How To Get A Personal Loan
When I took out my first personal loan, I was worried it was a scam.
The interest rates were over 20%. So after a few years, I had barely made a dent in the balance I originally owed.
But I don’t want you to make the same silly mistakes.
So whether you want to consolidate debt or pay for medical expenses, I’ve got you covered.
Below, I’ll cover everything you need to know about how to get a personal loan with low-interest rates.
What is a Personal Loan?
A personal loan is when banks lend money to a customer, and this customer promises to pay it back within a specific timeframe plus interest. Consumers can then use this money for a variety of reasons, including:
- Debt consolidation
- Home improvement
- Medical or financial emergencies
However, there are rules for what you can put the loan amount towards. For instance, you can’t use a personal loan as a down payment for a house or to pay off your existing mortgage.
What You’ll Need to Apply For a Personal Loan
Required documents vary between lenders, but this is what you can expect a lender to ask for:
- Proof of Identity – Includes two forms of government-issued identification, such as driver’s license, state ID, passport, birth certificate, or military ID.
- Proof of Income – W-2s, paystubs, 1099s, bank statements, or tax returns.
- Employer’s Information – Company name, manager name, and contact info.
- Proof of Residence – Utility bill, lease agreement, mortgage statement, property tax receipt, insurance statement, or voter registration card.
How to Get a Personal Loan in 5 Steps
Here’s how to get a personal loan in five easy steps:
- Check your credit score
- Choose a loan type
- Compare lenders for best personal loan rates
- Pick a lender and apply
- Accept a personal loan and start making payments
Before applying, it’s essential to Check Your Credit Score.
Above 670 is considered a “good” credit score, and this boosts your chances of getting a loan while reducing your interest rates.
However, if your score is below 600, you can still get a personal loan at reasonable rates, but you’ll likely have to offer collateral or get a co-signer. See here for the best loans for bad credit.
I suggest pulling a copy of your credit report from one of the three major credit bureaus:
If you believe your credit report is inaccurate, feel free to dispute it. This can be a significant step in getting that personal loan.
2 – Choose a Loan Type
After completing a credit check, the next step is to choose a loan type. Most lenders will ask you why you’re taking out a loan, and they can accept or reject you based on this alone.
So I’d recommend going for a loan tailored to your circumstances. Not only does this increase your chances of getting accepted, but you can also customize payment plans around your needs.
Common types of personal loans include:
- Debt consolidation loans
- Home improvement loans
- Emergency loans
- Medical loans
- Home Equity loans
Online lenders typically provide various types of loans, so choosing one that meets your needs is easy. If you’re going into a physical bank, be transparent about why you need a loan so your banker can help you reach your goals.
Quick Story: When I was trying to build my credit score score a few years ago, I couldn’t get a credit card. But when I told my banker I just wanted to build a credit score and I wasn’t going to make crazy purchases, he recommended a secured credit card. I’d essentially use my bank account as collateral, so I had an easier time qualifying.
Moral of the story? Be open with your lender.
3 – Compare Lenders for Best Personal Loan Rates
You never want to accept the first lender willing to give you money.
Although shopping around and crunching the numbers is exhausting, it’s a necessary part of getting a loan.
There are three types of lenders to compare:
- Traditional banks
- Credit unions
- Online lenders
I like to start with the bank I have a good history with, and I suggest you do the same. They know and trust you and usually will be able to work with you better than a new lender.
From here, move on to credit unions and online lenders. Go with the lowest interest rate option.
The one thing I like about online institutions is that they run soft checks, not hard credit inquiries. Since hard credit inquiries can harm your credit score, online lenders are perfect if you want to apply for multiple loans within a short timeframe.
Once you’ve found a lender with the lowest rates, you can finally apply! The best part is that most lenders complete everything online, so you won’t even have to leave your home.
