Step 1: Know Your Credit Score Before Applying
Personal loan rates vary widely based on credit score. Borrowers with scores above 720 typically receive the best rates (8% to 12% from reputable lenders). Scores between 670 and 720 receive moderate rates (12% to 20%). Scores below 670 face high rates or denial from most mainstream lenders. Check your score before applying to target appropriate lenders.
Step 2: Compare Multiple Lenders
Apply to at least three lenders: your primary bank or credit union, an online lender, and a credit union. Many lenders offer pre-qualification with a soft credit pull that does not affect your score. Compare APR (not just interest rate), origination fees, repayment terms, and any prepayment penalties.
Documents Typically Required
Most lenders require: government-issued photo ID, Social Security number, proof of income (recent pay stubs or tax returns for the self-employed), employer information, and bank account information for funding.
Choosing the Right Term
Choose the shortest term whose payment fits comfortably in your budget. Avoid stretching the term just to minimize the monthly payment if you can service a shorter loan without hardship -- the interest savings are substantial.
Secured vs. Unsecured Personal Loans
Most personal loans are unsecured, based purely on creditworthiness. Some lenders offer secured personal loans backed by a savings account or vehicle title, which can unlock a lower rate for borrowers who don't qualify for the best unsecured tiers -- at the cost of risking the pledged asset if you default.
Common Personal Loan Application Mistakes
Applying to many lenders with hard credit pulls. Use lenders' soft-pull pre-qualification tools first; only proceed to a formal (hard-pull) application with your top choice or two.
Not reading the repayment schedule for balloon or deferred structures. A small number of "personal loan" products are structured with a large final payment -- confirm the loan is a standard fixed-payment installment loan before signing.
Frequently Asked Questions
How fast can I get a personal loan? Many online lenders fund approved loans within one to two business days; traditional banks and credit unions may take longer depending on their underwriting process.
Can I get a personal loan with fair credit? Yes, though rates will be higher than for prime borrowers -- shop multiple lenders, since pricing for fair-credit borrowers varies more widely than for top-tier borrowers.