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There are many reasons for wanting to get approved for a personal loan. You may be looking to pay off high-interest credit cards, finance a dream vacation, or pay for a wedding. First though, you'll need to know how to get approved for a personal loan.
Whatever type of personal loan you need, and whether you apply through a bank, credit union or online lender, here's how to get approved for a personal loan.
And when you're ready to apply, check our list of top-rated personal loan lenders to find the right lender for you.
Before you apply for a personal loan, check your credit score. This is a three-digit number that lenders use to get a sense of how well you manage credit. A strong credit score means you're more likely to get approved for a personal loan. It'll also help you snag the best interest rates.
Here are some ways you can improve your credit score:
If you suspect you won't get approved for a personal loan due to bad credit, it's okay to wait until you are in better financial shape. Each time you apply for a loan, it counts as a hard inquiry on your credit report. Hard inquiries can cause a drop in your credit score, which will ultimately make it more difficult to secure loan approval. Work on your credit until you have a good or even an excellent score and so increase your chances of getting approved for a personal loan.
Get the best rates and terms to fit your needs. Here are a few loans we'd like to highlight, including our award winners.
Ultimately, lenders want to know that lending you money is a safe bet. To get approved for a personal loan, you need to show that you can pay them back on time and in full.
If you're unemployed, check out our guide to getting a loan while unemployed for information on what to list as income on a loan application.
As you learn how to get approved for a personal loan, you will discover that the type of loan you take out and the kind of lender you work with can determine whether or not you get approved. Take time to find what works best for you and your financial situation.
One of the things you'll need to decide is the type of loan you're interested in. Here we cover unsecured, secured, variable-rate, and fixed rate loans.
The type of loan you're interested in may help you narrow down which lender you want to get approved for a personal loan with. For example, if you know that you want a variable-rate loan, that fact will help you narrow down your options. Personal loan lenders include banks, credit unions, online lenders, and payday lenders. Here's a breakdown of each:
Never talk yourself into getting approved for a personal loan you know will be bad for you financially. Rather than pay sky-high interest on a loan from a lender with low credit standards, take the time required to get your credit in order. The worst thing you can do is dig yourself into a deeper hole by taking on a loan that's wrong for you and end up with a monthly payment you cannot afford.
We've included payday loans here because they exist and if you are desperate, they may feel like the only option. However, the interest rates on these loans -- which range from about 390% to 780% -- are so high that it can become almost impossible to pay them back.
Payday lenders may be legal in some states, but there is no way to argue that the APRs they charge are legitimate. In fact, a loan shark is likely to charge a lower APR (although visiting a loan shark is an even worse idea). If you are ever tempted to take out a payday loan, you are better off seeking a personal loan for bad credit.
The maximum amount you can borrow for a personal loan is based on how high your debt-to-income ratio will be after the loan is made.
Let's say you're looking for a loan with a monthly payment of $495, and you already have $1,700 in debt payments every month. The lender will add the payment of $495 to your other monthly payments of $1,700, for a total of $2,195. Now, let's imagine you have a monthly income of $5,000. The lender will divide $2,195 by $5,000 -- and come up with nearly 44%. Chances are, a credible lender is not going to make a loan that pushes you into a DTI of 44%. You should aim for a DTI of 40% or below.
If getting approved for a personal loan is going to push you over that line, you should consider adjusting the amount, paying down debt, or waiting until you are earning more money.
If a lender tells you that you're pre-qualified for a loan, that means it thinks you will get through the approval process. If a lender tells you you're pre-approved, it has offered a conditional commitment to give you the loan. Beware: Some lenders use these terms interchangeably. If someone tells you that you're either pre-qualified or pre-approved, ask them precisely what they mean.
The process generally looks like this:
During pre-qualification, the lender gives you an idea of how much you will qualify for and what the interest rate may be. Pre-approval is when the lender is likely to ask you for documentation regarding employment, income, and identification. As long as nothing negative arises before you close on the loan, you should be good to go.
After pre-qualification, you should have a good idea of what loan you want to take out and what the rates and fees will be.
