Maximizing your odds for approval: how to apply for a personal loan

Adulting doesn’t mean you have all the answers. It means you’re willing to go out and find them. And if you have questions about personal loans, you’re looking in the right place. 

Here, you’ll find step-by-step instructions on how to apply for a loan, the documents you’ll want to gather before applying, and how long you can expect to wait to get approved and funded.

Whether you want to remodel your home, consolidate high-interest debt, or have another financial priority in mind, personal loans are a powerful tool in your financial toolbelt. You just need to learn how to use it. Let's get started.

How to apply for a personal loan (step by step)

The actual application for a personal loan is pretty simple and could be filled out in minutes. But that's not where the process starts. You first need to check your qualifications, get quotes, and compare lenders—all before you apply.

In other words, you could go straight to the first personal loan site you find, fire up the application screen, and start typing. However, you’ll likely have a better experience if you follow these steps.

Step 1: Check your credit 

Many personal loan lenders have specific credit rating criteria. You’ll have a better idea of the best places to apply when you know where your credit scores stand.

Start with your credit reports. You can get one from each of the three major credit bureaus—Equifax, Experian, and TransUnion—for free once a week fromannualcreditreport.com. Review each of your credit reports for accuracy, because sometimes errors can lower your credit score. If something doesn’t look right, dispute it with each credit bureau showing the error.

Next, get your credit scores; you can often get free scores from banks, credit card issuers, or personal finance apps. Plus, all three credit bureaus offer free credit scores when you make an online account. If the site asks for a credit card number, click away and start over. You don’t have to pay to find out your credit score.

Step 2: Determine how much you need to borrow 

It might be tempting to apply for the biggest loan you can get, but don’t. Instead, consider how much you truly need—and what you can afford to repay each month. 

Your loan’s monthly payment depends on the amount you borrow, the interest rate, and the loan term or number of years for repayment you choose. Try to borrow the least you can get away with and repay it in the shortest time you can manage. That strategy leaves you some wiggle room in case you have another financial need before this loan is paid off.

Step 3: Research your loan and lender

Once you know how much you need, look for a lender offering the loan amount and repayment term you want. You’ll want to check:

• If the lender’s maximum loan amount is high enough

• How many years you’d get to repay your loan 

• The lender's general credit score requirements

• How quickly the lender makes underwriting decisions

• How soon you’ll receive your money 

At the top of the pile, put the lenders that let you apply for a no-risk prequalification. Loan prequalification can give you an idea of what you'd qualify for, but it won't hurt your credit scores. Don’t waste your time or rack up a lot of credit report inquiries looking for loans in all the wrong places. 

Step 4: Gather your information and documents

Once you have a lender in mind, get ready to apply. They’ll want to know who you are, what you earn, and how much you owe. Here’s a breakdown of information and documents you’ll want to have on hand:

• Identification. A photo ID, like a driver’s license or passport, will do. 

• Home address. Provide your current address. If you’ve moved in the last year, have your old address ready.

• Employment information. You may need to provide the name and address of your employer(s) going back up to two years. 

• Income. This is your income each month before taxes. The application will have a spot for you to include income, but have a recent pay stub as well. If you’re self-employed or paid on commission, you may be asked to provide a copy of your last tax return.

• Debts. Some lenders may want a list of your current debts, with the account balance and minimum payment for each.

• Banking information. Be ready with your bank account number so the lender can deposit funds if you're approved. You may also be asked for a copy of your latest bank statements for income verification.

• For secured loans. Most personal loans are unsecured, but if your personal loan is secured by collateral (such as property, a classic car, or another item of value you own), the lender will likely want information about the collateral and may require a professional appraisal.

Finally, prepare an explanation for any blemishes on your credit report. For example, if an illness or job layoff resulted in a collection account, include that in a letter. If you’ve taken steps to avoid missing payments in the future, explain what you’ve done. It could make a difference.

Step 5: Apply for the loan 

Most personal loan applications take place via websites or apps. Having access to online lenders could give you more options, feel  free to contact your lender in person or by phone if you prefer. The way you apply shouldn't impact your loan approval chances.

With your documents and information in front of you, work your way through the lender’s application. Get help with any question or field you don’t understand. The lender should be helpful. If they don’t answer questions, that’s a red flag.

Once you submit the application, expect a decision fairly quickly. Online applications could get near-instant approval, though sometimes it takes a few days or longer. Lenders that use automated underwriting tend to offer faster decisions.

Step 6: Review your loan terms 

Once you have an approval, review the terms of your offer carefully. It’s nice to be approved, but don’t get so excited that you sign without a careful look. Take your time to focus on the following questions: 

• APR. What’s the interest rate?What’s the annual percentage rate (APR)? The APR includes your origination fee and other charges, so it’s a good way to compare the total cost of your offers.

• Loan term. How many years will you have to repay the loan? Can you pay it off early without a prepayment penalty?

