How to Get a Personal Loan (and What It Takes to Qualify)
Bills Bottom Line
In need of a personal loan but not sure how to get one? Here's the crash course: Check your credit, prequalify with a soft credit pull, then compare offers. Check at least three lenders for the full picture. Apply with the lender with the best cost and terms. Most borrowers could receive funds within a few business days.
Table of Contents
- Getting a personal loan, at a glance
- How much does your credit score matter for a personal loan?
- What size loan do you need, and what will it cost?
- What lenders look for in personal loan applicants
- How to prequalify for a personal loan without hurting your credit
- Loan, line of credit, or something else? Comparing your options
- Applying, gathering documents, and getting funded
- Bills Action Plan
- Key Terms
Do you need an expensive medical procedure? Want to start a business? Are you planning a home renovation? Or do you just have some annoying credit card balances to deal with? Whatever brought you here, you're eyeing a personal loan as the fix.
Whatever your purpose, the process is the same. Check your credit, prequalify risk-free, compare offers, then apply. Most of the anxiety comes from not knowing that order ahead of time.
Getting a personal loan, at a glance
You can preview your odds and your likely rate before you commit to anything. Here's the order, step by step, so you always know what's coming next:
- Check your credit scores and reports. Correct errors if necessary.
- Decide how much you need to borrow and what payment would fit your budget.
- Know what lenders look for so you can polish your application and prepare your documents.
- Prequalify with a soft credit check that won't impact your credit score.
- Compare loan offers so you can choose the best rate and terms for your situation.
- Apply, submit documents, and get funded once you're approved.
Not entirely sure if a personal loan is the right choice? Start with what is a personal loan to learn the basics before you dive in.
How much does your credit score matter for a personal loan?
Credit matters a great deal for personal loans. That’s because, unlike loans secured by a car or home, most personal loans are unsecured and backed only by your promise to repay. (Another name for unsecured personal loans is signature loans, because all you put up is your signature and your promise.)
Since there's no collateral or security, lenders rely heavily on your credit history to gauge your risk as a borrower. Your credit score gives lenders a snapshot of your credit profile, especially your payment history. Indeed, payment history makes up 35% of your FICO Score, more than any other single factor.
FICO sorts scores into five tiers:
- Poor (under 580)
- Fair (580 to 669)
- Good (670 to 739)
- Very Good (740 to 799)
- Exceptional (800 or above)
In most cases, the higher your credit tier, the better your odds of approval and the better the rate you'll likely be offered.
However, your score isn't the only thing lenders weigh. They also look at your full credit profile, your employment history, and overall debt-to-income ratio (DTI). DTI equals all your monthly debt payments, including rent or your mortgage, divided by your gross (before tax) monthly income. A lower DTI signals more room to take on a new payment.
If you want to know more about how your credit score impacts your loan options, review what credit score you need for a personal loan before you start shopping lenders.
What size loan do you need, and what will it cost?
Generally, you should only borrow the absolute minimum you need to reach your goals. Personal loan amounts can run from a few hundred dollars to $100,000 or more, depending on the lender.
Before you pick a number, get specific: What's the actual bill or purchase you're covering? For instance, if you're consolidating credit card debt, add up all your outstanding balances to find out the minimum you need to borrow.
Once you know that, you can work out your monthly payment and overall costs. Personal loan costs typically depend on three things:
- The interest rate. This varies a lot by lender, and will depend mostly on your credit profile and DTI. Higher scores tend to get offered the lowest interest rates.
- The loan fees. Some lenders charge no loan fees, while others charge origination or admin fees that can range up to 12% of the loan amount. These fees are usually taken out before the money reaches your account. Make sure your loan amount is high enough to cover your needs plus the origination charge, if there is one.
- The loan term. Most personal loans run two to seven years, though some lenders offer shorter or longer terms. A shorter term usually means higher monthly payments but less total interest. A longer one spreads the cost out, but it often costs more over the life of the loan.
Use our online personal loan calculator to compare how different term lengths and rates could change your monthly payment and overall loan costs.
Is it better to take a lower rate with an origination fee, or a higher rate without a fee?
This question is exactly what APR (annual percentage rate) is for. Unlike the interest rate alone, APR includes common loan fees, so it's the number that lets you compare loans with different rates and upfront costs. To get an apples-to-apples comparison using APR, both loans must be the same length.
For example, a five-year loan with a 10% interest rate and no fees at all has an APR of 10%. That same loan with an 8% interest rate and 8% origination fee would have an APR of 11.59%.
One benchmark worth keeping in mind: the National Consumer Law Center recommends a 36% APR ceiling, including all fees, as the line for affordable lending. Loans priced above it are widely considered predatory by consumer protection groups.
What lenders look for in personal loan applicants
Nearly every lender weighs the same core factors:
- Credit score and history. Lenders look at your full credit profile, not just your score.
- Income and employment. Consistent employment and reliable income could help strength an application.
- Debt-to-income (DTI) ratio. Lenders compare your total monthly debt payments to your gross (pre-tax) monthly income to see how a new loan payment fits your budget.
A few lenders may also consider alternative data, as well, such as factoring in your education alongside your credit profile.
