How to Apply for a Personal Loan

Step 1: Check Your Credit Score

Before applying for a personal loan, it's essential to know where your credit stands. Most lenders require a credit score of at least 650, and a score of 720 or higher typically qualifies for the best rates.

Understanding your credit score helps you anticipate which loans you're likely to qualify for and what interest rates you may receive. If your score is lower than desired, you might consider improving it before applying.

Sources: Axos Bank, Experian

Step 2: Determine How Much You Need

Figure out exactly how much you need to borrow. Avoid borrowing more than necessary, as this can increase your interest costs and monthly payments. Consider the purpose of the loan and create a budget that includes repayment.

Knowing your desired loan amount helps you compare offers more effectively and prevents you from taking on more debt than you can comfortably repay.

Step 3: Shop Around and Pre-Qualify

Compare multiple lenders before applying. It's common to pre-qualify with at least three to five lenders to see what terms you might receive. Pre-qualification typically uses a soft credit inquiry, which does not affect your credit score.

When comparing offers, key factors to consider include the annual percentage rate (APR), loan term, and any fees such as origination fees. Personal loan APRs generally range from about 7% to 36%.

Even if you pre-qualify with several lenders, the final approval will require a formal application, which triggers a hard credit check.

• Check APR, which includes interest plus fees, to compare true costs.
• Consider the loan term: shorter terms typically have higher monthly payments but lower total interest.
• Look for origination fees and other charges that can increase the cost of the loan.

Sources: Axos Bank, Experian, NerdWallet

Step 4: Gather Required Documents

A personal loan application typically requires a government-issued photo ID, proof of address, and proof of income, such as pay stubs, tax returns, or bank statements. Lenders also commonly assess your payment history and debt-to-income ratio.

Having these documents ready speeds up the application process and shows the lender that you're prepared.

• Government-issued photo ID (e.g., driver's license or passport)
• Proof of address (e.g., utility bill or lease agreement)
• Proof of income (e.g., pay stubs, tax returns, or bank statements)

Sources: Axos Bank, Experian

Step 5: Submit Your Application

Once you've chosen a lender, complete the formal application. This action triggers a hard credit check, which may temporarily lower your credit score by a few points. Make sure all information is accurate and complete to avoid delays.

If you're rate shopping, note that multiple hard inquiries for installment loans within a short period (typically 14 to 45 days) are treated as a single event by FICO and VantageScore, minimizing the impact on your credit score.

Sources: Axos Bank, Experian

Step 6: Review Offers and Accept the Best One

After you submit your application, the lender will evaluate your creditworthiness. If approved, you'll receive a loan offer with the final APR and terms. Review the offer carefully, including all fees and the repayment schedule, before accepting.

Once you accept, funds are typically deposited directly into your bank account within one to three business days.

1. Compare the final APR, term, and fees with other offers.
2. Make sure the monthly payment fits your budget.
3. Accept the loan that best meets your needs and financial situation.

Sources: Axos Bank

Understanding Personal Loan Requirements

Lenders evaluate several factors when you apply for a personal loan. Common requirements include a good credit score, a solid payment history, consistent income, a low debt-to-income ratio, and proof of identity.

Meeting these criteria increases your chances of approval and helps you secure more favorable terms.

Sources: Experian