How to apply for a personal loan

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In a Nutshell

Online marketplaces like Credit Karma can give you a fast and easy way to compare personal loan offers from multiple lenders. Here’s how to apply for a personal loan.
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When you need a personal loan for credit card debt consolidation, home improvements or other purposes, where do you go? Do you take the time to shop around — or are you focused on getting money right away?

Comparison shopping is a good idea when you’re making a big financial commitment like taking out a loan. And online lenders have made applying for a personal loan fast and convenient.

Rather than shopping around for personal loans by going directly to multiple lenders, you can use online marketplaces like Credit Karma to research and compare personal loan offers all in one place.

Here’s how to comparison shop — and apply — for a personal loan.

  1. Check your credit
  2. Apply for prequalification
  3. Compare loan offers
  4. Apply
  5. Close on your personal loan

1. Check your credit

Before starting the application process for any kind of loan, it’s a good idea to review your credit.

Credit history and credit scores are among the financial factors lenders will generally consider when reviewing your loan application. Your credit history can affect whether a lender will approve you for a loan and the interest rate it offers you. Good credit can typically make it easier to get a loan and a favorable interest rate.

You can use the Credit Karma app to check your Equifax® and TransUnion® credit reports for free. You’ll need to sign up for an account to use the app and get your credit scores, but it’s always free to join.

Lenders may also consider your debt-to-income-ratio when considering you for a loan — which is the total of all the debt payments you must make each month divided by your gross monthly income. This ratio helps lenders understand how well you’ll be able to manage repayment if they give you a personal loan.

2. Apply for prequalification

Once you’ve checked your credit, you’re ready to apply for prequalification.

Prequalification is an application process where a lender reviews the information you’ve shared, and gives you a loan offer that you might qualify for. When you get prequalified, the lender will typically pull a soft credit inquiry, which won’t affect your credit scores.

While getting prequalified doesn’t mean you’re approved for a loan, it helps you to understand whether you’re likely to be approved and the loan terms you may qualify for. If you decide you want to pursue an offer you’re prequalified for, you’ll still need to submit a formal application directly with the lender — that will then make a hard inquiry into your credit, which can affect your credit scores.

You’ll typically provide some basic information:

  • How much you want to borrow
  • How you’ll use the money
  • Your annual income
  • Your employment status
  • The last four digits of your Social Security number

You can also search loan options without getting prequalified.

3. Compare loan offers

Once you submit your information, you may receive some information if you prequalify, such as …

  • Loan amount you may qualify for
  • Estimated monthly payment amount
  • Estimated interest and fees
  • Estimated annual percentage rate, or APR
  • Loan term

Again, it’s important to remember that these are potential offers and tentative rates and terms. You’ll get definitive information about the loan a lender’s willing to offer you only after you formally apply directly with the lender.

Things to consider

When you’re reviewing your loan options, be sure to compare

  • APR — This is how much it will cost you to borrow money, including the interest rate and any potential fees. Learn more about APR and why it’s important.
  • Loan term — Generally, loans with a longer term have a lower monthly payment. But they could cost more in interest in the long run.
  • Origination fee — Some lenders charge this fee for making a loan.

All of these factors can affect the total cost of your personal loan.

4. Apply

Once you comparison shop and choose an offer, you can complete your loan application.

Remember, prequalification doesn’t guarantee that you’ll be approved for a loan. You’ll still need to submit additional information to the lender in order to complete your application.

The lender will tell you exactly what you need to submit. Some information might include …

  • Monthly housing cost
  • ID verification
  • Social Security number
  • Income verification

Finalizing your loan approval will typically result in a hard credit inquiry — this may affect your credit scores, but shouldn’t do any long-term damage.

5. Close on your personal loan

Once you’ve submitted your loan application, the lender will review it, decide whether to approve you for the loan, and send you final loan documents if you’re approved. These documents typically detail the terms of your loan, including the interest rate, length of the loan, the loan amount and your monthly payments.

Once you’ve reviewed the details, you’ll sign the documents and your funds will be deposited into your account. With online lenders this can happen quickly, sometimes in as little as a day.

Bottom line

With so many lenders offering personal loans, it’s in your best interest to shop around and find a lender that will offer you the best terms. People who shop and apply for personal loans online have the highest levels of overall satisfaction among personal loan borrowers, and the majority say they completely understand their loan applications, according to a J.D. Power consumer survey.

About the author: Erica Gellerman is a personal finance writer with an MBA in marketing and strategy from Duke University. She’s also the founder of The Worth Project: a weekly money newsletter you actual… Read more.