Concerned your qualifications aren't strong enough to get approved? Consider a co-signer or joint loan with a friend or family member with strong credit. Will bad credit rule you out entirely? How to Get Approved for a Personal Loan walks through that in depth.
How to prequalify for a personal loan without hurting your credit
Many lenders offer prequalification, which is a way to get an estimate of your potential rates, fees, and term options. Prequalification often uses a soft credit check that doesn't affect your credit score. A full application does, because it triggers a hard inquiry. Prequalifying “risk-free” with a lender generates that soft check, and it's how you can preview rates before you commit to anything.
Not every lender offers this risk-free option, so check before you apply. Where it's offered, prequalifying lets you compare estimated rates across a few lenders side by side, all before any of them run a full credit check on you.
Keep in mind that prequalified isn't the same as approved. The rates and terms you see aren't guaranteed—nor is approval at all. Think of prequalification as a preview, not a promise.
Avoid lenders that don’t offer a risk-free prequalification unless you’re sure that you want to apply with them and fairly certain you’d be approved.
Loan, line of credit, or something else? Comparing your options
A typical personal loan is an unsecured installment loan, meaning you get a lump-sum at closing, need no collateral, and repay in fixed monthly payments. However, you may have options that let you choose:
- Secured or unsecured
- Fixed or variable interest rate
- Line of credit or installment loan
If you're worried about approval for an unsecured loan, a secured loan might be easier to get if you have collateral to offer. You might also get better terms by pledging an asset the lender can take if you don’t pay your loan.
The majority of personal loans have fixed interest rates, but you might encounter some with variable rates. A fixed rate means a predictable payment for the life of the loan, which is one reason it's the more common choice. Most lines of credit have variable rates.
When you're not sure exactly how much you need to borrow, a line of credit might be the right fit. Here's how a loan and a line of credit generally differ:
| Feature | Personal Loan | Personal Line of Credit |
|---|---|---|
| How you get funds | Full amount upfront | Draw as needed, up to a limit |
| Repayment | Fixed schedule | Repay, then borrow again |
| Best for | One-time expenses | Ongoing or unpredictable needs |
If you're applying with someone else, you have another consideration: joint application or co-signer?
A co-borrower shares equal ownership of the funds and equal responsibility for paying the loan back. A co-signer is different: a co-signer guarantees the loan and is on the hook if you default, but never gets access to the money or any ownership stake.
Applying, gathering documents, and getting funded
Once you've picked a lender, you'll typically need to prove three things: your identity, your income, and your address. Exactly what that looks like varies by lender, so check their application page for specifics.
It's very common to be asked for a pay stub with year-to-date income, tax returns for your business, or perhaps a bank statement showing monthly social security deposits. You’ll typically upload copies of these documents through an online dashboard or mobile app.
Submitting a full application is different from prequalifying. This step triggers a hard credit inquiry, and your loan is subject to credit approval.
How long does it take to get a personal loan?
Funding times vary by lender, often within a week of approval, once your documents are in and everything checks out. Some lenders offer same-day funding, but at least one to three business days is more typical. Lenders with online applications and automatic underwriting tend to be the quickest from application to funding.
Ready to start shopping? Browse the roundup of best personal loan companies to compare popular lenders.
Bills Action Plan
- Check your credit score and report to gauge your credit tier. Dispute any errors on your reports.
- Prequalify with a few lenders that use a soft credit inquiry so it doesn't impact your scores.
- Compare the rates, fees, and terms across three to five offers. Only apply once you've chosen a lender.
Key Terms
Signature loan: Another name for an unsecured personal loan. The lender accepts your signature as your promise to repay. No collateral required.
APR: The annual cost of your loan, including interest and some lender fees. A lower interest rate can still mean a higher APR if the fees are steep.
Debt-to-income ratio (DTI): All your monthly debt payments, including housing, divided by your gross (pre-tax) monthly income. Lenders weigh it alongside your credit.
Origination fee: A cost some lenders charge to process your loan, taken out of what you receive. Not every lender charges one, and the ones that do vary widely.
This is general information, not financial or legal advice. Loan terms, rates, and eligibility vary by lender.
Does checking my loan rate hurt my credit?
No, not if you work with lenders that offer risk-free prequalification. Prequalifying with a soft credit check doesn't affect your score. If you fill out a full application, which triggers a hard inquiry, your score could be impacted. Avoid lenders that require a hard credit check to prequalify unless you’re sure you want to apply with them.
What credit score do I need for a personal loan?
There's no universal minimum since each lender sets its own bar. Most lenders prefer a credit score of 600 and up, while some may have higher or lower requirements. Some lenders focus on riskier borrowers, so you might find them more flexible. Expect them to be more expensive as well.
Is personal loan interest tax deductible?
No, not usually. Rare exceptions exist for investment or business use. Consult a tax professional for details on your situation.
Can I get a personal loan with a co-signer or co-borrower?
Yes, some lenders allow joint applications or a co-signer on a personal loan. A co-signer helps you get approved and pays only if you default, with no access to the funds. A co-borrower shares both the funds and the responsibility from day one.