Loans > How to Get a Personal Loan

How to Get a Personal Loan

Knowing these steps can help you get approval for a personal loan — and the cash you seek.

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Are you looking for immediate access to funds? A personal loan might just be your best bet.

It’s an ideal method of getting cash when you need to finance a home renovation, make a big purchase, or even consolidate debt. 

Personal loans are the first choice of many and they come in two variants- secured and unsecured. In a secured loan, you need to provide an asset as a security against the funds you borrow. In an unsecured loan, there is no such requirement of hypothecation of an asset. 

The average interest rate on a credit card is about 16% while the average rate on a personal loan for two years is around 9.6%. Irrespective of where you borrow funds from, the process remains the same. However, getting a personal loan needs a little homework from your part to get the perfect loan product and offer.

There’s actually quite a bit you need to know before you apply — if you want the best possible rate. The clock is ticking…⏱ so let’s jump into it!

Steps to Get a Quick Personal Loan

Follow these eight steps to get a quick personal loan.

  1. Check the numbers
  2. Get your credit report
  3. Consider all options
  4. Choose the loan type
  5. Research the market for interest rates
  6. Choose a lender
  7. Provide requisite documentation
  8. Get a loan approval and begin to make payments

1. Check the Numbers

When you want to apply for a loan, the first thing you need to do is decide the amount that you will manage to pay. Lenders do take the necessary steps to ensure that you pay the debt on time, but it is better to take the right steps and ensure that it will work out. Once you identify the amount of cash you will need, you need to consider the fees and then make an application. 

Lenders apply an origination fee and it is deducted from the loan proceeds. You need to borrow adequate amount to get what you require after the deduction of fees.

You need to choose a loan amount that you will be able to repay in the future. This step will help identify the cost of the loan and whether your budget will be able to manage the repayment.

2. Get Your Credit Report

Lenders run a credit test to estimate whether you are capable to repay the loan. You can get your credit report online. Many lenders do look at alternative credit information but they still focus on your credit report. 

Most personal loans need you to have fair credit, however, excellent or good credit gives you a better chance of an approval with a good rate of interest. 

If the credit score is below what  you expected, you need to look for errors. In case of mistakes, contact the credit report agencies to get it rectified.

However, if the score is low for other reasons, there is a chance to get a loan but the rate of interest will be very high and the loan amount will be small. You can use the top credit monitoring services to keep a track of your credit score before you apply for the loan.

3.  Consider all Options

Do not make the mistake of accepting the first loan offer. Based on the credit score, you may or may not require a cosigner for the loan. If you cannot find a co-signer, there will be an option to apply for a secured loan. 

A secured loan will require collateral like a home, vehicle, or cash in your savings account. In this case, failure to make loan repayment will lead to losing the collateral.

The lender has a right to seize the security to satisfy the outstanding dues. You need to consider where to apply for the loan. 

Traditional banks require a high credit score while many online lenders offer loans to bad credit holders.

4.  Choose a Loan Type

After you have understood your credit score and have evaluated your options, you need to decide the type of loan that is ideal for your needs. Few lenders are very flexible with regard to how you allocate the funds while many others might only approve the application if the money is used for certain purposes. 

What Can I Use a Personal Loan For?

It is ideal to choose a lender who is comfortable lending money for the purpose you need it. Here are the different purposes you can borrow funds for:

Consolidation of debt: Debt consolidation remains a common use for personal loans. When you take out a single loan to cover the current debts, you reduce the payments you make every month to one single payment.

Depending on how you qualify, there are a number of top loans for debt consolidation available. The best of all of this: You only have to make a single payment each month.

Home improvement loans: If you want to pay for a renovation project, a home improvement loan is a good choice.

Credit card refinancing loans: Many companies offer loans to people who want to pay off credit card dues. 

The interest rate on a personal loan is typically lower than the rates on credit cards. This means a personal loan is a smart way to clear the credit card balance and pay it off steadily throughout a longer duration. 

Medical loan: The cost of medication and healthcare is increasing. A personal loan is an ideal way to bring down the burden and pay debt. 

Emergency loans: An emergency loan can serve various purposes. Whether it is a small medical expense or a car breakdown, a personal loan will help meet the fund requirement. 

Wedding loans: Vacations and weddings are expensive that is why a lot of people prefer to apply for personal loans. It spreads payments over a couple of years and you no longer need to worry about making the payment upfront. Choose the correct loan type because different loans have varying amounts.

