How do personal loans work?
How to apply for a personal loan
When securing a personal loan, you must apply for and qualify for credit in order to receive it from a financial lender. After the application process begins, lenders will review your credit history, credit score, and debt-to-income ratio (DTI) to determine if you meet eligibility guidelines.
They will also take a closer look at other information such as your current employment status, income and expenses to determine what loan amount to grant you.
Should a lender decide that you are creditworthy and want you to qualify, they will propose certain terms that you must agree to. These terms include a well-formulated loan repayment schedule and a set of mutually agreeable loan terms.
When entering into the personal loan agreement, it is important to make timely payments for the entire term of the loan. Failure to do so may adversely affect your credit score, credit history and future ability to obtain financing.
On the plus side, applying for a personal loan is a straightforward process. It starts with contacting a lender. Process steps often include:
Get pre-qualified by lenders
Each financial institution offers loans on their own terms. Each will also vary in the amount of money they are willing to lend to borrowers. Do your homework and do some research here. Browse for different offers.
As you walk, compare options from at least three places. This can help you get a better sense of what APR, loan terms and loan amount you can secure and which is the best deal for you.
Pre-qualifying for loans can aid in the decision-making process. Finally, your research can help you choose the right loan and lender.
Gather and transmit information and documents
After you have decided on a specific loan and lender, you formally apply for the personal loan. This means you must qualify with a lender and demonstrate your creditworthiness and ability to repay the loan. Before submitting the loan application, take some time to gather documentation that supports your case.
This means the compilation of financial documents such as payslips, tax forms, investment and savings information, bank statements and other items. Lenders will look for borrowers who have a strong credit history, good credit history, and enough financial liquidity to pay monthly balances.
Get your personal loan
- If your personal loan application is approved, your lender will transfer any funds you have approved for borrowing into your personal account. You can expect to see them within a few days or even the same day, depending on the terms of your agreement and your lender’s policies.