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A personal loan is a handy financial tool that can be used for a wide variety of purposes—from consolidating debt to financing a big-ticket expense to seeing you through a financial emergency. Available through banks, credit unions and online lenders, these types of loans allow qualified applicants to borrow anywhere from $100 to $100,000. After getting approved, it can take anywhere from minutes to days before you receive your money, depending on the lender.
Understanding how different lenders work can help prepare you for what to expect when applying for a personal loan. Let's break down the average wait times for personal loan funding, along with tips for getting approved faster.
How Long Does it Take to Get Approved?
Personal loans are disbursed as one lump-sum payment. Borrowers then repay it with fixed monthly payments for a predetermined amount of time (anywhere from several months to up to seven years). Personal loans are primarily available through banks, credit unions and online lenders, and below are the typical funding timelines for each.
Banks and Credit Unions
These two types of financial institutions work a little differently. Both may provide local branches and offer products like checking and savings accounts, but banks are for-profit organizations that tend to have stricter eligibility requirements for personal loans. Interest rates may also be on the higher side.
Credit unions, on the other hand, are not-for-profit organizations that are often designed to serve a particular group of people within a community. Since they're member-owned, you're more likely to find better interest rates and looser eligibility criteria.
If you get approved for a personal loan through a bank or credit union, you can expect to receive your loan money within one to five days—though some are faster than others. Alliant Credit Union, for example, provides same-day funding. Similarly, Wells Fargo usually disburses funds the following business day. Citibank mails out paper checks within five business days. The main takeaway here is to do your research as every bank and credit union is different.
Online lenders are internet-based lending organizations that specialize in personal loans. Many provide loans to all sorts of borrowers, including those with poor credit. That means interest rates can vary widely. Comparing quotes online can help steer you toward a lender with the best rates and terms for your situation. With that said, online lenders tend to be the fastest when it comes to disbursing personal loan funds. Upstart, for example, says 99% of its personal loans are funded by the next business day. And lenders such as RocketLoans and LightStream could provide loan funding as quickly as the same day you apply.
Tips for Faster Approval
You may not have any control over how long it takes for a lender to disburse personal loan funds, but there are things you can do to potentially speed up the overall application process. The faster you get approved, the sooner you'll get your money. Some tips to consider include:
- Check your credit before applying. Lenders will evaluate your credit score when making a lending decision. This helps them understand how you've managed your credit accounts up to this point. Having a history of on-time payments and a low credit utilization rate (meaning low or no balances on your credit cards) will translate to a higher score. This generally opens the door to lower interest rates and better lending terms. Checking your credit before applying can help direct you toward the right lender and even prevent you from applying with those that have minimum credit requirements that are out of reach. It can also highlight opportunities for improving your credit.
- Make sure your credit is accessible. Having a credit freeze or credit lock in place when you apply for a loan prevents a lender from checking your credit, which slows the credit approval process. Lift any freezes or credit locks you have in place to make sure you don't hit this roadblock—you can always reactivate them once your funds have been disbursed.
- Apply online. As mentioned earlier, many online lenders have quick turnaround times for disbursing personal loan funds. Narrowing your search to top online personal loan lenders could help speed things along if you're in a tight spot financially.
- Make sure your application is correct. As simple as it sounds, ensuring that your personal loan application is error-free and up to date can prevent holdups down the line. Things can get delayed if the lender decides something isn't right and kicks the application back to you for corrections.
- Consider getting preapproved. If you're in a hurry to receive your personal loan funds, filling out multiple applications can take up valuable time. What's more, it will result in a hard credit inquiry that can cause a slight, temporary dip in your credit scores. Asking a lender to preapprove you only triggers a soft inquiry, which does not affect your credit. It also reveals your likelihood of getting approved so that you don't go through with applications that are likely to be declined.
What Credit Score Do I Need to Get a Personal Loan?
A strong credit score tends to unlock lower interest rates and better borrowing terms for personal loans. And while it's still possible to get a personal loan with a lower score, the added interest will end up costing you more in the long run. You may also be ineligible with certain lenders that have higher credit score requirements. Generally speaking, those with a minimum FICO® Score☉ of 670 will have the most choices.
If your credit is lower, however, you may still have options. Avant personal loans, for example, offer competitive rates for borrowers with fair credit (a FICO® Score of 580 to 669)—and they fund as early as the next business day. Most Avant customers have a credit score ranging from 600 to 700, according to the company.
It's important to note that lenders look at more than just your credit. Your income is another factor in your personal loan application because lenders want reassurance that you'll be able to repay your loan without any hiccups. They'll zero in on your debt-to-income ratio, which shows how much of your gross monthly income is currently earmarked for debt payments. Having lots of competing debt obligations could affect your eligibility.
If you're seeking a personal loan and your credit score could be stronger, ask yourself if it's possible to improve your credit before applying. Paying your bills on time and reducing your credit card balances can help strengthen your score—and your odds of qualifying for an affordable personal loan.
How Do Personal Loans Affect Your Credit?
Personal loans show up on your credit report and, in turn, affect your credit score. This can be a good thing that helps improve your score if you repay the loan as promised. If you're using a personal loan to consolidate revolving credit card balances, you could end up significantly reducing your credit utilization rate—something that could help increase your credit score. Having a healthy mix of different types of credit accounts on your credit report can also be good.
However, falling behind on your personal loan payments will reflect negatively on your credit report and drag down your score. At the end of the day, you're also adding more debt to your name, which could complicate your overall financial health. This impact on your finances can also wind up affecting your credit score. Those who incur new monthly expenses or have a change in income, for example, may find it difficult to keep up with other monthly bills—even if they continue to make good on their personal loan payments.
What About Payday Loans and Title Loans?
When researching ways to find fast funding, you may come across payday loans that are marketed as short-term loans meant to hold you over until your next paycheck. However, they're known for astronomical fees and rates that could end up costing you a lot of money in the long run. If you can't pay it back, it could also negatively impact your credit score and trigger even more fees and interest. Payday loans should be avoided.
Title loans that use your vehicle title as collateral for a quick loan are another potentially dangerous option. On top of charging notoriously high borrowing fees, these types of lenders can also repossess your car if you end up defaulting on the loan. If you're stuck between a rock and a hard place, consider alternative ways to come up with emergency money. Aside from personal loans, you could explore the following:
The Bottom Line
Gradually building up a solid emergency fund can help you weather your next financial setback without having to seek external financing. However, sometimes life throws us curve balls that we aren't fully ready to handle. A personal loan can provide relatively quick funding within one to five business days. Having strong credit is key in getting approved for an affordable loan. Those who are looking to improve their credit score quickly can explore Experian Boost™† to get moving in the right direction.