As it turns out, getting approved for a personal loan may be the easy part. Before you sign loan documents, make sure you understand what you're signing. The interest rate you are originally quoted may not truly reflect how much you will pay for the loan. The APR, on the other hand, better reflects how much you will pay annually because it includes things like origination fees, processing fees, and document preparation fees. If you don't understand the fees, ask about them. If your credit score is high enough, you may be able to get a reduction.
If you make your personal loan payments on time every month, your credit score will climb. In addition, if you use a personal loan to pay off high-interest credit cards, you're likely to experience a rise in credit score. But in the short term, your credit will dip due to the hard credit check required for loan approval.
Perhaps the most important thing to remember when it comes to getting approved for a personal loan is the value of legwork. Take time to shop around to get approved for a personal loan that fits your financial situation, is worth getting and will benefit you the most. The fact that you asked how to get approved for a personal loan means you're going in armed with knowledge.
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent, a Motley Fool service, does not cover all offers on the market. The Ascent has a dedicated team of editors and analysts focused on personal finance, and they follow the same set of publishing standards and editorial integrity while maintaining professional separation from the analysts and editors on other Motley Fool brands.
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent, a Motley Fool service, does not cover all offers on the market. The Ascent has a dedicated team of editors and analysts focused on personal finance, and they follow the same set of publishing standards and editorial integrity while maintaining professional separation from the analysts and editors on other Motley Fool brands.
*Upstart Loan Disclaimer
The full range of available rates varies by state. The average 3-year loan offered across all lenders using the Upstart platform will have an APR of 21.97% and 36 monthly payments of $35 per $1,000 borrowed. For example, the total cost of a $10,000 loan would be $12,646 including a $626 origination fee. APR is calculated based on 3-year rates offered in the last 1 month. There is no down payment and no prepayment penalty. Your APR will be determined based on your credit, income, and certain other information provided in your loan application.
Citi Personal Loan disclaimer:
**Rates as of 05-31-2024. Your APR may be as low as 11.49% or as high as 20.49% for the term of your loan. The lowest rate quoted assumes excellent credit and a loan term of 24 or 36 months. Your APR will depend on a variety of factors including your creditworthiness, term of loan, and existing relationship with Citi. For example, if you borrow $10,000 for 36 months at 15.99% APR, to repay your loan you will have to make 36 monthly payments of approximately $351.52.
There is a 0.5% APR discount if you enroll in automatic payments at loan origination. Additionally, existing Citigold and Citi Priority customers will receive a 0.25% discount to the interest rate. If you are in default, your APR may increase by 2.00%. No down payment is required. Rates subject to change without notice.
You must be at least 18 years of age (21 years of age in Puerto Rico). Co-applicants are not permitted. Loan proceeds cannot be used for post-secondary educational or business purposes.
If you apply online, you must agree to receive the loan note and all other account disclosures provided at loan origination in an electronic format and provide your signature electronically.
Credit cards issued by Citibank, N.A. or its affiliates, as well as Checking Plus and Ready Credit accounts, are not eligible for debt consolidation, and Citibank will not issue payoff checks for these accounts. If you are unsure of the issuer on the account, please visit https://www.citi.com/affiliatesproducts for a list of Citi products and affiliates.
Rates quoted are with AutoPay. Your loan terms are not guaranteed and may vary based on loan purpose, length of loan, loan amount, credit history and payment method (AutoPay or Invoice). AutoPay discount is only available when selected prior to loan funding. Rates without AutoPay are 0.50% points higher. To obtain a loan, you must complete an application on LightStream.com which may affect your credit score. You may be required to verify income, identity and other stated application information. Payment example: Monthly payments for a $10,000 loan at 8.49% APR with a term of 5 years would result in 60 monthly payments of $205.12. Some additional conditions and limitations apply. Advertised rates and terms are subject to change without notice. Truist Bank is an Equal Housing Lender. © 2024 Truist Financial Corporation. Truist, LightStream, and the LightStream logo are service marks of Truist Financial Corporation. All other trademarks are the property of their respective owners. Lending services provided by Truist Bank.