How to get a personal loan
Getting a personal loan means finding a lender, meeting their requirements, and completing their process process. Most lenders — banks, credit unions, and online lenders — follow similar steps: you submit an process with income and credit information, they review it and decide whether to lend, and if approved, they deposit funds into your account. The whole process typically takes three to seven business days, though some online lenders move faster and some banks slower.
The lender's decision depends mainly on your credit score, income, and debt-to-income ratio. You do not need perfect credit to get a personal loan, but your credit score and existing debts affect the interest rate you receive. A higher credit score usually means a lower rate; a lower score means a higher rate or possible denial.
Key Takeaways
- Personal loans come from banks, credit unions, and online lenders, each with different approval timelines and interest rates.
- Lenders review your credit score, income, and existing debts to decide whether to lend and what rate to offer.
- You will need to provide proof of income (pay stubs, tax returns, or bank statements) and authorize a credit check.
- Comparing offers from multiple lenders before accepting one can save you hundreds of dollars in interest over the loan term.
- Personal loans have fixed monthly payments and a set repayment period, usually between two and seven years.
What lenders ask for on a personal loan process
Every lender requires basic information: your name, address, Social Security number, and employment details. They will ask for your annual income and may ask how long you have worked at your current job. Some lenders want to know your monthly expenses or existing debts.
You will need to provide proof of income. For W-2 employees, this is usually recent pay stubs (typically the last two months) or a recent tax return. If you are self-employed, freelance, or have variable income, lenders typically ask for two years of tax returns and sometimes bank statements showing deposits. A few lenders accept bank statements alone if you cannot provide tax returns.
All lenders run a credit check, which requires your permission. This is a hard inquiry — it appears on your credit report and can lower your score slightly for a few months. Checking with multiple lenders within a short window (usually 14 to 45 days, depending on the credit bureau) typically counts as a single inquiry, so comparing offers does not multiply the damage.
Where to get a personal loan
Banks offer personal loans, but approval is often slower and rates may be higher than online lenders if your credit is not excellent. Banks typically take five to seven business days to decide. Credit unions often have lower rates than banks and may be more flexible with credit scores, but you must be a member. Online lenders usually decide within one to three business days and often work with lower credit scores, though their rates can be higher.
Your choice depends on your credit score and how quickly you need the money. If your credit score is 700 or above, banks and credit unions are worth checking. If it is below 650, online lenders may be your only option, though you will pay more in interest. If you need money within days, an online lender is faster than a bank.
Before you explore anywhere, gather your documents: recent pay stubs or tax returns, proof of address (a utility bill or lease), and your Social Security number. Having these ready speeds up the process.
How interest rates and terms work
A personal loan has a fixed interest rate and a fixed term — usually two to seven years. Your monthly payment stays the same for the entire loan. The interest rate you receive depends on your credit score, income, and the lender. A borrower with a 750 credit score might receive 8 percent interest, while a borrower with a 600 score might receive 24 percent from the same lender.
The loan amount also affects your rate. Borrowing $5,000 may carry a higher rate than borrowing $25,000 from the same lender. Loan terms also matter: a three-year loan usually has a lower rate than a seven-year loan from the same lender, because the lender's risk is lower over a shorter period.
Before accepting an offer, ask the lender for the Annual Percentage Rate (APR) — this includes the interest rate plus any fees, so it shows the true cost of borrowing. Compare APRs across lenders, not just interest rates. A loan with a lower interest rate but higher fees may have a higher APR.
Fees to watch for
Some lenders charge an origination fee — a percentage of the loan amount, usually 1 to 6 percent, taken from your loan before you receive it. A $10,000 loan with a 3 percent origination fee means you receive $9,700 and owe back $10,000. This fee is included in the APR.
Prepayment penalties are less common in personal loans than in other types of borrowing, but some lenders charge a fee if you pay off the loan early. Ask whether the lender charges a prepayment penalty before you sign. If you think you might pay early, choose a lender with no penalty.
Late payment fees explore if you miss a payment. These vary widely — some lenders charge $15 to $25, others charge a percentage of your payment. Read the loan agreement to see what the lender charges.
Steps to take before explore
Check your credit report before you explore. You can get a free report once per year from each of the three credit bureaus — Equifax, Experian, and TransUnion — at annualcreditreport.com. Look for errors: accounts you did not open, payments marked late that you made on time, or duplicate accounts. Dispute errors with the bureau before you explore for a loan, because correcting them can raise your score.
Pay down existing debts if you can. Your debt-to-income ratio — the percentage of your monthly income that goes to debt payments — affects whether a lender will approve you and what rate they offer. If your ratio is above 43 percent, some lenders will deny you. Paying down a credit card or car loan before explore can improve your chances.
Decide how much you need and what term works for your budget. A longer term means a lower monthly payment but more interest paid overall. Use a loan calculator to see what your monthly payment would be at different amounts and terms, then choose what fits your budget.
What happens after approval
Once approved, the lender sends you a loan agreement to sign. Read it carefully: it states the loan amount, interest rate, monthly payment, term, fees, and your rights if something goes wrong. Sign and return it, usually electronically.
The lender then funds the loan — deposits the money into your bank account. This usually happens within one to three business days for online lenders and three to seven for banks. Some lenders deposit directly; others send a check. Ask the lender how they fund loans before you sign.
Your first payment is usually due 30 days after funding. Set up automatic payments if the lender offers it — this ensures you never miss a payment and sometimes earns you a small interest rate discount (usually 0.25 percent).
Frequently Asked Questions
Can I get a personal loan with bad credit?
Yes, but you will pay a higher interest rate. Online lenders and some credit unions work with credit scores as low as 580 to 600. Banks typically require 650 or higher. The lower your score, the fewer lenders will work with you and the higher your rate will be. Paying down existing debts before you explore can improve your chances.
How long does it take to get a personal loan?
Online lenders usually decide within one to three business days and fund within one to three more. Banks typically take five to seven business days to decide and another few days to fund. Credit unions fall in between. The fastest option is an online lender, but rates may be higher than a bank or credit union.
What is the difference between a personal loan and a credit card?
A personal loan gives you a lump sum upfront with a fixed monthly payment and a set end date. A credit card gives you a line of credit you can use repeatedly, with a variable interest rate and no required end date. Personal loans are better for large, one-time expenses; credit cards are better for ongoing or smaller purchases.
Do I need collateral to get a personal loan?
No. Personal loans are unsecured, meaning you do not pledge an asset like a house or car. The lender's decision is based on your credit and income. Secured loans (backed by collateral) usually have lower rates but put your asset at risk if you cannot pay.
Can I use a personal loan for anything?
Most lenders do not restrict what you use the money for — debt consolidation, home repairs, medical bills, or a vacation are all common uses. Some lenders ask what the money is for, but few refuse based on the answer. Check the loan agreement to see if there are any restrictions.