1. Assess Your Creditworthiness
Your credit score is an important factor in qualifying for a personal loan and getting the lowest interest rates possible. You can obtain your credit score through a free site like Credit Karma to see where your score falls:
- 720 and higher: Excellent credit
- 690-719: Good credit
- 630-689: Fair or average credit
- 300-629: Bad credit
2. Understand your options
|Credit Score||Average Personal Loan APRs|
|Excellent (720 – 850)||10.3% – 12.5%|
|Good (680 – 719)||13.5% – 15.5%|
|Average (640 – 679)||17.8% – 19.9%|
|Poor (300 – 369)||28.5% – 32.0%|
3. Pre-qualify for a loan
Pre-qualifying for a loan gives you an opportunity to see some of the more specific offers for which you might be eligible. Pre-qualification usually involves a soft credit check, where online lenders will check your credit without impacting your credit score. Be prepared to provide the following information to pre-qualify for a personal loan:
- Social Security number
- Monthly debt obligations (car payments, other loan payments, etc)
- Personal information (address, email, phone number, date of birth)
- Employer information
- Previous addresses
4. Compare options
Always explore additional options for securing funds. If you have good credit, you may qualify for a 0% credit card. This type of credit card offer usually has generous introductory terms (like 0% interest) that last for a specific period of time (usually six months or one year). If you need a short-term loan that you will be able to repay within that time frame, a credit card may be a good option.
Those with less-than-stellar credit may be able to obtain more favorable interest rates via a secured loan, though these typically require collateral like a savings account or a car. For homeowners, a home equity line of credit can also be less expensive than unsecured loans.
5. Apply for a personal loan
Once you’ve done your homework and chosen the best option for your needs, you’ll need to apply. If you’ve chosen the personal loan route, you can usually submit an application online. If you choose to take out a loan from a bank or credit union, you may need to submit a paper application at your local financial institution. Expect to provide the same type of information required for a pre-qualification.
A personal loan can be a good way to consolidate debt or cover costs that arise. Understanding your options is an important element of the process and can help ensure you find the most favorable terms for your specific situation.