Why you might get a personal loanWhy you might not want to get a personal loan
Medical emergencyCosmetic surgery
Home renovationA pool for the backyard
Credit card debtA boat
Education expensesKitchen decorations
Starting a businessBuying a trailer

5.  Research the Market for Interest Rates

Be very careful when it comes to the interest rate and do not settle on the initial offer. Different lenders have varying criteria and the interest rate will vary accordingly. Hence, take out time and research the market for the lowest interest rate. 

Do your homework before you sign on the loan documents. Compare different types of loans and lenders to understand what you qualify for. Personal loan offers are available from banks, online lenders, and credit unions.

Talk to the bank where you have an account. If you’ve made the right financial decisions for years, you’re likely to qualify for a top personal loan. The bank will be happy to ignore a few credit mistakes and is likely to lend you funds.

Many online lenders run a soft credit check and get you prequalified. It has no impact on the credit score and it is a good way to get your offers without making any commitment. Other lenders will run a hard inquiry as a part of your application process of the loan.

💡 Helpful tip: In order to avoid any hard inquiries, do your interest rate shopping in a 45-day duration so that it is counted as one inquiry.

6.   Choose a Lender

Once you have completed your due diligence, you need to choose a lender that offers the best terms as per your needs. Now begin the process of application. Based on the lender, you can do the process online, and in some cases, you might have to visit the bank or branch. 

Lenders have a varying requirement with regard to the information they require on the application. However, you will need to provide the name, address, phone number, purpose of borrowing, employment, and income information. 

Additionally, you will also have to give details on the amount you want to borrow, and then you might get alternative options to proceed with. Review the terms of the loan thoroughly and understand the fees and repayment period. Be aware of what you are getting into to avoid other pitfalls and hidden fees.

7.  Provide Requisite Documentation 

Based on your credit score and the lender you choose, you will have to provide documents after submitting your application. 

You might need to upload your driver’s license or residence proof, and you might also need to provide a copy of the last pay stub. If the lender needs additional documents, they will inform you.

8.  Get a Loan Approval and Begin to Make Payments

Once your loan has been approved, you need to finalize the documents and agree to the terms and conditions. After this, you will get the funds within a week. 

Some lenders also give funds in 1 to 2 days. Remember when your payment is due or set up automatic payments from the checking account.

Here are some common personal loan questions answered for you.

What is an Ideal Credit Score to Get a Personal Loan?

Credit scores reflect your ability to make the loan repayment on time. They range between 300-850. A credit score of 700 or above is considered good and a credit score of 800 and above is considered excellent.

Lenders run a credit check to estimate your ability to repay the loan. A score of 750 or higher is considered ideal to get a personal loan. Still, a score of 700 or above is likely to qualify you for one of the top personal loans for good credit.

Good and excellent credit increases your chances of getting an approval with a good rate of interest. Different lenders have varying credit score requirements you need to adhere to. 

However, various online lenders offer a personal loan to borrowers with bad credit. Shown below are average credit scores by age.

What’s the Average Credit Score for My Age?

AgeCredit Score
18-24630
25-34628
35-44629
45-54646
55696

How Can I Get Approved for a Personal Loan?

In order to get approved for a personal loan, you need to have an excellent credit score and necessary documentation in place. Your personal loan application will be approved when the credit score is good or excellent and you have made a complete application with detailed information in the application form and have provided the necessary documents.

The Tokenist vector illustration of a hand holding the personal loan application document with a paper with "Approved" heading on the right and eyeglasses on the left.
Excellent or good credit scores are required for a loan approval.

What is the Best Place to Get a Personal Loan From?

The first place to get a personal loan is from the bank where you have your checking account. If you have maintained enough funds in your account for a long time, there are high chances of loan approval. 

However, there are many online lenders that offer top low interest personal loans. Online lending platforms have a quick application and approval process, making it convenient and easy for you to get access to funds. 

Is it Hard to Get a Personal Loan?

It is not hard to get a personal loan. You need to have your credit score in place and the documents ready. The first step to applying for a loan is to check your credit score. 

Based on the lender you choose and your credit score, you will have to provide documentation after you submit an application. You might need to provide a copy of the latest pay stub, proof of residence, and a copy of the driver’s license. The sooner you provide the documentation, the sooner you will get a decision. 

Can I Get a Personal Loan with a Credit Score of 550?

If your credit score is 550 or under 500, you can get a personal loan. However, the APR will be high and the loan amount will be small. Large amounts are not generally extended to individuals with bad credit. 

The best ways to improve a bad credit score is by paying down your debts on time, going through your credit reports for errors and challenging any errors that you may find. Of course, this will require you to know how to read and understand your credit report.

You can also improve your credit score by restricting the number of hard credit inquiries in credit history until your score improves. It is best to repay the outstanding loans before you apply for a new loan. 

