Personal Loans » Advice » How to Apply For a Personal Loan?
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How to Apply For a Personal Loan?

Applying for a personal loan requires the right documents, your personal details and some other key terms to fill out in your application
Author: Baruch Mann (Silvermann)
Baruch Mann (Silvermann)

Writer, Contributor

Experience

Baruch Silvermann is a financial expert, experienced analyst, and founder of The Smart Investor.  Silvermann has contributed to Yahoo Finance and cited as an authoritative source in financial outlets like Forbes, Business Insider, CNBC Select, CNET, Bankrate, Fox Business, The Street, and more.
Interest Rates Last Update: April 15, 2024
The banking product interest rates, including savings, CDs, and money market, are accurate as of this date.
Author: Baruch Mann (Silvermann)
Baruch Mann (Silvermann)

Writer, Contributor

Experience

Baruch Silvermann is a financial expert, experienced analyst, and founder of The Smart Investor.  Silvermann has contributed to Yahoo Finance and cited as an authoritative source in financial outlets like Forbes, Business Insider, CNBC Select, CNET, Bankrate, Fox Business, The Street, and more.
Interest Rates Last Update: April 15, 2024

The banking product interest rates, including savings, CDs, and money market, are accurate as of this date.

You can trust the integrity of our unbiased, independent editorial staff. We may, however, receive compensation from the issuers of some products mentioned in this article. Transparency is a core value for us, see how we make money.

Table Of Content

interest apr on personal loan application
(Photo by Sundry Worawee Casper1774 Studio/Shutterstock)

Prepare to Apply For a Personal Loan

Before applying for a personal loan, there are a couple of things you should prepare to make sure you're ready to apply:

1. Gather Relevant Documents

Have the following documents ready before applying for your personal loan. If applying for a loan online, be sure to scan the documents so they are ready to be submitted electronically.  

Proof of identity documents such as a passport, driver’s license, state ID, military ID, birth certificate, or social security card. 

If applying for a joint personal loan, both of the applicants will be required to submit identity documents.

Proof of income is required so that lenders can verify that the loan will be paid back. The most common form of proof of income is a monthly pay stub. To obtain a copy of your monthly paystub, simply log into your employer’s payroll system and download a copy of your paystubs.

Other accepted proof of income documents will vary by lender and the type of income you have. If you have a full-time job you may be able to include your tax returns, bank statements, or W2 forms.

What If I'm Self-Employed?

For those who are self-employed, acceptable income proof documents include a 1099, bank statements, or tax returns. If you have another source of income this could mean providing bank statements, or other official documents showing that the funds are regularly received.

All unsecured loans will require proof of income, and the only types of loans that do not require proof of income are loans that require collateral such as car loans or home equity loans.

Proof of address will be required to verify your physical location.

Accepted documents may include driver’s licenses, utility bills, home or renters’ insurance policies, mortgage statements or rental leases, voter registration cards, property tax statements, bank statements, credit card bills, or school enrollment documents.

Proof of address is required by many institutions because many only offer loans to customers within certain areas.

If you are applying for a loan to pay for a bill you have already received such as a medical bill or a credit card statement, the lender is likely to require proof that you have a need for that specific purpose.

Some lenders do not require proof of the need up front but will require it after approval.

2. Check Lender Requirements

In order to qualify for a personal loan, lenders typically look for the following requirements from an applicant-

  • A credit score of at least 680. Though minimum credit score will vary by lender, it is difficult to qualify for a personal loan with a moderate or low credit score. Credit scores also help dictate the interest rates on the loan.
  • Steady income. Lenders will not lend to individuals they deem unlikely to pay them back. In order to verify your income, you may be required to provide documentation such as your paystubs that come from your fulltime job, or other proof if you have other sources of income.
  • A low debt-to-income ratio. Lenders evaluate the risk of the loan repayment using a factor called debt-to-income ratio. If you have a lot of existing debt compared to your annual income, you may not be eligible for a personal loan.

