Key Takeaway: To apply for a personal loan, start by checking your credit and calculating how much you can afford to borrow. Apply for prequalification with several lenders to see what terms and rates you may qualify for and compare potential loan details. Then gather the personal and financial information the lender requests, and make sure to review your loan documents before signing.
A personal loan is a type of installment loan with a fixed repayment term that lets you borrow a lump sum of money and repay it in monthly installments over the life of the loan. You can use a personal loan for many purposes, including debt consolidation, home improvements and other major purchases.
To apply for a personal loan, you’ll want to check your credit and estimate personal loan payments to see if they’re affordable. Prequalifying with several lenders is also helpful because you can compare potential rates and terms without a hard credit inquiry. Once you’ve narrowed down your options, gather and submit your application documents and review the terms of your loan agreement carefully before accepting.
- Step 1: Check your credit
- Step 2: Calculate how much you can afford
- Step 3: Prequalify with lenders
- Step 4: Compare personal loan APRs, fees and repayment terms
- Step 5: Gather documents for your personal loan application
- Step 6: Submit your personal loan application
- Step 7: Review the loan agreement before accepting
- FAQs about applying for a personal loan
Step 1: Check your credit
Checking your credit before you apply for a personal loan can give you an idea of how likely you are to qualify, as well as the rate and loan terms you may receive. In general, the higher your credit scores, the more likely you are to qualify for a personal loan and receive a low interest rate and competitive terms.
It’s important to review your credit reports for accuracy. If you find mistakes, dispute any errors you find because inaccurate information can negatively affect your credit scores. You can check your VantageScore 3.0 scores and credit reports from TransUnion and Equifax for free with a Credit Karma account.
Keep in mind your credit isn’t the only factor lenders consider when reviewing a loan application. Items like your income and employment status also play a role in loan decisions because lenders want to gauge whether you can repay what you borrow.
What credit score do you need for a personal loan?
The credit score you need to get a personal loan varies by lender, but typically, the higher your scores the more likely you are to be approved. In general, good credit is defined as having a FICO Score ® 8 or FICO Score 9 ® of 670+ or a VantageScore 3.0 or VantageScore 4.0 of 661+.
Some lenders offer personal loans for bad credit, but you’ll likely pay much higher interest rates or need to put up collateral like your vehicle to qualify.
Step 2: Calculate how much you can afford
Comparing your current expenses to your take-home pay can help you determine whether you can afford to add another expense to your budget. Having money left over after covering essentials is a sign that you may be able to add a personal loan payment to your budget.
Stretching your budget too thin can hurt your credit and jeopardize your financial health.
Credit Karma’s personal loan calculator lets you see what your monthly payment may be for different loan amounts, interest rates and loan terms. Keep in mind that extending your loan term will lower your monthly payments but increase your total interest charges over the life of the loan. Be sure to balance the affordability of your monthly payment with the total loan cost.
Step 3: Prequalify with lenders
Because each lender has its own standards for evaluating an applicant’s credit, shopping around is one of the best ways to find the lowest rate and most favorable terms you can potentially get. Prequalifying with multiple lenders lets you see how likely you are to be approved and compare estimated interest rates, fees, loan terms and loan amounts.
Prequalification usually uses a soft credit inquiry, so it won’t affect your credit scores, but it’s not the same as getting approved. If you prequalify your rate and term could change when you submit a formal loan application. The lender also may perform a hard credit inquiry at that time.
Step 4: Compare personal loan APRs, fees and repayment terms
When you’re reviewing your potential loan options, compare the following features to understand the total cost of the loan and your financial responsibility each month.
- Interest rate – A percentage of the loan principal that a lender charges you to borrow money.
- APR – The annual cost of the loan as a percentage of the loan amount. APR includes the interest rate plus fees you might have to pay, such as origination fees, to take out the loan.
- Origination fee – A fee some lenders charge to process your application and fund your loan. The origination fee is typically deducted from your loan amount when it’s funded.
- Monthly payment – The amount you owe each month for the term of the loan. Consistent on-time payments generally have a positive impact on your credit scores while late and missed payments have a negative impact on your scores.
- Loan term – The number of months you have to repay your loan. Generally, loans with shorter terms have higher monthly payments and lower total interest charges and vice versa. Your credit history may affect the loan terms you qualify for.
- Prepayment penalty – A fee some lenders charge if you pay off your outstanding balance before the end of the loan term.
- Late fee – A fee lenders may charge if your monthly payment isn’t received by the due date.
- Funding speed – The time it takes to receive your money after you sign your loan documents. Funding timelines vary by lender but generally range from a few hours to a week. If speed is a concern, consider a same-day loan.
