Personal loans can be a smart—and sometimes underrated—way to pay for an unexpected expense or cover a big-ticket purchase. This type of loan can be taken out for lots of personal reasons. That includes paying off consumer debt or medical bills, funding a big move or home remodel, paying for a wedding, or taking a dream vacation.
Personal loans typically have higher interest rates than car or home equity loans, since they’re not secured by an underlying asset.
But they usually have much lower rates than credit cards. If you can, it’s always better to save for a planned expense. However, if you find yourself about to charge a massive sum on your credit card, and you know you won’t be able to pay it off within the month, a personal loan can be a viable alternative.
Applying for a personal loan is pretty straightforward. But you want to make sure you have your financial ducks in a row to increase your chances of approval and qualifying for the best possible terms and interest rate. Here’s our step-by-step guide for how to get approved for a personal loan:
Tips for the Personal Loan Application Process
The application process for a personal loan seems more daunting than it actually is. Yes, you need to know a few things about your current financial situation (and your financial history). But you should know these things anyway, and it really won’t take long to get your facts straight. Follow these steps when you start the process for a personal loan:
1. Figure out How Much You Would like to Borrow
First, you want to make sure you’re realistically estimating the amount you’ll need. This is one of the key points of the entire process—think carefully about your specific needs and how the loan will help you get to where you need to go. Borrowing more than you need might not be a great idea, since you’ll be paying interest on any amount you take out.
But on the other hand, you don’t want to borrow less than you need, only to end up resorting to a credit card after your loan runs out. Be honest with yourself and your lender, and work with them to find the amount and interest rate that works for you.
2. Check Your Credit
Pull your current FICO credit score so you can assess how strong it is (generally, above 720 is considered excellent, and above 690 is considered good). This is one of the main factors lenders consider when approving you for a personal loan, so it’s better to know your score before starting the process.
3. Compare Different Lenders
Many lenders these days 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 your interest rate would be. You’ll often provide information such as your address, income, and social security number. Often, lenders may do a soft credit check at that time that doesn’t affect your credit score.
Once you see a pre-qualified quote from a couple different lenders, you can compare the interest rates and monthly payments you’re offered before choosing the best option for your needs. Also, when you’re comparing lenders, look for any hidden fees, such as origination fees, prepayment penalties, and late fees.
4. Submit Your Application
The final step is to apply for the loan with your preferred lender. Each lender has their own requirements for documentation. For most lenders, you’ll need to submit a photo ID, proof of address, and proof of employment or income. At this stage, the lender will do a hard credit check, which could affect your credit score.
Ways to Better Your Loan Approval Chances
You want to be approved for the best loan terms and interest rate possible. That means putting your best foot forward on your application. To improve your chances of getting approved or pre-qualifying for better terms, here are some tips to consider when applying for a personal loan:
1. Improve Your Credit Score
If your credit score is shaky, take any steps you can to build it up. Eliminate any hovering late payments or delinquencies. Make sure you’re paying every bill on time.
Another strategy is to reduce how much debt you’re carrying relative to your credit limits. Pay off as much as you can, and check whether any of your credit cards will increase your credit limit. You can also pull your full credit report to check for any errors or problem areas you want to work on.
2. Keep a Stable Job
When issuing a personal loan, lenders consider your employment and income. (And at SoFi, we also consider your earning potential, education, and financial history, to give you a better chance of qualifying for a competitive interest rate.)
Essentially, a lender is taking a risk by letting you borrow money, so they want to be confident you have the resources to pay it back. Lenders are looking at how much you make and how stable your job is. So if you plan to apply for a loan, this may not be the time to change jobs. And if it’s the right time at work, asking for a raise couldn’t hurt.
3. Consider Asking Someone to Co-sign Your Loan
If you don’t have great credit or don’t make very much, adding a co-signer or co-borrower to your loan may increase your chances of approval. They may also help you get a better interest rate and repayment terms. A cosigner is someone who agrees to pay the loan if you default.
A co-borrower is someone who takes the loan out with you — their name is on the loan, and you both have an obligation to repay it. Both can improve your chances of qualifying for a personal loan that fits your needs.
Apply for a SoFi personal loan today. We offer low rate loans with zero fees and manageable payment terms.
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.