Depending on the applicant’s financial situation, some lenders may approve loans that put the lender’s debt-to-income ratio at at least 50%, but typically lenders with a low debt-to-income ratio are more likely to be approved for a loan.

In this chart compiled with LendingTree customer data, you can see that those with a 720+ credit score pay an average of 7.63%. At the other end of the scale, for those with a poor credit rating of less than 560, the rate shoots up to an eye-watering 113%.

 

3. Choose Loan Type

The conditions of your loan, and whether or not you’ll be approved, do depend on the reason you are seeking to take out the loan. Personal loans can really be for any reason, but a lender may require documentation to prove that you are using the funds for the specified loan purpose.

The most common types of personal loans are-

  • Debt consolidation- These types of loans combine your debt from several sources (credit cards, auto loans, etc) into one loan with a single payment with a (hopefully) interest rate that is within your means.
  • Home improvement- Homeowners may seek a home improvement loan when deciding to spend a lot of money on a major home renovation project, such as getting a new kitchen, repairing a bathroom, or purchasing new furniture.
  • Wedding- Weddings are very expensive and it’s no wonder that some seek out a loan to cover the expenses up front.
  • Medical- Medical loans can be used only for making medical payments, and may require verification documents to show what the loan funds are being used for.
  • Major purchase- This is a catch-all category for a loan that is sought to pay for something expensive. This could include going on vacation, buying an expensive luxury item, etc.
  • Emergency- This is a loan taken out when a person needs money immediately to pay for an emergency situation typically covered by an emergency fund.

All types of loans are subject to verification by the lender. Proof documents that may be requested include bills, receipts, and any other financial documents associated with the use of the loan funds. Check on which documents will be required before proceeding with the loan.

4. Choose Your Lender

It’s important to first pick your lender well. Shop around a bit before filling out any applications and see which lender might be the best fit for you.

  • Reputation of the lender- Not all lenders are created equal. Do your due diligence to ensure that you are only seeking loan applications from companies that have a track record of fair lending practices. Once you do find a reputable lender to apply for a loan from, make sure that you apply only through their official channels. It is easy for scammers to set up a mock website that imitates the website of a legitimate company.
  • The factors each lender uses to evaluate loan applicants- Credit score alone is rarely the only factor used to evaluate a loan applicant. Many lenders use a similar mix of factors but may weigh them differently. Some newer companies, especially in the online financial sector, may have a very different way of evaluating risk that you may be able to benefit from.
  • Fees associated with the loan- The fees a personal loan has will vary greatly from lender to lender. Be sure to read all of the information, including the footnotes, that details the amount and conditions of the fees associated with a personal loan.
  • Loan term and payment amount- The payment amount is the most important number associate with the loan. Be clear about how often you will be expected to make payments, for what amount, and for how long.
  • Interest rate- The interest rate is the amount that will most affect whether or not you can afford the loan payments. Personal loans often present their interest rates as APRs, which stands for annual percentage rate.
  • Which documents will be needed– Companies may approve your loan application on the condition that all the information provided can be verified. For that reason, it is very important to be completely truthful when completing your application.

Personal Loan Application: Key Terms To Fill Out

These are the key sections of information you will be requested to provide when filling out a personal loan application-

  • Personal details- Loan application will require your name, address, date of birth, and other identifying information about you to help the lender verify your identity
  • Amount- The size of the loan you are seeking will factor into your odds of being approved. It's important to keep the amount in-line with the amount that is needed, because many loans require proof of the use of funds. For example, if you are seeking a loan for a medical bill, you may be asked to submit copies of the bills you will be paying to justify the amount you are borrowing. Before beginning the application, determine the highest and lowest amount you would be willing to borrow.
  • Loan type- The main types of personal loans are debt-consolidation loans, home renovation loans, medical bill loans, and large purchase loans. Be sure to select the correct option, and keep in mind that you may be required to sign something that confirms that the funds will be used only for that purpose.
  • Income information- Personal loan applications often ask for your annual income, and then require documents such as paystubs or tax documents to verify the amount.
  • Bank account details– Have your bank account and routing number ready in case your loan gets approved. The funds for a personal loan can generally only be sent to a bank account and not a credit card, though this will depend on the lender and type of loan.
  • Documents- Be sure to have your documents ready before beginning your application. For most lenders, the documents can be submitted electronically, though some may also allow you to submit the documents through mail, by fax, or in person if the lender has a brick and mortar location.
  • Collateral- There are two main types of personal loans: secured and unsecured. Secured loans require collateral, which is an asset the borrow has in order to back up the loan. Examples of collateral could be your home or your car.