- Total cost of the loan – The dollar amount you’ll pay over the life of the loan, including total interest charges and fees.
Step 5: Gather documents for your personal loan application
When you’re ready to submit a formal loan application, the lender will give you a list of information and documents you need to provide. Gathering it ahead of time can help speed up the application process. Common documents you might be asked to provide include:
- Contact information
- Government-issued ID
- Social Security number or taxpayer ID
- Proof of income
- Employment information
- Rent/mortgage information
Step 6: Submit your personal loan application
To formally apply for a personal loan, you must submit an application form and the supporting documents the lender requires. You can typically complete the process online. The lender will review your application, conduct a hard credit inquiry and make a loan decision.
Does applying for a personal loan hurt your credit?
Applying for a personal loan may drop your credit scores by a few points because it typically generates a hard credit inquiry, but the impact is usually minimal and temporary. If the lender approves your application, the new loan may also affect your credit mix, payment history and overall debt, which are factors that can affect your credit scores.
What can you do if your personal loan application is denied?
If the lender denies your application, review the adverse action notice the lender must supply. It explains why your application wasn’t approved and may offer insight into areas you can strengthen to improve your chances of being approved next time. Depending on the reason for the denial, you may consider:
- Requesting a smaller loan amount
- Paying down existing debt to reduce your credit utilization
- Applying with a co-signer who has a strong credit profile
- Checking your credit reports for errors
Step 7: Review the loan agreement before accepting
If a lender approves your application, it will send you the final loan documents for your signature. Before signing, read the agreement carefully to ensure you understand important details, including the APR, fees, loan amount after fees are deducted, loan term, monthly payment amount, payment due date and autopay requirements.
Are Credit Karma Approval Odds accurate?
Credit Karma’s Approval Odds provide data-based insights into credit card and personal loan offers you’re more likely to be approved for. Offers with Outstanding Approval Odds have your highest likelihood of approval for offers on Credit Karma.
They can also help you see more accurate personal loan rate estimates before you apply. Approval Odds are based on advanced models that look at thousands of data points to recommend credit cards and personal loans that may be a fit for you.
Approval Odds also consider …
- Insights from 20+ credit score versions
- Criteria that lenders actually use
- Your personal credit profile
Remember that while Approval Odds use statistical analysis, the final approval decision rests with the lender after you submit a formal application.
FAQs about applying for a personal loan
Many lenders use a soft credit inquiry during the prequalification process, which lets you see your estimated interest rate and loan term without affecting your credit scores.
It’s possible to get a personal loan with bad credit, but you’ll likely receive a higher interest rate and less favorable terms than someone with good credit. Because personal loans tend to be expensive when you have bad credit, it may be better to postpone your application, take steps to improve your credit and re-apply when your credit is in a better place. You may also want to consider applying with a co-applicant.
The amount you can afford to borrow depends on your monthly income and expenses. Calculating the difference between the two can give you an idea of how much wiggle room you have in your budget to take on additional debt. But be cautious about stretching your budget to the breaking point because it can negatively affect your credit and financial health.
Yes. Paying off a personal loan early can help you save on interest charges. Check if your lender charges a prepayment penalty for repaying your balance before the end of the loan term. If yours does, compare the amount you could save on interest with the prepayment fee to decide if it’s worth it.
A personal loan is just one way to get cash or consolidate debt. Other options include cash advance apps, buy-now pay-later services, home equity loans, payday alternative loans (PAL), balance transfer credit cards and 0% APR introductory credit cards. You might also consider selling items you no longer need to generate extra cash.
No, checking your credit scores doesn’t hurt them. When you check your credit scores yourself, you trigger a soft credit inquiry on your credit reports, which has no impact on your credit scores. This is generally true whether you check your scores directly with the credit bureaus or through other platforms from lenders, credit card issuers and Credit Karma.
You can get a personal loan from some banks, many credit unions or a variety of online lenders, each with different eligibility requirements, rates and funding timelines. Before applying, see if you can prequalify with a a number of lenders to compare offers side by side. Credit Karma lets you check estimated rates from multiple lenders in one place, without a hard credit inquiry.
*Approval Odds are not a guarantee of approval. Credit Karma determines Approval Odds by comparing your credit profile to other Credit Karma members who were approved for the personal loan, or whether you meet certain criteria determined by the lender. Of course, there’s no such thing as a sure thing, but knowing your Approval Odds may help you narrow down your choices. For example, you may not be approved because you don’t meet the lender’s “ability to pay standard” after they verify your income and employment; or, you already have the maximum number of accounts with that specific lender.