Improving the credit score will take time as there is no quick fix for a bad score. This can even be done automatically with the leading credit repair software. However, if you are in a rush for funds, you might not have the time to wait for the score to improve. 

What Amount Will a Lender Give Me for a Personal Loan?

Before you apply for the loan, you need to run the numbers and estimate how much you will be able to afford to pay. Identify the amount of cash you need and keep the origination fees in mind. Different lenders have a maximum amount they lend based on your credit score. 

Use a personal loan calculator to identify the monthly payment amount. Play around with the numbers to identify the amount that fits in your budget. If you have a high credit score and an ability to make the repayment on time, the bank will give you what you apply for. 

However, if you have a bad credit score, the bank might not lend you the exact amount. You might have to settle for less than what you set out for.

Will a Personal Loan have an Impact on Your Credit?

A personal loan can have a slight effect on your credit score, in good and bad ways. When you take out a personal loan, it is not bad for your credit score but it can affect the score in the short term.

First, you will get a hard query from the lender and if you fail to make the repayment on time, it can hurt your credit. Thus, making it difficult for you to obtain credit in the future.

On the other hand, if you make the personal loan payment on time, you will be able to enjoy a good credit score in the long run.

Impact of credit score on the loan amount and APR

Credit scoreBest average APRBest average loan amount
640-67924%$11432
680-71918%$13838
720-75912%$18047
76010%$20027

Which Lending Platforms Provide Funds Instantly?

The best platforms for a personal loan are SoFi, Upstart, LendingPoint, and Payoff. All the lenders have varying credit requirements and interest rates. The table below explains the same.

LenderSoFiUpstartLendingPointPayoff
Ideal forBorrowers with Good creditBorrowers with a short credit historyBorrowers with bad creditBorrowers looking for debt consolidation
HighlightsNo fees and low interest rates.You can choose a three- or five-year repayment planYou can get funding the next business day.No late fees and if you miss a payment, the lender will work with you to get you back on track.
Credit score requirement (Minimum)690580585640
APR5.99% – 21.11%7.00 - 35.99%9.99% to 35.99%5.99 - 24.99%
Minimum loan amount$5,000$1,000$2,000$5,000
Maximum loan amount$100,000$50,000$25,000$35,000

Getting a Personal Loan: FAQs

1. Is a Personal Loan Ideal for Credit Card Consolidation?

If you find it difficult to pay off a credit card debt due to the coronavirus pandemic, consider credit card consolidation. It is a very popular method to pay off debt.  However, it is beneficial only when you can secure a low-interest rate on the loan than you were paying on the credit card. 

It will save you a lot of money in interest. If you are not careful when taking out a personal loan for credit card consolidation, it can sabotage your money-saving efforts and could hurt your credit scores.

2.   What are Origination Fees?

You need to pay close attention to origination fees. There are some lenders who offer low-interest rate but they charge a high origination fee and it increases the total cost of the loan. In such cases, it is better to be with a lender with a high rate but no origination fees.

3.  What are Automatic Withdrawals and How Do they Affect You?

Many lenders offer incentives to borrowers who are up for automatic withdrawals of their monthly payments from the bank account. You could get a discount on the interest rate if you choose to sign up for automatic monthly payments. 

When you have the budget and are fine with this arrangement, you can take advantage of it and enjoy a low cost payment option. But if you deal with an irregular payment schedule and do not have the budget, then managing automatic withdrawals could lead to a problem. It is best to avoid this arrangement.

4.  What are Repayment Options?

You need to be aware of all your options if you run into problems when making a loan payment. Ask if you can change the terms of the loan.

Does the lender allow you to enter a forbearance period? Let us hope that these issues do not play out and apply to you but it is best to be safe than sorry.

5.  What are the Two Types of Interest Rates?

You will have to decide whether to opt for a fixed interest rate or variable rate of interest. A lot of personal loans come with fixed interest rates but there are lenders who offer variable interest rate options. 

You need to begin with low interest on a variable interest rate but it means you will take on the risk of interest rate. With a rise in interest rates, the variable rate will also increase and it can lead to an increase in the monthly payments. 

In a fixed interest rate loan, the interest amount  will remain consistent for the entire term of the loan. 

The best way to get a personal loan is to be prepared. Research, do your homework and be aware of your options. Read the fine print, and ask any questions you have for the lender.

All reviews, research, news and assessments of any kind on The Tokenist are compiled using a strict editorial review process by our editorial team. Neither our writers nor our editors receive direct compensation of any kind to publish information on tokenist.com. Our company, Tokenist Media LLC, is community supported and may receive a small commission when you purchase products or services through links on our website. Click here for a full list of our partners and an in-depth explanation on how we get paid.

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