Secured loans generally present less risk to the lender, because the loan applicant pledges to relinquish their collateral asset if they cannot repay the loan. Unsecured loans do not require collateral, and these loans may have higher interest rates and require more verification of the lender’s financial information as a result.

How to Review Your Personal Loan Application

In your application, there are some terms you may not familiar with. Here are the main terms you'll need to know when reviewing your application:

  • Collateral- There are two main types of personal loans: secured and unsecured. Secured loans require collateral, which is an asset the borrow has in order to back up the loan. Examples of collateral could be your home or your car.

Secured loans generally present less risk to the lender, because the loan applicant pledges to relinquish their collateral asset if they cannot repay the loan. Unsecured loans do not require collateral, and these loans may have higher interest rates and require more verification of the lender’s financial information as a result.

  • Debt-to-income ratio- Though the term itself may not appear on a loan application, it is a key principle to determining whether or not you will receive the loan. Debt-to-income ratio is the
  • Annual percentage rate- This is the type of interest rate that will most likely be listed on your loan application. The annual percentage rate is the yearly interest rate. It is the cost of borrowing money for the personal loan
  • Repayment terms: make sure the terms are what you choose, and review your monthly payments.
  • Prequalified/preapproved- Many lenders have the option of preapproval to give you a general idea of your loan terms before you fill out the formal application. A preapproval will typically ask you questions about the reason for the loan, your employment situation, and your financial history.

It is important to answer all questions truthfully, as your approval for the loan may require verification of the information you are entering. Entering false information or exaggerating things like your income, could result in the loan terms changing than what you initially were presented with.

What Happens After You Apply?

  • Acceptance times vary by lender. Depending on the company you are applying for a loan from, it may take a few minutes to seven days before you learn whether or not you’ve been approved
  • If you are approved, the funds will normally be available within two business days, though this also depends on the lender.
  • The new loan will be reported to the credit bureau, which will impact your credit score. Opening a new loan will positively impact some aspects of your credit rating, and negatively impact others. The overall effect on your credit score will vary from person to person. It is important to consider your individual situation and determine what impact a new personal loan would have on your credit score.
  • The lender will provide you with all the information about your loan payments. Most personal loans are installment loans, meaning that all payments are of the exact same amount each time. Payments on personal loans taken out through traditional banks and credit unions are generally made once a month, though it is important to verify with your specific lender.

When to Apply For a Personal Loan Might Be A Good Idea?

Here’s the thing: a personal loan is not for everybody.  For starters, it is not the cheapest form of financing.  Secondly, the requirements are quite stiff such that people with credit problems would normally not qualify for it.  But, it is really an excellent option for certain borrowers, such as:

  • People who need money real fast. Yes, you might have home equity but in case of sudden need, you will not be able to tap it fast enough.  It would take weeks for the bank to appraise your property, process your home equity loan, go through an approval and finally fund the loan. 

If there’s a once-in-a-lifetime investment opportunity that you need to grab right away, a personal loan could be the solution.  And think about this:  you can always use your home equity loan to pay off your personal loan once you are no longer under time pressure.

  • People who tied up their money in retirement accounts. You might have some money in your retirement fund but unless you’re old enough, touching it means paying a penalty.  A personal loan could be a lot cheaper as a source of funds.  Here’s the catch:  when you take money from your IRA or 401(k) too early, the IRS will consider the money as your income. 

