Prep List for Getting Approved for a Personal Loan
After weeks of unseasonably rainy weather, the worst has happened and your roof has sprung a leak. The water has already started to cause damage to the house and you’re beginning to worry about how you’re going to pay for all of the repairs.
You could use your emergency fund, but you’re worried it’s not going to be enough. If you find yourself in a situation where you need cash, a personal loan could allow you to secure the financing you need.
Unlike other loans such as a mortgage, which is used specifically to pay for a house, you can take out a personal loan for almost any reason. Want to boost your wedding budget, or finally start that home renovation? A personal loan could help you pay for your short-term projects that require financial capital.
Personal Loans vs Credit Cards
While you may be tempted to charge those expenses to a credit card, a personal loan might be a smarter alternative. Credit cards often have extremely high interest rates, so if you aren’t planning on paying your bill off at the end of each billing cycle, you could be better off securing a personal loan to cover your expenses.
When you take out a personal loan, you’ll have access to the money you need as soon as your loan is funded, generally at a lower interest rate than a credit card, which means you’ll typically spend less money on interest over the life of the loan. To see how much interest on your credit card might cost, take a look at our credit card interest calculator.
If you’re concerned about putting up collateral when you take out your personal loan, worry not. Most personal loans are unsecured, which means they aren’t backed by any sort of asset (think: a house for a mortgage or a car when you borrow a car loan).
Now that we’ve covered some benefits of a personal loan, what do you need to get a loan? When it comes to personal loans, the loan application process is similar to other loans but may vary slightly by lender.
Lenders will review your credit history among a few other financial factors to determine how much they’re willing to lend to you and at what interest rate. We’ve created this checklist to help you be prepared as you go through the process of applying for a personal loan.
What Do I Need to Apply for a Personal Loan?
Since personal loans are often unsecured, the loan application process may require less documentation than secured loans. (More on specific information and docs you may need below.)
By preparing the right set of materials and arming yourself with the appropriate information, you can potentially obtain a personal loan to cover upcoming personal expenses or consolidate your credit card debt.
Knowing How Much You Want to Borrow
The first step in applying for a personal loan is determining how much money you want or need to borrow. Be realistic with how much you can afford to borrow. If you overborrow, interest could add up—so it’s not a bad idea to take the time to outline what you’ll be using the loan for and estimate the amount of money you’ll need.
Checking Your Credit Score
Banks and other lenders use your credit score as one of the major factors to determine your interest rate when you borrow a loan. Lenders don’t always disclose what interest rate they prefer, but most typically look for good or excellent credit.
Generally , 670 to 739 is considered good, and 740 to 799 is considered very good. Some credit card companies offer credit monitoring for free, but it could be worth checking your full credit report, which will show a more complete financial picture than your credit score alone.
You can request a free credit report once a year from each of the three major credit bureaus: Experian, Equifax, and TransUnion. Your credit reports include summaries of your credit history and detail any outstanding debt and your payment history, in addition to a few other factors.
If there are any errors on your credit reports, contact the credit bureau as soon as possible to remedy the issue. Errors or mistakes that are lowering your credit score could impact the loan and interest rate that you qualify for, so taking the time to make sure everything is accurate before you apply is a worthwhile step.
Gathering Relevant Personal Loan Documents
The loan application process varies slightly by lender, and the specific personal loan documents each lender requires may change, as well. However, there are a few documents that almost every lender will want to review before approving your loan.
Almost every lender will require some sort of proof of identity to confirm they’re able to do business with you. Some examples of documents commonly used for proof of identity during the loan application process are:
• Driver’s License
• Social Security Card
• Military ID
• Government-issued Photo ID
• Certificate of Citizenship
You’ll also usually need to provide proof of address, as certain laws change depending on your state of residence. They’ll often also be interested in knowing if you rent or own your home.
Plus if you’ve lived at the same address for two or three or more years, it could be a good indication that you are in a stable situation with limited chance that your finances could change drastically in the near future. Here are a few types of documents lenders may accept as proof of address :
• Utility bill (including water, power, or cable)
• Lease agreement
• Voter registration
• Change of address confirmation from the U.S. Postal Service
• Insurance for your vehicle, rental, or home
In addition to checking your credit score and history, lenders typically also want to confirm that you can make payments on your loan and likely require some sort of income or employment verification.
Lenders may also evaluate income from the past two to three years to gauge how stable it is. If you are employed by a company, here are some examples of documents lenders may accept as proof of income :
• Bank statements
• Pay stubs
• W2 tax forms
• Copies of income tax returns
• Employment verification from your employer
If you are self-employed, here are some documents that you may be able to use to prove your income:
• Bank statements
• 1099 tax forms
• Copies of income tax returns
Many lenders also review any other debts you owe, such as a mortgage or rent, car loan, student loans, or any credit card debt to determine your debt-to-income-ratio. They’ll want to make sure you have enough cash flow to cover your current debts and the new personal loan.
After you’ve determined how much money you’d like to borrow and have gathered your relevant financial documents, take the time to review a few different lenders to ensure you’re getting a good deal on your personal loan.
These days, many lenders may allow you to quickly see if you pre-qualify for a loan—including how much the loan would be for, what your repayment terms would be, and what interest rate you may qualify for. You’ll usually be asked to provide some personal information such as your address, income, and social security number.
Many lenders will do a soft credit pull at this time to check your credit, which typically doesn’t affect your credit score. After you’ve seen a pre-qualified quote from a few different lenders, you can compare the interest rates and monthly payments in order to choose the best option for your needs. While you’re comparing lenders, look for any fees associated with the loan—like origination fees, prepayment penalties, or late fees.
Applying for Your Personal Loan
After you’ve selected your preferred lender, you’ll formally file your loan application. Confirm the exact list of materials you’ll need with your lender, as the requirements may vary slightly. When you apply the lender will also most likely do a hard credit check , which could impact your credit score.
Personal Loans with SoFi
If you’re in the market for a personal loan, consider SoFi. When you borrow a personal loan with SoFi, we make it easy with competitive interest rates and no hidden fees.
Our application process can be completed entirely online, and you’ll have access to customer support seven days a week. Plus you’ll gain all the benefits that come with becoming a SoFi member.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. A hard credit pull, which may impact your credit score, is required if you apply for a SoFi product after being pre-qualified.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s Website on credit.