A personal loan can help you consolidate debt, fund large purchases, or pay for home remodels or repairs. To get the most out of a personal loan, you should be sure to prepare properly.
It doesn’t matter how well you save – big financial expenses often require a financial pivot.
Whether you need to consolidate debt, fund large purchases, or pay for home remodels or repairs, the solution may be easier than you think: apply for a personal loan. The question becomes how to do so, how much to borrow, and the best ways to pay it off.
Determine How Much You Need to Borrow
Carefully consider what you want to fund with your personal loan. If you apply for too much, you’ll have excess funds that you’ll still have to pay back-and that you’ll pay interest on. If you apply for too little, you’ll not be able to complete your goals appropriately, which might put you in a worse position than you are without the loan.
Understand Your Credit Score
Your credit score is part of what determines the kind of personal loan rates you’ll be offered. The higher your score, the more faith an institution has in your ability to pay off the loan, so the lower the interest rate they’ll offer you. The lower your credit score, the riskier you appear to a potential lender, which can increase your interest rate and result in a greater overall repayment in the end.
Before you even begin the process for a personal loan, be sure to find out what your score is, and take the appropriate steps to increase it if you can, including fixing any errors on your credit report, paying down current debt, and making monthly payments on time.
Research Personal Loans
Find the best option for your personal loan by researching. Consider the following:
- Online institutions
- Banks
- Credit unions
Credit unions and banks will usually offer a more personalized loan process; furthermore, credit unions frequently will have lower interest rates. Often, Non-Banking Financial Institutions (NBFIs) will come with higher interest rates and hidden fees, so be aware of what you’re getting into. You might find, however, that certain NBFIs might offer you a loan even if a bank determines you’re not qualified.
Know the Difference Between Secured and Unsecured Loans
Most personal loans are unsecured, which means the lender approves you based on your credit and income alone. An unsecured personal loan requires no collateral. This also means the lender assumes more risk, which is why unsecured loans usually have a slightly higher interest rate and stricter credit score requirements.
When you apply for a secured personal loan, it tends to work the other way.
Your loan is backed with an asset. This might be your savings account or your vehicle. In exchange, you may qualify for a lower interest rate or even secure a larger loan amount.
Keep in mind that defaulting on the loan means the lender can claim your collateral.
When choosing between the two, weigh what you’ll save on a better rate versus what you’re essentially putting on the line if you default on payments.
Get Prequalified
Many lenders offer the opportunity to prequalify for a personal loan with a soft inquiry into your credit. Being prequalified doesn’t guarantee that you’ll get the loan, but it does give you an idea of the types of terms they might offer. Plus, prequalification is done without a hard inquiry into your credit, which can impact your score for up to a year.
Compare Your Loan Offers
Once you prequalify for loans, compare the offers to determine which is best, remembering that these are tentative offers with potential rates and terms.
Look over each of the disclosures to compare particular information, including the:
- Loan amount
- Annual Percentage Rate
- Monthly payment
- Loan terms
- Information about fees and penalties
All of these can impact the overall cost of the loan. If you prequalify for a secured loan, you should also understand the repercussions if you happen to default, and you should be aware of whether there are prepayment fees in case you’re able to pay off the loan before the term ends.
Complete the Full Loan Application With Your Selected Offer
The full loan application will be more detailed than the prequalifying process. Personal loan requirements vary by lender, but you’ll need to be able to provide a variety of information, which might include your:
- Your account balances in your checking and savings accounts
- Monthly housing cost (rent or mortgage payment)
- Social Security number
- Verification of your income
- Proof of financial assets
Get Approved and Close
Once the vendor approves your loan, they’ll send final loan documents that outline the full details of the offer. This includes the:
- Loan amount and interest rate
- Term
- Monthly payment
If you agree to this final offer, you can close on the loan by signing the closing paperwork. Once they receive your signed documents, the lender will begin to process the funding to the account you’ve specified.
Manage and Repay the Loan
Receiving your funds is just the beginning of your loan. The next step is to start repaying it.
Remember that missing a payment or being late with one can impact your credit score or even the collateral you put against the loan, so enroll for autopay or create calendar reminders for yourself.
Frequently Asked Questions
How Long Does It Take to Receive a Personal Loan?
That depends on the lender. Some online lenders approve and fund loans within one business day.
Banks and credit unions tend to move slower, so expect a few days. Do you want to speed things up? Have your financial documents ready before you apply.
Can I Use a Personal Loan for More Than One Expense?
Yes. Plenty of borrowers cover several expenses with a single loan.
You might use a debt consolidation loan that also handles a home repair at the same time, for instance. Just make sure the total amount fits your budget and your repayment plan.
Is There a Penalty for Paying Off a Personal Loan Early?
Sometimes. Plenty of lenders let you pay early with no extra fees, but others charge a prepayment penalty.
Read the loan agreement before you sign. That way you’ll know whether paying it off early actually saves you money.
Can I Get a Personal Loan If I’m Self-Employed?
Yes, many lenders work with self-employed borrowers. You won’t have pay stubs, so expect to provide:
- Recent tax returns
- Bank statements
- Other proof of income
These documents show the lender you can repay the loan.
Will Applying for Multiple Loans Hurt My Credit Score?
Prequalifying usually won’t. Most lenders use a soft credit inquiry at that stage, which doesn’t touch your score.
A full application is different — that typically requires a hard inquiry. The workaround? Compare lenders first, then submit your formal applications within a short window.
Credit scoring models treat that as one search, which limits the damage.
What Happens If My Loan Application Is Denied?
A denial today doesn’t mean a denial forever. You can improve your odds by:
- Paying down existing debt
- Fixing errors on your credit report
- Adding a qualified co-applicant, if the lender allows it
- Applying for a smaller amount once your finances are stronger
How to Apply for a Personal Loan With Bellco
Now that you know how to apply for a personal loan, remember that it works best when you prepare in advance. Know how much you need to borrow and your credit score, then compare prequalified offers instead of taking the first one. Always read the fine print, then repay as carefully as you applied, and consider using autopay.
As a member-owned credit union, Bellco offers the lower rates and personalized service this article told you to look for, with flexible terms and a fast online application. Explore our personal loan options and apply for the one that fits your goals today, or contact a Bellco loan specialist with any questions.
All loans are subject to approval. Membership eligibility required.