Therefore, you might have to pay around 10% to 39.5% income tax right away.  And did we mention there’s a 10% penalty that comes with it?  Look at this:  if you are in a 25% tax bracket, you will need to withdraw $15,000 just to net $10,000.  That’s a very, very steep price to pay.

  • People who don’t own homes or have enough home equity. Some people have really good credit and a healthy income – but they do not own a house.  Personal loans allow these good folks to get funds pretty fast when they need them.
  • People who prefer a loan with a fixed interest rate. You are dead right to say that credit cards come with a low fixed rate.  But that’s only for a limited time because they skyrocket after a while.  That’s why they call them “teasers”.  If you want a true-blue fixed rate loan, a personal loan is a real thing.

What are the Qualification Requirements to Get a Personal Loan?

A personal loan requires you to meet certain requirements. Keep in mind, however, that every lender is different. These are the factors that most lenders will consider you.

  • Credit scores – Lenders will assess your credit score to determine how risky you are. The lender will also examine your income and payment history. Lenders aren't giving money to have fun. They expect you to repay the loan before the term ends. These factors will be checked to ensure they give a personal loan only to responsible individuals.
  • History of payments – FICO scores are affected by your payment history. You will lose your ability to borrow money in the future if you fail to make payments. Lenders will offer loans to those they feel will pay their bills on time.
  • Your income level – Lenders will also want to see your income. This is to make sure you can pay all the required payments. Lenders don't want to lend money that they won't see again. So they consider all these factors when determining your eligibility.

FAQs

There is no limit to the amount of times you can apply for a personal loan. But if a lender declined your loan application, they’ll be unlikely to approve it if you apply again shortly.

Each time your credit is pulled to apply for a loan, it will lower your credit and lower your chances of subsequent loan applications being approved in the short term.

To complete a loan application, simply provide the information that the lender is requesting.

Lenders generally ask for personal and financial information such as your age, income, and amount of debt. Some lenders may also ask for additional documents to verify this information such as pay stubs.

You can apply for a personal loan either in person or online. Banks, credit unions, and online lenders all offer personal loans. In order to get the best interest rate, you may need to shop around a bit.

First, determine which companies you wish to apply for a loan from. After determining which lenders seem best for you, go to their website and follow the steps to apply for a loan.

Be careful to notice whether you are first filling out a pre-approval application, which does not do a hard pull of your credit, or if you are filling out a standard application that will do a hard pull of your credit.

The first step is finding a lender that offers joint personal loans, as not all do. When filling out the application, the personal information of both potential lenders will be considered, including credit score and financial history.

Yes you can. Depending on your credit score and recent credit history, your loan application may not be approved. Your credit score effects your interest rate, so applying with a not-so-good credit score may result in a high interest rate

The quickest way to apply for a personal loan at Wells Fargo is to apply on their website. Simply follow the application instructions and answer all questions honestly.

As Wells Fargo still has many brick and mortar locations throughout the country, you can also apply for a personal loan in-person at a Wells Fargo branch

Upstart loans are only available on their website, upstart.com. On the homepage there is a link to “check your rate” which will lead you into completing the personal loan application.

The website will prompt you to enter your desired loan amount, reason for the loan, and other information. If approved for a loan, Upstart will provide you the funds within two business days.  

Personal loans through Marcus are also only available online. On the personal loan page of their website, the application will ask for details such as desired loan amount, monthly income, and your address.

Once all the information is entered, it will immediately let you know whether or not you are eligible for a loan, and if so what amount they would be able to lend you.

Picture of Baruch Mann (Silvermann)

Baruch Mann (Silvermann)

Baruch Silvermann is a financial expert, experienced analyst, and founder of The Smart Investor.  Silvermann has contributed to Yahoo Finance and cited as an authoritative source in financial outlets like Forbes, Business Insider, CNBC Select, CNET, Bankrate, Fox Business, The Street, and more.
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