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There are several ways to take out a personal loan, and the exact process for borrowing will depend on the lender you choose. You can start the process by submitting applications, comparing your loan offers and moving forward with the best option. From there, the lender can then send the funds directly to your bank account and you'll begin the process of repayment.
Personal loans are often unsecured loans, which means your options and loan offers can greatly depend on your creditworthiness. Read on to learn more about the personal loan borrowing process, and how to make sure you're making the best decision.
Gather the Necessary Information
Before you apply for a personal loan, you'll want to get some important information and documents in order. Although you won't necessarily need these to submit an application, they're good to have on hand in case a lender requires them to verify your identity or information and complete the loan process.
Common requirements include:
- Identity verification: A copy of a government-issued identification card, such as a passport, driver's license or state-issued identification card, will typically work.
- Income verification: This may require you to provide copies of recent paystubs, bank statements, annual retirement benefits letters or tax records. Some lenders allow borrowers to use an online verification tool.
- Address verification: A copy of a recent utility bill, voter registration card, mortgage statement or lease could be used to verify your current address.
Having these documents on hand can help you quickly send copies if and when they're requested, helping avoid any potential delays.
Check Your Credit Report and Score
You may want to check your credit reports and scores to get an idea of what lenders will see when you apply.
- Check your credit reports for free at AnnualCreditReport.com.
- Review your credit score. You can do this in several ways, including for free through Experian.
- Learn how to improve your credit scores.
- If applicable, make sure to unlock or unfreeze all three credit reports before applying.
You might not know exactly which credit report or score type the lender will use, but checking your credit can still be important. Make sure there aren't any errors in your credit reports that might be hurting your scores. And see if there's anything you could do to quickly improve your score, such as paying down credit card debt, before applying.
Understand What You Can Afford
It's also important to figure out how much you want to borrow before submitting applications. You can often pay off a personal loan early without paying any prepayment penalties; however, many lenders charge an origination fee—often, a percentage of the loan amount—which means borrowing more money than you need will lead to unnecessarily high fees.
Your monthly payment will depend on your loan amount, interest rate and repayment period (also called the loan term). A loan calculator can help show you how changing these factors can impact your monthly payment. Compare several options and review your budget to see how much you can afford to borrow. You might get a more affordable monthly payment with a loan that has a longer term, but you'd likely end up paying more in interest.
Personal Loan Calculator
†The information provided is for educational purposes only and should not be construed as financial advice. Experian cannot guarantee the accuracy of the results provided. Your lender may charge other fees which have not been factored in this calculation. These results, based on the information provided by you, represent an estimate and you should consult your own financial advisor regarding your particular needs.
Before applying for personal loans, review the lenders' minimum and maximum loan amounts. It's also important to know that a lender could approve you for a loan, but for less than you want to borrow.
Your debt-to-income (DTI) ratio—a comparison of your monthly income and debt obligations—can directly impact how much you're approved to borrow. Paying off debts or increasing your income can lower your DTI, which could make it easier to get approved for a bigger loan or one with more favorable terms.
Shop Around and Compare Rates
Once you've gathered your documents, reviewed your credit and determined how much you want to borrow, it's time to shop around and get loan offers from several lenders.
There are banks, credit unions and online lenders that offer personal loans, and each lender may have its own loan terms and requirements. Many also let you check your loan offers and rates online without impacting your credit score. Lenders may call this either getting prequalified or preapproved for a personal loan.
To check your offers, you may be asked to share your name, address, Social Security number, contact information, income and desired loan amount. Lenders can then give you estimated loan offers based on a review of your creditworthiness.
Getting prequalified isn't a guarantee you'll be approved for a loan, though. For example, the lender might not approve you if your credit score drops after you're prequalified but before you submit your loan application. Or, you may get rejected if your income is impacted due to job loss after getting prequalified. Still, prequalification is a good first step—and it won't impact your credit.
Getting prequalified for multiple loans can also help you determine which lenders are likely to want to work with you and give you the best loan offers. You can also cross off lenders that don't prequalify or preapprove you for a loan, which can save you time and limit the impact on your credit scores later.
Apply and Review Offers
You may want to get prequalified with several lenders before submitting your first personal loan application. Applying for the loan could be as simple as accepting one of the prequalification offers. Or, if you haven't checked your rate with the lender, you may need to submit your personal information. Either way, you generally have to agree to a hard credit check at this point. Hard credit inquiries may hurt your credit, but that impact is typically small and temporary.
Lenders will then review your information to determine whether you qualify for a loan. If they like what they see and want to take you on as a borrower, they'll make an offer. Once you have an offer in front of you, look it over in detail, including the offered loan amounts, repayment terms, interest rates and monthly payments. Know that you don't have to accept a personal loan offer, and you may be able to accept less than the full loan amount if you'd prefer.
Once you accept a loan offer, you may need to verify the information that you've submitted by sending copies of the documents you gathered earlier. You could also be given the option to set up a direct deposit to have the money sent to your bank account, or your loan may be sent by check. If you're using a personal loan to refinance or consolidate debts, some lenders can send the funds directly to your current creditors.
The timing can vary by lender, but the verification and funding process often takes around one to six business days.
Alternatives to Personal Loans
You might look for an alternative to taking out a personal loan if you can't get approved, or if you only receive offers with high rates. A few popular alternatives include:
- Credit cards
- Secured loans
- Paycheck advances or early payday apps
- Borrowing money from friends or family
- Looking into assistance programs to help with other financial needs
Your creditworthiness and the reason why you want to get a personal loan can also impact which option is best.
For example, you may be able to get a personal loan if you have bad credit, but the high origination fees and interest rate could make it more expensive than using a credit card. Even if you can get a low personal loan rate, a balance transfer credit card might be a better option for consolidating credit card debt than a personal loan.
Or, perhaps you want to get a personal loan to improve your home. If you take out a home equity loan or home equity line of credit the interest payments could be tax deductible, which can decrease your overall costs.
If you were trying to take out a personal loan as a way to pay off credit card debt, consider working with a certified credit counselor. In addition to offering financial advice, a credit counselor can create a debt management plan to help you reduce your debt.
Quickly Compare Personal Loan Offers
Although checking your rate with a personal loan lender is often a quick and easy process, shopping for a loan can still become a hassle. Experian's CreditMatchTM tool can help. You can create a free account and log in to submit a prequalification request. Experian then shows you available loan offers from multiple partners, allowing you to quickly see which lenders might be the best fit. The offers are also good for 30 days, giving you time to consider and compare other options as well.