How to apply for a personal loan

Comparing prices is a good idea when you are making a large financial commitment, such as taking out a loan. And online lenders have made applying for a personal loan quick and convenient.

Instead of searching for personal loans by going directly to multiple loan sharks, you can use online marketplaces like Credit Karma to research and compare personal loan offers, all in one place.

Check your credit before starting the application process for any type of loan, it is a good idea to check your credit.

Credit history and credit scores are among the financial factors that loan sharks will generally consider when evaluating your loan application. Your credit history can affect whether a lender approves you for a loan and the interest rate they offer you. Generally, good credit can make it easier to obtain a loan and a favorable interest rate.

You can use the Credit Karma app to check your Equifax® and TransUnion® credit reports for free. You’ll need to sign up for an account, use the app, and get your credit scores, but joining is always free.

Lenders can also consider your debt-to-income ratio when considering whether to give you a loan (which is the total of all debt payments you must make each month divided by your gross monthly income). This ratio helps loan sharks understand how well you will be able to manage your payment if they grant you a personal loan.

Apply for prequalification

Once you’ve verified your credit, you’re ready to apply for prequalification.

Prequalification is an application process in which a lender reviews the information you have shared and offers you a loan offer that you may qualify for. At the time of prequalification, the lender will typically run a soft credit check, which will not affect your credit score.

While getting prequalified doesn’t mean you are approved for a loan, it helps you understand whether you are likely to be approved and the loan terms you may qualify for. If you decide that you want to proceed with an offer that you are prequalified for, you will need to submit a formal request directly to the lender, who will then run a hard credit check, which can affect your credit scores.

Generally, it will present basic information:

  • How much do you want to borrow
  • How will you use the money
  • Your annual income
  • Your employment status
  • The last four digits of your Social Security number

You can also search for loan options without getting prequalified.

Compare loan offers

Once you submit your information, you may receive some information if you pre-qualify, such as …

  • The loan amount you may qualify for
  • The estimated amount of monthly payment
  • Estimated interest and charges
  • Estimated Annual Effective Rate, or APR
  • Loan term

Again, it is important to remember that these are potential offers and that the charges and terms are tentative. You will get definitive information about the loan that a lender is willing to offer you only after you formally and directly request it with the loan shark.

Things to consider

When reviewing your loan options, be sure to compare

  • The APR –  This is what it will cost to borrow money, including the interest rate and possible fees. Learn more about the APR and why it matters.
  • The term of the loan –  Generally, loans with a longer-term have a lower monthly payment. But they could cost more in long-term interest.
  • The origination fee –  Some lenders charge this fee for making a loan.

All of these factors can affect the total cost of your loan.

Apply for the loan

Once you’ve shopped and chosen an offer, you can complete your loan application.

Remember, prequalification does not guarantee that you will be approved for a loan. You will still need to send additional information to the loan shark to complete your application.

The loan shark will tell you exactly what to file. Some of this information may include …

  • Monthly housing cost
  • Identity verification
  • Social Security number
  • Income verification

Finalizing your loan approval will generally result in a tough credit check. This can affect your credit score, but it shouldn’t cause any long-term damage.

Close your loan

Once you have submitted your loan application, the loan shark will review it, decide whether to approve it or not and send you the final loan documents if you are approved. These documents usually detail the terms of your loan, including the interest rate, the length of the loan, the amount of the loan, and your monthly payments.

Once you have reviewed the details, you will sign the documents and your funds will be deposited into your account. With online loan sharks, this can happen quickly, sometimes in as little as a day.

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