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How to Apply for a Personal Loan: A Comprehensive Guide

Applying for a personal loan can be a straightforward process, but it’s important to understand the steps involved, the potential impact on your credit, and what to consider before you start. In this guide, we’ll walk you through everything you need to know about applying for a personal loan.

How to Apply for a Personal Loan

Getting a personal loan is a relatively easy process. You can apply for one with a bank, credit union, or an online lender. Here’s what the process typically looks like:

1. Get Preapproved

Look for a lender who allows you to get preapproved before you apply. During preapproval, the lender will ask for information such as your name and Social Security number and run a soft credit check, which doesn’t impact your credit score.

2. Compare Multiple Lenders

Shop around and review preapproval offers to select the lender with the most favorable terms you can qualify for. Or, use tools to easily review personal loans matched to your credit profile in one convenient hub.

3. Complete an Application

Once you settle on an offer that you have good preapproval odds for and that has terms and rates you find favorable, follow your lender’s instructions to submit a formal application. You’ll typically need to share more information, including your:

• Social Security number
• Address
• Proof of income and employment
• Government-issued photo ID
• Bank information
• Purpose for the loan
• How much you want to borrow

4. Wait for a Decision

Once you submit the application, the lender will review the information you’ve shared and check your credit reports and score. You may find out your results instantly, or you may have to wait for your lender to contact you with requests for additional information or with your results.

Can You Apply for a Loan and Not Accept It?

Yes. If a lender has approved your application for a personal loan, you’re not required to take it. This is an important distinction from credit cards, where your account is opened immediately upon approval.

That said, there are still a couple of things to consider before you start submitting applications all over the place:

• Some lenders charge application fees: While most lenders won’t charge you this fee, some personal lenders may charge you a nonrefundable application fee simply for submitting an application. Check to see if the lender does before you apply.
• Frequent applications hurt your credit: Almost every time you submit an official application for credit, it will trigger a hard inquiry on your credit report. Unlike a soft credit check, a hard credit check usually knocks a few points off your credit score with each inquiry.

What to Consider Before Applying for a Personal Loan

Personal loans are a big financial commitment and can often take years to repay, so it’s important to understand both the benefits and the drawbacks before you apply for one.

Benefits of Getting a Personal Loan

• They can help you eliminate credit card debt: If you can qualify for a personal loan with a lower interest rate than what you’re paying on your credit cards, the loan can help you consolidate your credit card debt and save money as you pay it off.
• They’re often unsecured: Many personal loans don’t require collateral to get approved. If you’re doing home improvements, for instance, a home equity loan or line of credit may be cheaper than a personal loan, but you risk losing your home if you can’t repay the debt.
• They can fund quickly: If you need money fast to cover emergency expenses, some personal lenders can provide funds as early as the next day, or at least within the week.

Downsides of Getting a Personal Loan

• They can be expensive: The average rate on a two-year personal loan is 11.21%, but borrowers who need longer repayment terms or who have low credit can end up paying as much as 36%.
• They can have short repayment terms: Depending on the lender you choose, you may only have a few years to repay the debt you’ve incurred.
• They may be unnecessary: With most personal loans, you can use your funds for just about anything. But just because you can take out a personal loan for a vacation, college costs, or a big-ticket item you don’t need, it doesn’t mean you should.

How a Personal Loan Can Affect Your Credit

Personal loans can affect your credit in multiple different ways, both good and bad. While simply applying for a personal loan can lead to a small and temporary dip in your score, mismanaging a personal loan can do serious damage to your credit. On the other hand, responsibly handling a personal loan can help you increase your creditworthiness over time.

How a Personal Loan Can Hurt Your Credit

Applying for a personal loan can result in a hard inquiry on your credit report, which can temporarily drop your credit score by a few points. In addition, taking on the new monthly payment will increase your debt-to-income ratio, which can affect your chances of getting approved for credit in the future.

Last, if you miss payments or default on a personal loan, there will be a significant negative impact on your credit score.

How a Personal Loan Can Help Your Credit

When managed well, a personal loan can also potentially have positive effects on your credit. For starters, taking out a loan and making payments on time and in full each month can establish a positive payment history, which is the most significant factor in your credit score.

Also, a personal loan can improve your credit mix—the different types of credit you have—and reduce your credit utilization rate if you’re using it to pay down credit card debt.

Check Your Credit Score Before You Apply

Having a great credit score can improve your chances of getting approved for a personal loan with favorable terms. If you’re not sure where your credit stands, check your credit score from Experian for free to see. If it’s considered good or excellent―typically a FICO® Score☉ of 670 or higher―you’ll have better approval odds.

If it’s less, though, or if you want to maximize your chances of scoring a low interest rate, consider working on improving your credit before you apply for a personal loan.

Contact O1ne Mortgage for Your Mortgage Needs

If you’re considering a personal loan or any other type of mortgage service, O1ne Mortgage is here to help. Our team of experts can guide you through the process and help you find the best terms for your financial situation. Call us today at 213-732-3074 for any mortgage service needs. We look forward to working with you!

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