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Applying for Personal Loans Online: Comprehensive Guide

The beauty of a personal loan is that you can use the cash to pay for anything you need. Once approved, you can use the money to move, consolidate your debt, pay for a wedding or take care of any of the multitudes of financial moves one needs to navigate life.

However, while choosing how to spend the money comes down to your personal circumstances, applying for and getting the loan is a process that involves not only yourself but a financial institution as well. Read this article to learn how to navigate applying for and receiving a personal loan that fits your needs and your budget.

How to Get a Personal Loan 

The amount you can borrow and the cost of your loan (including interest) vary based on the lender. Therefore, knowing how the process works saves you time and money. We recommend taking the proceeding steps to optimize the process:

  • Understand your needs, financial situation, and borrowing power.
  • Attempt to pre-qualified for a loan.
  • If pre-qualification is not possible, shop around to get the lowest interest rate and most favorable terms available.
  • Apply for the loan.
  • Accept your payment.

While following those steps seems fairly straightforward, there are various nuances to pay attention to that can set you up for success. Consider the following:

Run the Numbers 

Whether you’re planning a wedding, refinancing debt, or remodeling the house, determine how much you need to borrow. Use an online loan calculator to estimate your monthly payment. Then check your budget to see if the extra expense is affordable.

Check Your Credit Score 

Lenders use your credit score to determine if you qualify for a loan. Credit scores range from 300 to 850 based on your payment history, age of your accounts, and amount of debt. A good credit score is considered 605 or above.

A higher credit score means lower loan interest rates, resulting in lower monthly payments. While you can still secure a loan with bad credit, lower credit scores create higher interest rates, may require a cosigner, or both. 

Compare Estimated Rates 

The APR, or annual percentage rate, is the interest you’ll pay on your loan each year. In September 2022, the average APR for someone with an excellent credit score of 720 or more is 10.8%. A person with a decent score of 630 pays 19.4%. Interest rates are rising, so check for the latest rates. It takes excellent credit to won’t qualify for the lowest interest rate. But shop around for the best rate for your credit score.

Choose Your Loan Type

Unlike a home or auto loan, personal loans are not necessarily secured by collateral. Lenders approve them based on your credit report and income. However, if your credit won’t qualify you for a lower interest rate, you can still apply for a secured personal loan. You’ll have to pledge an asset, such as a car, jewelry stocks, or your savings account, as collateral. 

Get Pre-qualified for a Loan

To find out what your rates will be, most lenders let you pre-qualify. Lenders pull a soft credit inquiry that won’t affect your credit score. Being pre-qualified doesn’t mean you’re approved for the loan, but you can see if you qualify and the estimated loan costs. 

Compare Lenders and Shop Around

You can easily input your information online and get quotes to compare. Look at the loan amount, APR, borrowing limits, monthly payments and fees, and the loan term or length. Some lenders let you pay through budgeting apps or allow you to defer payments if you lose your job. 

Read the Fine Print 

Loan contracts commonly include terms in the fine print that you might miss if you don’t know what to look for. Pay close attention to the following:

  • APR: The annual percentage rate is the interest you pay on your loan. A lower APR means a lower monthly payment.
  • Adjustable-Rate vs. Fixed-Rate: A fixed-interest rate loan remains the same during the loan term, so your payment stays the same. With an adjustable-rate loan, the interest rate rises or falls based on a benchmark, often set by the federal reserve. While adjustable-rate loans may be cheaper in the short term, your payments could become difficult to afford if the benchmark rate increases and you have an adjustable-rate loan.
  • Fees: Find out if there are penalties for repaying the loan early and the amount of other fees, such as late payment penalties and loan origination fees.
  • Automatic payments: If the lender sets automatic payments, set up low-balance alerts with your bank. This helps you keep enough in the account to avoid overdraft fees. 
  • Repayment period: Most loans must be repaid within 12 to 60 months. You’ll have a lower monthly payment with a longer loan, but you’ll pay more overall interest.

Pick a Lender and Apply 

Before you apply, you’ll need to consider which type of lender you prefer. Banks, online lenders, and credit unions are three of the most common sources of personal loans.

  • Banks: With both physical branches and mobile apps, banks offer name recognition, legitimacy, and convenience. However, they may have stricter requirements than other lenders and higher rates.
  • Online Lender: Online lenders allow you to complete your application online and get a result immediately. However, they have fewer financial products and no physical branches. 
  • Credit Unions: As member-owned not-for-profit financial institutions, credit unions have various financial products but fewer branches than banks. Rates and fees may be lower with credit unions, and they may have more lenient lending requirements. However, you’ll have to join the credit union to apply for a loan.

Provide Necessary Documentation 

Once you’ve chosen a lender, you’ll complete a loan application. Be prepared to show documents to verify your legitimacy as a lender, such as:

  • Government-issued ID like a driver’s license or passport.
  • Employer and income verification like paystubs or tax returns.
  • Proof of address
  • Social security number

Accept the Loan and Start Making Payments

After receiving an application, your lender reviews it and sends loan papers for you to sign. Depending on the lender, this process can take a few minutes or several days. You will receive your money within one to five days. 

Personal Loan Requirements And How To Qualify 

Before applying, familiarize yourself with lenders’ determining factors. These vary slightly between institutions, but most will check your credit history, debt-to-income ratio, and monthly income. Make sure to find the documentation you need before beginning the application process.

Credit Score and History

Lenders use credit scores to estimate how likely you are to pay your bills. The scores, which range from 300 to 850, come from three large credit bureaus: Equifax, Experian, and TransUnion. The formula that dictates credit score is commonly based on

  • Your bill payment history.
  • The length of time you’ve had other credit accounts (such as credit cards) open.
  • The number of credit accounts you have.
  • Your outstanding debts.
  • The number of lines of credit you have recently applied for.


Lenders have minimum income requirements to qualify for a loan. For example, some online banks require an annual income of $45,000 per year, while others accept incomes as low as $15,000 per year. Some lenders don’t disclose their minimum income requirements. So if you think your income is too low, apply with lenders where your salary qualifies. To show proof of income, pay stubs, tax returns, or bank statements.

Debt-to-Income Ratio

The percentage of your gross income that goes to pay debts is your debt-to-income ratio (DTI). Lenders use this ratio to assess your financial situation. Banks consider borrowers with a low DTI to be more likely to pay their monthly bills. Lenders prefer a DTI of 36% or lower. The highest DTI ratio you can have and be eligible for a loan is 43%. 


Some loans are backed by collateral, rendering them a “secured loan.” Lenders require collateral because it provides the borrower a stake in paying the loan back. With a secured loan, lenders can repossess your collateral, such as a car, house, boat, or other valuable items, if you fail to make payments.

Origination Fee

A loan origination fee covers the lender’s processing and administration costs. It ranges from 1% to 8% of the loan amount. If you borrowed $10,000 with an 8% loan origination fee, you’d pay $800. Lenders usually deduct the fee from the loan amount, so you’d receive $9,200.

However, not all lenders charge loan origination fees. Generally, those with “excellent” credit will not be required to pay them. Shop around before you apply and pre-qualify so you can see all the loan costs and choose the best deal.

What Should You Do If You’re Denied?

If you’re denied, make sure to find out the reason so you can take action to achieve a better outcome next time. Consider taking the following steps:

  • Ask why the lender denied your application.
  • Review your credit report for errors.
  • Re-Apply with a cosigner.
  • Check your loan application for mistakes.
  • Pay down debts to improve your credit score.
  • Apply for a lower amount.
  • Look into getting a secured personal loan
  • Pre-qualify with other lenders