How to Get a Personal Loan: A Quick and Easy Checklist

Personal loans can be a great way to consolidate debt, pay off high interest rate credit cards, or cover a financial emergency. But if you’ve never applied for one before, you might not be familiar with how to get a personal loan.

Fortunately, applying for a personal loan is pretty straightforward. In fact, many financial institutions -- from banks to credit unions to online lenders and marketplaces -- offer a quick, online application process and fast funding upon approval.

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Want the play-by-play? Check out our personal loan checklist for five simple steps to obtaining a loan.

Step 1: Know Before You Owe

If you’ve never taken out a personal loan, it helps to first understand what it is and how it works compared to other credit products.

Personal loans are installment loans, so they’re in the same family as auto and student loans. Unlike credit cards, which have variable interest rates and no fixed payment term, personal loans come with a fixed rate and term. That means you have a finite period of time to pay it back and can circle the date on your calendar for when it will be paid off. Get to know the difference between personal loans and credit cards to figure out which option is best for you.

Personal loans typically range in size from $1,000 to $50,000 with terms from two to five years. After your loan is approved, you'll receive a lump sum up front and then make monthly payments until the loan is paid in full.

Step 2: Assess Your Credit & Other Key Factors

Your credit score is an important factor in determining your loan eligibility, so it helps to know what kind of shape it’s in before you apply for a personal loan. Start by pulling your credit report and double check that everything is accurate. If not, it’s important to fix any errors that could be negatively affecting your score. Next, check your actual credit score—a higher score gives you a better chance of qualifying for the amount you want and scoring a lower interest rate, which can save you money in the long run.

If your score is below 600, it may be harder to obtain a loan or receive a low interest rate. You may want to spend some time improving your score before you apply—for example by improving one or more of the five factors that can impact your credit score:

  1. Your track record of paying bills on time.
  2. Your credit utilization, or the amount of available credit on your cards.
  3. The length of your credit history and the average age of your credit lines.
  4. The number of credit accounts you have and the mix of those accounts, such as credit cards, auto loans and mortgages.
  5. The number of recent credit inquiries and new lines of credit.

Keeping track of your credit score on a regular basis, not just when you need credit, can help you maintain your strong score or help you find ways to improve it. Sign up for free credit monitoring and credit education tools such as Upgrade’s Credit Health where you can get your free score, credit alerts and other resources that make managing your credit profile easy.

In addition to credit score, lenders will also assess your debt-to-income ratio (DTI). DTI measures how much you owe each month compared to how much you earn. Many lenders use DTI to judge your ability to manage your monthly payments. The lower your DTI, the less risky you appear to lenders. Lenders may also want to know other factors beyond your credit score.

Step 3: Get Pre-qualified

Many lenders allow you to pre-qualify for a personal loan, which means you can start the process with just a small amount of information. Personal loan requirements vary by lender, but pre-qualification typically requires information like:

  • Loan amount
  • Loan purpose
  • Annual income
  • Monthly debt obligations
  • Employment information

One of the benefits of pre-qualification is that you can check your rate in less than 2 minutes without filling out a full application with each lender. When you check your rate through Upgrade, a soft credit pull is performed at the pre-qualification stage, which means you see how much you qualify for without harming your credit score.

Step 4: Choose an Offer that Fits Your Budget

Once you’ve received a few offers, it's time to compare monthly payments, interest rates and payment terms.

First, review your disposable income and determine an amount you can comfortably afford to pay toward the loan each month. Remember that missing a payment can hurt your credit score, so it helps to set yourself up for success.

Payment term, or how long it will take you to repay the loan, will affect how big your monthly payments are. Generally speaking, a longer term means lower monthly payments but also a higher interest rate, while a shorter term means higher monthly payments but a lower interest rate. Do the math before deciding—while a smaller monthly bill may sound nice, a longer term will cost you more money in the long run.

Finally, read the fine print to avoid any surprises. Check to see if there is a pre-payment penalty for repaying your loan early, and be sure the lender has disclosed the total cost of your loan, which may include origination fees.

Step 5: Finalize Your Loan

After you've selected your lender, sometimes you’ll be asked to provide additional documents so they can verify the information you provided. Having the following documents ready will help speed up the process:

  • Photo identification: A copy of a government-issued photo ID, such as a passport, driver’s license, or state identification, may be required to verify your ID.
  • Verification of your home address: Your address may need to be verified with a copy of a recent utility bill or your lease.
  • Proof of income: Lenders typically accept W-2 forms, pay stubs, bank statements or tax returns as proof of your monthly income.

Once your documents have been accepted and you’ve completed all verifications required for final approval, you should receive your funds within a few business days (funding timeline varies by lender). If possible, set up a monthly auto-payment from your checking account to avoid late fees.

Personal Loan Checklist: Some Final Thoughts

A personal loan can be a valuable tool for covering emergency expenses, rebuilding credit, consolidating credit card debt, or achieving other financial goals—but it can also wreak havoc if you take on a monthly payment you can’t cover. Take time to look at all your options before committing to a loan, and make sure you’re confident that you can repay it over time.