many lenders as possible can help you find a good deal. Many personal loan lenders allow you to pre-qualify for free to see your personalized loan options. This process usually requires just a soft credit check that won’t hurt your credit score.

Pre-qualification quotes will typically include these comparison factors:

• Monthly payment: The fixed monthly installment you’ll pay through the life of your loan.
• Annual percentage rate (APR): Lenders will typically provide the loan’s annual percentage rate (APR), which includes both your interest rate and any fees. This can give you a better idea of your total costs compared to looking at your interest rate alone.
• Repayment term: You’ll also be given the duration of your repayment period (for example, three or five years).
• Loan amount: Your starting loan balance and the net amount that you’ll receive after paying any upfront lender fees (if applicable).
• Origination fee: Many lenders charge an origination fee to process a loan application. In most cases, this fee will be withheld from your starting balance. Some institutions might allow you to roll the origination fee into your principal balance, though this means paying interest on a higher loan amount.
• Total interest costs: The estimate should include your total borrowing costs for the repayment period, including how much you’ll pay in interest. In most cases, you can pay off the balance early to save money on interest without incurring a prepayment penalty.

Example of rate quotes

Here’s an example of how rate quotes might look when applying for a $20,000 personal loan, along with reasons why you might choose one option over another:

As you can see, your potential monthly payment and lifetime borrowing costs can differ significantly. Inquiring with several lenders can be worth the extra effort to save money.

7. Choose your best option and apply

After you’ve compared quotes from several lenders, choose the option you like best and submit a full application. In many cases, you can do this fully online.

If you’re ready to apply online, navigate to the lender’s website, log in if necessary, and follow these steps:

• Choose a repayment term. Select your desired repayment period and monthly payment. Note that shorter terms require a higher monthly payment but incur less interest. Shorter terms also tend to come with better rates. A longer term, in comparison, might be a better fit for your budget; however, you’ll pay more interest over time.
• Submit documents. Provide the documentation required by the lender to verify your personal history and financial details. You might be able to upload the requested documents directly from your computer or phone.
• Agree to a hard credit check. The lender will perform a hard credit pull as part of the application process to provide a firm loan offer, which can cause a slight drop in your credit score. While a hard inquiry can stay on your credit report for up to two years, the impact to your credit score generally lasts for only a few months.
• Wait for an approval decision. Once you’ve completed your portion of the application, you could get an approval decision as soon as the same day, depending on the lender. Some lenders might require one or two days to examine your paperwork. Respond to any requests for additional documentation as soon as possible to avoid delays.

8. Accept the loan and set up your payments

If you’re approved, the lender will send you a loan agreement to sign in order to accept the loan. Review this agreement carefully, including the following details:

• Monthly due date
• Loan APR
• Final payoff date
• Applicable fees
• Prepayment penalties (if applicable)

If everything checks out, go ahead and sign the agreement. After you’ve accepted your offer, you could get your funds as soon as the same or next business day, depending on the lender. In some cases, same-day funding might be available only to existing account holders.

Once your loan is processed, you can start managing your payments. Depending on the lender, you might be able to pay by check or debit card or at a local branch.

What to do if you’re denied for a personal loan

Federal law requires lenders to disclose the reasons for your denied application. Further, if the denial was for credit-related reasons, the notice should include the credit score and reporting bureau that was used to make the decision.

If your application was denied, here are some strategies that could help you get approved for a personal loan in the future:

• Make on-time payments. Continue to pay any existing loans and credit cards on time each month. A positive track record of consistent payments over time can help offset any prior history of missed payments. In fact, your payment history is the most influential factor in your credit score, comprising 35% of your total score.
• Reduce credit utilization ratios. The second biggest part of your credit score (30%) is your credit utilization. This compares your balances on revolving credit lines (like credit cards and lines of credit) to your total credit limits. In general, it’s a good idea to keep these balances to 30% or less of your total limit. You could also lower your DTI ratio by paying down these debts.
• Avoid new credit applications. Avoid applying for new loans and credit cards — which involve undergoing hard credit checks — as much as possible. Each inquiry temporarily lowers your credit score, and creditors may view any new account openings as additional risk.
• Review your credit reports. Check your credit reports for any errors impacting your credit score. Keep in mind that negative marks like late payments remain on your report for up to seven years. In general, adverse credit events like this will have less of an effect on your credit score as more time passes.
• Build your credit. If you can wait to take out a loan, it can be wise to focus on building your credit so you’ll have an easier time qualifying later on. There are several ways to do this — for example, you could consider getting a short-term credit-builder loan. The provider will report your on-time payments to the credit bureaus while depositing the funds in a savings account. At the end of the loan term, you’ll receive these funds, minus any fees or interest.
• Strengthen employment history. If your denial relates to insufficient income or employment, look for ways to increase your pay. You could also switch employers and wait for a few months to build a stable history of steady paychecks. An increase in income also helps reduce your DTI ratio.

Personal loan alternatives

Unless there was an application error, you’ll most likely need to wait several months before you’re in a position to reapply with better approval odds. If you need access to funds faster, here are some alternatives to consider:

• Speak with your bank or credit union. If you already have an established relationship with a bank or credit union, see if you could qualify for special financing.
• Consider a joint personal loan. Applying with a trustworthy co-borrower or co-signer who has a stronger credit or income history than you do can make a big difference.. You might also qualify for a lower interest rate or a higher loan amount. Just keep in mind that your co-borrower or co-signer will be the hook if you don’t make your payments. Additionally, not all lenders permit co-borrowers or co-signers for personal loans.
• Use collateral. Some lenders offer secured personal loans, which require you to use an asset (like your vehicle or another possession) as collateral. Because secured loans aren’t as risky for lenders, they often come with better rates and terms than unsecured loans. However, you risk losing your property if you can’t keep up with your payments.
• Tap into your equity. If you’re a homeowner, another secured loan option is a home equity loan or home equity line of credit (HELOC). These types of loans use your house as collateral, which means your home could be foreclosed on if you don’t make your payments. You’ll also usually need a credit score of at least 620 to qualify, depending on the lender.
• Contact your creditors. If your reason for getting a personal loan is to consolidate high-interest debt, try contacting your current loan or credit card company to request temporary relief in the meantime. You might be able to negotiate a lower interest rate or repayment plan that helps you save money.
• Explore family loans. You might consider asking a friend or family member to lend you the money you need. Be sure to set up a clear repayment plan to avoid damaging your relationships.