During this process, ensure you have these documents on hand (see the above section for exact documents):
- Proof of identity
- Proof of income
- Employer’s information
- Proof of residence
Save yourself time by only applying to lenders you are eligible for, and double checking your documents match what you put on your application.
5 – Accept a Personal Loan and Start Making Payments
Your lender will contact you via email, text message, or phone call and notify you whether your application was approved or not.
Most traditional banks will deposit the funds into your account within a week of approval. And online lenders usually disburse funds within a day or two.
The last step is checking when the first payment is due. I’m a big fan of autopay software, which makes payments to your lender on time every month without you having to manually transfer money.
Pro tip: Some lenders will lower your interest rate up to a quarter of a percent if you use autopay!
Tips For Getting a Personal Loan
Here are a few additional tips to help you in your search for a personal loan:
- Look for the lowest interest rates
- Consider insuring your loan
- Watch out for loan restrictions
Look for the Lowest Interest Rates
The biggest mistake I made when starting out was getting overwhelmed and signing with the first lender that approved me.
Although finding a loan with a low credit score is tough, you still want to shop around for the best rates. Check out this post for an in-depth review of the best loans for bad credit.
Consider Insuring Your Loan
You may also want to insure your loan. If the recent COVID pandemic has taught us anything, it is that life is unpredictable.
You might be doing well today, but you never know what emergencies lie ahead.
Loan protection insurance will cover your debt when you’re unable to pay. This could be due to a worldwide pandemic, or more personal problems like:
- Injury or disability
With loan insurance, you’ll have peace of mind knowing that your loans will be taken care of, regardless of what life throws your way.
Watch Out for Loan Restrictions
Most people don’t realize this, but some personal loans will have fine print preventing you from using them for certain things.
The most obvious is a down payment for a house. But this might extend to car and mortgage payments as well.
This is why you must be transparent with your lender and let them know what you intend to use the loan for.
Commonly Asked Questions About How to Get a Personal Loan:
How Do I Qualify for a Personal Loan?
Qualify for a personal loan in five easy steps: First, check your credit score, compare your options, choose a lender with the lowest interest rates, apply, and once you’re approved, start making monthly payments. Have a low credit score? Check out this article to find the best loans for bad credit!
What Bank is the Easiest to Get a Loan From?
The easiest bank to get a loan from is your current bank (as long as you are in good standing with them). This is because you already have a history with them, and if your credit score is a bit low, they may be able to work something out for you.
How Tough is it to Get a Personal Loan?
Personal loans are easy to qualify for if you have a good credit score. Although tricky, it is not impossible to get a personal loan with bad credit. Check out this post for top lenders who offer loans for bad credit!
How Can a Beginner Get a Loan?
Although it’s harder to get a loan with no credit history, it is possible. You’ll need to prove that you earn a steady income and can pay back the loan. They’ll typically start you off with a small loan. Once they see you’re responsible, you’ll be eligible for larger loan amounts.
How Long Does it Take to Get a Personal Loan?
With traditional banks, you can expect to receive your money within a week or five business days. Fortunately, online lenders are much quicker. They will usually deposit the loan amount into your account within 1-2 business days.
What Can a Personal Loan be Used for?
Depending on your bank’s terms and conditions, you can use a personal loan for large purchases, consolidating debt, and paying for emergency expenses. Almost all lenders forbid personal loans to be used for a home down payment or mortgage payments.
What Disqualifies You From Getting a Personal Loan?
Unstable employment, a low credit score, and a high debt-to-income (DTI) ratio are what disqualify most people from getting a personal loan.
Where Can You Find a Personal Loan?
You can find personal loans by visiting your local bank or credit union. Online lenders are also an option if you’re looking for more modern platforms, customized loans, and quick cash.
What Are The Different Types of Personal Loans?
The various types of personal loans. The most common include secured loans, unsecured loans, joint personal loans, debt consolidation, medical, higher education, automotive, cash advancements, and home equity loans. Check out this post for a list of loans for bad credit.