• Payment. What’s the monthly payment?

• Total cost. What are the loan fees and the total cost of your loan over its term? 

• Potential penalties. Is there a penalty for a late payment or if you want to pay off the loan ahead of schedule?

Step 7: Get your money

Once you’ve provided everything the lender has asked for, okayed the loan terms, and signed your final agreement, the lender transfers money to you. This can take anywhere from a few hours to five business days or more.

Personal loans can fund in three common ways:

1. If you’re using a loan to consolidate debt, the lender may pay off the consolidated accounts directly. 

2. You could pick up a paper check or have one mailed to you.

3. The lender can electronically transfer the funds directly into your bank account. This is the most common delivery method. 

Your first personal loan payment is typically due within 30 days of the funds being paid to you. Most lenders allow you to set up automatic loan payments. 

Setting up autopay is a good idea because personal loans could be very helpful for building a good credit score if you pay on time every month. Take advantage of any help your lender gives you to make that happen. Also, some lenders give you a slight interest rate discount for using autopay.  

Personal loan prequalification vs. preapproval

You may be wondering if applying for a personal loan hurts your credit. Though prequalification and preapproval sound so similar, they’re quite different. One can ding your credit score, and the other has no impact. Here’s the difference between prequalification and preapproval.

Prequalification 

Prequalification is an informal assessment of your creditworthiness, based on self-reported financial information. Typically, you fill out a short application, providing the lender with basic information about your income and debts. 

Using that information—and usually a soft credit check to get an idea of your credit scores—the lender lets you know if you’re a good candidate for a loan. If so, the lender gives you an estimate of how much you can borrow and what the interest rate on the loan would be.

Prequalification shouldn't hurt your credit scores at all because it typically involves a soft credit pull. Since a soft pull isn't part of an actual credit application, it has no impact on your credit scores.

Preapproval 

Preapproval is a step you take after you've selected a lender and you're ready to move forward. It varies from prequalification in that preapproval often involves a hard credit check instead of a soft check.

A hard pull typically has a small impact on your score, likely a drop of 10 points or less. However, it could hurt more if you already have multiple hard inquiries from the last year. 

You generally can’t avoid a hard pull if you want loan approval, but it’s a good idea to limit how often a hard pull is conducted.The easiest way to apply for a personal loan is to prequalify online with multiple lenders using a soft credit check. That lets you compare rates and monthly payments first, then submit a single complete application to the lender that offers the best fit for your budget.

What happens after you apply for a personal loan?

Now that you’ve gathered documents, filled out an application, and provided the lender with documentation, it’s just a matter of waiting. But how long will it take to get approved and funded? While there’s no one-size-fits-all answer, there’s a general timeline:

• Application approval. Could take a few minutes up to several days

• Funding. Typically takes between one and five business days

How long it takes often depends on how the lender underwrites the loan. Lenders use a process called underwriting to assess the risk of making a specific loan. Some applications could also take a little longer because of more complex borrower situations, such as being self-employed or paid on commission.

Can I apply with bad credit?

Some lenders provide loans to those with poor credit scores. Because the lender is assuming more risk, you can expect your interest rate to be higher (sometimes much higher) than it would be if your score were stronger.

If your credit isn’t as high as you’d like, you do have options, including:

• Consider a secured loan. Pledging collateral that the lender could take if you don’t pay could improve your loan approval odds. Acceptable collateral includes real estate, vehicles, and luxury items like valuable art or jewelry.

• Apply with a co-signer. If someone you trust has a good credit score, consider asking them to co-sign your loan. It’s a serious commitment since the co-signer is equally responsible for the loan and must pay it if you don’t. However, you could be more likely to be approved for a personal loan when there’s a co-signer backing you up.

Common loan application mistakes to avoid

When you’re excited about what you plan to do with the proceeds of your personal loan, it’s easy to make a mistake or two. Here are three application mistakes to avoid: 

• Over-borrowing. Let’s say you need $10,000 to make repairs to the foundation of your house, but you start thinking how nice it would be to have an extra $2,000 or $3,000 for a vacation. As tempting as it might be, avoid the urge to borrow more than necessary. Your monthly payment will be lower, and you’ll also pay less in interest. 

• Incorrect info. If you’re hoping for fast approval and funding, check and double-check your application to make sure all the details are right. Each time the lender encounters a mistake, they may need to reach out to you for clarification, which could eat up precious time. 

• Ignoring the APR. The APR or annual percentage rate on a loan is the critical percentage you’re looking for. Rather than expressing only the interest rate, APR represents the total cost of borrowing, including origination fees, closing costs, and insurance.

What's next? 

Once you’ve worked your budget to ensure you can afford a personal loan and shopped around for the lender who can best meet your needs, it’s time to get prequalified. Check rates from at least three lenders to see a range of what's out there.

Ready to get started? Get a free quote through Achieve Personal Loans with no impact to your credit.