A personal loan can be a straightforward way to get a lump sum for things like debt consolidation, home repairs, or unexpected bills—often without putting up collateral. But the best results (lower APR, faster approval, fewer fees) usually come from doing a little prep before you apply.
Below is a clean, step-by-step process you can follow to improve your approval odds and avoid expensive surprises.
Step 1: Know your credit score (it heavily influences your APR)
Personal-loan APRs can vary widely—roughly from just under 6% up to 35.99%—and your credit score is a major driver of where you’ll land in that range. Higher scores (often around 670+) generally qualify for better rates, larger loan amounts, and fewer fees.
If your score is lower, you may still qualify, but you’ll likely pay more. Many lenders look for fair credit or better (often 580+), though requirements vary.
Step 2: Understand what lenders look for besides credit
Even with a decent score, lenders still want to see that you can comfortably repay the loan. Common requirements include:
- Debt-to-income ratio (DTI): Some lenders want DTI below ~50%, but a safer target is under ~36% to avoid getting stretched too thin.
- Income and stability: A steady, predictable income and employment history can help approval. Some lenders allow a cosigner, which may improve eligibility or terms.
Step 3: Run the numbers so you borrow the “right” amount
Personal loans are typically installment loans: you receive the full amount up front and repay in fixed monthly payments. That means you should decide:
- Exactly how much you need (not just what you can borrow)
- The monthly payment you can afford without relying on “perfect months”
- A term length that balances payment size and total interest paid
A longer term can lower the monthly payment, but it often raises the total interest cost over time.
Step 4: Gather documents in advance to speed up approval
Delays often happen when lenders need verification. Having your paperwork ready can reduce back-and-forth, and some lenders can verify certain details electronically.
Common items lenders may request include proof of income (like recent pay stubs) and other identity/financial verification.
Step 5: Shop around for rates (don’t take the first offer)
Comparing multiple lenders can make a meaningful difference in APR and fees. If you already bank with a lender (bank or credit union), it can be worth asking whether they’ll offer a better deal or any perks for existing customers.
Also compare loan types and features—like fees, funding speed, and discounts (some lenders offer autopay discounts).
Step 6: Pick a lender and submit the formal application
After you choose the best-fit lender, you’ll submit a full application, which may include:
- A hard credit pull
- Additional verification (income, identity, bank info)
If you’re approved, read the terms closely—APR, fees, total repayment, and whether the term length truly makes sense for your budget.
Step 7: Accept the loan, get funded, and set up repayment
Once approved, you’ll sign final documents. Many lenders can disburse funds to your bank account within about one business day, though it can take up to a week if you prefer a physical check or use a smaller bank/credit union.
To stay on track:
- Consider autopay (some lenders offer an interest-rate discount).
- If you can, paying a little extra toward principal can reduce interest and shorten payoff time.
Bonus tip: Consider secured vs. unsecured if you’re trying to lower the rate
Most personal loans are unsecured (no collateral), which is part of why they’re faster and simpler. But some lenders offer secured personal loans backed by collateral like a car or savings account, which can reduce lender risk and sometimes lead to lower rates—while adding the risk of losing that collateral if you default.
What borrowing limits can look like
If you have excellent credit and low debt, some lenders may allow borrowing up to $100,000, with repayment terms as long as seven years. With fair/bad credit, you may face higher rates, lower caps, and stricter terms.