How to Apply for a Personal Loan
A personal loan application includes basic personal and financial information. Here’s what you need to know about how to apply for a personal loan.
August 22, 2022
This article is provided for informational purposes only and should not be construed as legal or investment advice. Always consult with a professional financial or investment adviser before making investment decisions.
Personal loans are versatile loans that can be used for just about any purpose. They are a popular option for refinancing debt, making major purchases, or simply covering everyday expenses.
Personal loans are simple to apply for, but you’ll need your financial information to do it. This guide will go over how to apply for a personal loan, as well as alternatives to consider.
What is a personal loan?
A personal loan is a loan for a fixed sum of money that you pay back in equal monthly installments over the life of the loan.
For example, you might borrow $10,000 and pay it back over five years.
It’s different from a line of credit. A personal loan is a fixed amount with equal monthly payments; a line of credit has a flexible spending limit, similar to a credit card.
Most lenders offer personal loans starting at around $5,000. But small, personal loans are available from select lenders if you want to borrow less.
Personal loans charge interest and rates vary substantially depending on your creditworthiness. Overall, personal loans can be pricey, but they typically offer lower APRs than credit cards.
What do I need for a personal loan application?
Before applying, you’ll need to consider how much you wish to borrow and what you plan to use the loan funds for. Also, consider how much of a monthly repayment you can afford and use this to determine how long of a loan term you need. Most personal loans are issued for terms of between five and seven years.
A lender will need the following personal information from you:
Name, birthdate, and address
Photo identification, like a driver’s license or passport
Proof of home address
Proof of current employment/income
Financial details, including all assets and debts
Social Security number
These are the basics that you’ll need to have on hand, but some lenders may require additional information or documentation. For instance, some may require you to submit tax returns to prove your income, while others may just ask for a recent pay stub.
Keep in mind that you may need good credit to be approved for a loan. Many lenders require a minimum credit score of around 650, and may only offer higher interest loans to those with lower scores. The better your score, the more options you’ll have — and the lower your interest rate will be.
How do I apply for a personal loan?
Applying for a personal loan involves submitting an application to a lender and is usually a fairly straightforward process.
To apply for a personal loan:
Step 1: Shop around for the best rates
Step 2: Apply online with your selected lender
Step 3: Receive your approval and funds
Step 4: Begin repayment schedule
It’s wise to shop around for the best rates before applying. Many lenders allow you to apply for prequalification, which is a way to check your rate offer without a hard credit pull. Prequalification won’t affect your credit score, but actually applying for a loan can.
Once you’ve compared your options and selected the best one, it’s time to apply. Simply follow the instructions provided by the lender to apply. This can typically be done online.
Once you submit your personal loan application, you should receive either an approval or a denial quickly — often within a day or two. Some lending decisions are even made instantly upon receiving the application.
Funds are also typically dispersed quickly once you’re approved. You can expect to receive the money in one to five business days. Funds are usually deposited directly into your bank account or a check may be mailed to you.
From the date you receive the loan, you normally have 30 days until your first payment is due. From there, you’ll have equal monthly payments for the remaining length of the loan term.
Alternatives to personal loans
There are alternatives to consider; the best option depends on what you are using the money for and what types of loans are available to you.
Debt consolidation line of credit: For consolidating credit card debt, a line of credit from Tally† is a good option for qualified borrowers. Tally provides lower-interest lines of credit to borrowers so that they can consolidate credit card balances and save money on interest.
Home equity line of credit: If you own a home, a home equity line of credit (HELOC) allows you to borrow against the value of the equity in your home. It’s a flexible line of credit that you can use as needed, and interest rates are typically lower than personal loan rates.
Credit cards: Credit cards have higher interest rates than personal loans, but chances are you already have one in your wallet. For smaller purchases, they may be simpler than applying for a loan. Just keep in mind that credit cards have some of the highest APRs of any credit type.
Personal line of credit: Personal lines of credit function similarly to credit cards, in that you can borrow any amount up to your credit limit, as needed. They may have lower interest rates than credit cards.
Other loan options: Other options include a 401(k) loan if you have a 401(k) at work, peer-to-peer loans, or even a loan from friends or family. And for business expenses, a small business loan may make financial sense.
Submitting a personal loan application online takes just a few minutes. However, before applying, it’s wise to consider whether a personal loan is really the right option for you.
† To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. Based on your credit history, the APR (which is the same as your interest rate) will be between 7.90% and 29.99% per year. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 – $300.