Admittedly, gathering everything you need to apply for a loan can be a hassle — but on the flip side, personal loans are often one of the quickest loans to obtain, as you can sometimes get the money within a couple days. (You can see the personal loan rates you might qualify for here.) That said, it’s going to go a lot smoother if you have the documentation needed for a personal loan, and know some other key things you’ll want to do before you officially apply. (Also, read this guide first to determine who a personal loan might be suitable, and unsuitable, for.) Here’s how to make sure you’re properly armed with everything you need to make the application process as smoothly as possible.
1. Gather the documentation a personal loan lender might require
Specific items needed to determine loan eligibility vary from lender to lender, but most will ask for:
- The loan application (this typically asks for things like name, address, date of birth, Social Security and other personal information, as well as how much you’d like to borrow and why);
- Proof of identity (this might include a passport or driver’s license);
- Proof of employer and income (this might include a W2, paystubs, bank statements, 1099s or tax returns); and
- Proof of address (this might include utility bills or a lease or mortgage statement, proof of insurance on your home, voter registration card or property tax receipt).
This is just a preliminary list, so be prepared to provide other information. That might even include your education history, says Annie Millerbernd, personal loan expert at NerdWallet, who explains that if a lender asks about this or what you studied in school, they may be trying to understand earning potential. “It’s unlikely that your education level will outweigh income or credit, though,” says Millerbernd.
2. Pull your credit score ahead of time, and improve it before applying if needed
Before you apply for a personal loan, check your credit score, because credit is, as with most loans, a big factor in determining the rate you’ll get or even if you get the loan at all. The best personal loan terms generally go to people with credit scores in the mid-700s and above, says Ted Rossman, senior industry analyst at Bankrate. “You can potentially get a personal loan with a lower credit score, but especially as you get below 700 on the FICO scale, your odds will get noticeably worse and your interest rate should be markedly higher,” says Rossman. The minimum credit score you’ll likely need to qualify for a personal loan is around 610 to 640, according to Bobby Ritterbeck, president of personal loans for Best Egg. (You can see the personal loan rates you might qualify for here.)
“Banks typically prefer good or excellent credit on a personal loan application, while a credit union may look more at your whole financial picture than your credit score alone. Online lenders tailor their loans to borrowers in different situations, so there are good- and bad-credit online loans,” says Millerbernd.
As with any loan, the higher your credit score, the better the terms of your personal loan are likely to be. “If you’ve got strong credit, you can get a loan with an APR in the single digits. However, if you’ve got poor credit, the APR could go to 30% or higher, well beyond what you’d pay with the typical credit card,” says Matt Schulz, chief credit analyst at LendingTree.
3. Understand the other factors personal loan lenders are looking for — and improve those too
“Your credit score isn’t the only thing lenders will consider. The length of your credit history and debt-to-income ratio may also impact your ability to obtain a personal loan,” says Ritterbeck. To find your DTI, add up your recurring monthly debt, including credit cards, mortgage, auto loan, student loan and more, and divide by your total gross monthly income, which is the amount you earn before taxes, withholdings and expenses.” As a general guideline, lenders like to see a DTI of 43% or less. If you can pay down some debts or up your income, that’s a good way to improve this number. (You can see the personal loan rates you might qualify for here.)
4. Know whether you’re getting a secured or unsecured personal loan
Because unsecured personal loans are exactly that — unsecured debt — you don’t have to put any assets such as your home or your car on the line as collateral. Secured personal loans, however, will require valuable assets including investment accounts, real estate and collectibles to be used as collateral, should you fail to pay back the loan. If you get a secured personal loan, you’ll need to show proof of property that you own such as a paid-off vehicle, jewelry, savings accounts, investments, art and more.
5. Understand whether a personal loan is right for you, and how you’ll repay it
Personal loans aren’t right for everyone: While they can be effective tools for debt consolidation or essential projects for which you need money quickly, they’re not right for discretionary expenses. And if you do decide to take out a personal loan, make sure you have a solid plan to pay it back in full and on time.