Sometimes, even careful planning and saving aren’t enough to prepare you for the expenses that lie ahead. Maybe fall is setting in and a chill is starting to set in the air. Perfect time for the furnace to break down. Or maybe summer is just around the corner and you realize the pool liner needs to be repaired.
These unplanned costs could be inconvenient and expensive. While you may not have experienced these exact scenarios, you may have felt the pinch in another way. When that happens, the pressure to make ends meet may be stressful. Taking on additional debt is not ideal, but if you don’t have the cash you need when an emergency strikes, there are options.
Personal loans, a sometimes underrated choice, are one way to pay for an unexpected expense or cover a big-ticket purchase. This type of loan may be taken out for lots of personal reasons. Personal loans are typically funded as one lump sum and could be used for things like consolidating credit card debt, paying medical bills, funding a big move or home remodel, paying for a wedding, or taking a dream vacation.
Broadly, there are two types of personal loans—secured and unsecured. A secured loan is backed by something of value, like a car or house, which is used as collateral. Should the borrower fail to make payments on the loan, the lender can seize the collateral. Usually, the borrower will receive calls and a debt collection letter as a warning before this happens.
An unsecured loan isn’t tied to an asset, which could make them riskier options for lenders. Because they’re not secured by an underlying asset, unsecured personal loans typically have higher interest rates than car or home equity loans, but lower rates than credit cards.
Of course, saving up an “emergency fund” for unexpected expenses is preferable to taking on debt. 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 a reasonable period of time, a personal loan with no prepayment penalty could be a viable alternative.
Applying for an unsecured personal loan is typically pretty straightforward. But you’ll want to do your research, and you might want to make sure you have your financial ducks in a row to help your chances of approval and qualifying for the best possible terms and interest rate.
While everyone’s needs and financial picture are different, and this article is in no way a guarantee of qualifying for a personal loan, the application process can look very similar. So here’s what getting approved for a personal loan can look like:
Steps of the Personal Loan Application Process
The application process for a personal loan might seem more daunting than it actually is. Yes, you need to know a few things about your current financial situation (and your financial history).
But it really shouldn’t take long to get your facts straight. You might find it helpful to follow these steps when you start the process for a personal loan:
1. Figuring Out How Much You Would like to Borrow
First, you might want to make sure you’re realistically estimating the amount you’ll need. Borrowing more than you need might not be a great idea, since you’ll be paying interest on the lump sum you take out.
On the other hand, you wouldn’t want to borrow less than you need, only to end up resorting to using a credit card to make up for the difference. Be honest with yourself and your lender, and work with them to find the amount, interest rate, and term that works for you.
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2. Checking Your Credit
Although different lenders can use various scoring models, you might want to pull your current credit score and assess how strong it is (generally, a FICO® Score above 740 is considered very good—and above 800 is “exceptional”—but broadly, many lenders consider a score of 670 or above to indicate solid creditworthiness). This might be one of the main factors lenders consider when considering you for a personal loan, so it’s good to know your score.
3. Getting Pre-Qualified
Many lenders these days allow you to quickly see if you pre-qualify for a loan. This process could show you how much the loan would potentially be approved for, what your repayment terms and your interest rate could possibly be.
You’ll often provide basic 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 score1.
Once you see a pre-qualified quote from a couple of different lenders, you could compare the interest rates and monthly payments you’re offered before choosing the best option for your needs. Also, when you’re comparing lenders, you might want to keep an eye out for any hidden fees, such as origination fees, prepayment penalties, and late fees.
These fees could add up quickly. Factoring them in now might help you avoid any surprises down the line. Understanding the true cost of the loan, beyond just the interest rate, might help you make a decision about which loan is the best fit for you.
4. Submitting Your Application
The final step is to apply for the loan. Each lender has their own requirements for documentation and qualifying.
For many lenders, you’ll need to submit things like a photo ID, proof of address, and proof of employment or income. At this stage, the lender will do a hard credit check, which involves collecting information from all three major credit bureaus and could affect your credit score.
Ways to Help Improve Loan Approval Chances
You likely want to be approved for the best loan terms and interest rate possible. And that probably means putting your best foot forward on your application. Here are some ideas you might want to consider when applying for a personal loan:
1. Checking Your Credit History
If your credit score is shaky, the time to take action is ideally before you apply for any loan.
As a first step, you might consider requesting your credit report , which you can do for free annually . You could check for any errors or problem areas you want to work on. If you find any issues, you might want to report them to the credit bureau.
There are steps you could take to help with any misinformation reported around late payments or delinquencies. Filing a credit dispute is one idea, but keep in mind that fixing issues on your credit report could take time. It may be a good idea to do your research and understand the process.
2. Keeping a Stable Job
Before issuing a personal loan, lenders consider factors like your employment and income. 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 might also be looking at how much you make and how stable your job is. So if you plan to apply for a loan, this might not be the time to change careers. Normally, changing (improving) jobs or income at the same company is not an issue. So if it’s the right time at work, you could ask for a raise.
3.Adding a Co-Borrower
If you don’t have great credit or don’t make very much, adding a co-borrower to your loan might increase your chances of approval. They might also help you get a better interest rate and repayment terms.
A co-borrower is someone who agrees to pay the loan if you default, and will be responsible for any missed payments.
That’s because 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. Adding a strong co-borrower may improve your chances of qualifying for the personal loan that fits your needs.
Ready to Apply for a Personal Loan?
If you’re on the hunt for the right personal loan, consider SoFi. Qualifying borrowers may be eligible for up to $100,000, depending on their needs. The application process can be completed entirely online, and you’ll have access to customer support seven days a week.
There are absolutely no hidden fees when you borrow a personal loan with SoFi—no prepayment penalty or origination fees.
If you unexpectedly lose your job, you could qualify to pause your payments with SoFi’s Unemployment Protection Program for up to 12 months, though interest will continue to accrue.
SoFi could even help you in your job search with benefits like career services. To get an idea of what your rate and terms could look like, you can pre-qualify and see your rate in just a couple minutes.
Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
External Websites: 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.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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
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