How to get loan

How to Get a Bank Loan

The Balance / Laura Porter

A loan can help you pay for the things need when you don’t have the cash, but borrowing money can be complicated. Starting the bank loan application process without understanding the ins and outs can cause your loan request to be rejected. Learn what to expect and what you can do ahead of time to increase the odds of getting approved.

Understand Your Credit

You generally need credit history to get a bank loan. In addition, your credit will often dictate the type of loan and loan terms a lender grants you. This means that you should have a history of borrowing and repaying loans to get a loan. How do you get a loan when you need money if you don’t have credit?

You have to start somewhere, and that generally means borrowing less money at higher interest rates. You can also consider alternative lenders such as online lenders, who are often willing to look at aspects of your financial record beyond your credit when deciding whether to grant you a loan. Once you develop a strong credit history, lenders will lend you more—and at lower interest rates.

You can view your credit for free—you get one free report per year from all three major credit reporting agencies: Experian, TransUnion, and Equifax. Review your credit history to see what lenders will see when you ask for a loan. If there’s not much in there, it will generally be harder to get a loan because lenders can’t assess your risk as a borrower. This means you may need to build credit before you obtain a loan by gradually adding loans to your history.

Be sure to fix any mistakes in your credit files, as they make you a risky borrower in the eyes of lenders and hurt your chances of getting a good loan.

Decide on a Bank Loan Amount

Remember that a loan isn’t free money—you will eventually have to pay the borrowed amount plus interest back to a bank or other lender. If you don’t make loan payments on time, your credit score could drop. This is why it’s important to settle on the right borrowing amount.

Consider the amount you need based on what you plan to do with the money. But also factor in what your regular loan payments might be and whether you can keep up with them according to the loan repayment period, be it monthly or quarterly.

It’s also a good idea to run preliminary loan calculations before settling on a loan amount. That allows you to see how much you’ll pay for a loan of a certain amount, and how a different loan amount (or loan term, or interest rate) might save you money. There are plenty of online tools out there to help you calculate loans. Of course, loan rates and lender terms can make your final loan installments slightly different.

Determine the Type of Bank Loan You Need

Next, figure out what type of bank loan you need. The type of loan you get will depend on what you plan to do with the money. Some common loan types include:

Some lenders may let you take out a certain type of loan that does not match your specific loan need. For example, you can generally take out a personal loan to pay for health, home repair, or other expenses. However, other loan types must be used for a specific purpose. For example, you generally have to use a mortgage loan to buy a home. In addition, you may not be eligible for all types of loans. To get a student loan, for example, you usually have to provide proof of enrollment in a degree program.

Credit scoring algorithms are often customized for certain lenders and for certain loan types, so it benefits you to select a loan type that matches your need for the money.

Decide Where to Borrow Money

Once you have an idea of your credit, loan type, and loan amount, shop around for a lender. The Balance provides lists of the best mortgage lenders and personal loan companies so that you can compare individual lenders.

Again, the type of loan you want may dictate your choice of a lender. Some institutions don’t offer business loans or student loans. Start your search at the institutions that are best known for making affordable loans of the type you want. For example, go through your school’s Student Aid office for an education loan before you go to the bank for a private student loan.

Banks and credit unions are a good place to shop for most loans. Check with several institutions and compare interest rates and costs. Peer-to-peer loans and other sources of marketplace lending should also be on your list. Online lenders provide another option but stick to reputable sites if you go this route.

Some people borrow money from private lenders, such as friends or family. While that can make approval easier and keep costs low, it can also cause problems. Make sure you put everything in writing so everybody’s on the same page—money can ruin relationships, even if the dollar amounts are small.

Avoid high-cost loans and predatory lenders, who will often dupe you into a loan you don’t qualify for or can’t afford. It’s tempting to take whatever you can get when you’ve been turned down repeatedly and don’t know how else to get a loan for the money you need. However, it’s not a good deal—they’ll lend you money, but you’ll find yourself in a hole that’s difficult or impossible to get out of.

Payday loans, which are high-interest short-term loans, tend to be the most expensive options. Likewise, loan sharks, who impose loan repayment terms that are virtually impossible to meet, can be outright dangerous.

There are other kinds of fast loans that can get you money quickly without the triple-digit APRs of payday loans, including payroll advances from your employer and Payday Alternative Loans (PALS) that let you borrow small amounts from credit unions. These lenders can be safer to deal with than storefront payday lenders.

Understand the Loan

Before you get a bank loan, take a look at how the loan works. How will you repay it—monthly or all at once? What are the interest costs? Do you have to repay a certain way (perhaps the lender requires you to pay electronically through your bank account)? Make sure you understand what you’re getting into and how everything will work before you borrow money. It’s also wise to plug the loan terms into a loan calculator again and view an amortization table (whether you build it yourself or let a computer do it for you) so that you can budget for the loan and see how it will get paid off over time.

Get a loan that you can really handle—one that you can comfortably repay and that won’t prevent you from doing other important things (like saving for retirement or having a little fun). Figure out how much of your income will go toward loan repayment—lenders call this a debt to income ratio—and borrow less money if you don’t like what you see. Many lenders want to see a ratio below 36% or so.

Apply for the Loan

You’re ready to get your bank loan once you’ve:

At this point, you can go to your chosen lender and apply. The loan application process is easy to start: Simply tell the lender you want to borrow money, and tell them what you’re going to do with the funds (if required). They will explain the next steps and how long the process will take.

When filling out an application, you’ll provide information about yourself and your finances. For example, you’ll need to bring identification, provide an address and social security number (or equivalent), and supply information about your income.

Before you apply, make sure you can provide proof of a consistent income to boost your odds of being approved for a personal loan. If your income (or credit score) isn’t sufficient, look for a co-signer (a family member, for example) with a higher income and credit score than you have.

Go Through Underwriting

After you submit the bank loan application, the lender will evaluate you as a potential borrower. This process may be instant, or it may take a few weeks. For example, home loans take longer than credit card offers, because there’s more at stake. Mortgage loans require extensive documentation, such as bank statements and pay stubs to prove that you have the ability to repay. You can make the process easier on yourself by getting everything in order several months before you apply.

During underwriting, lenders will pull your credit (or just use a credit score) and review your application. They may call you occasionally and ask you to clarify or prove something. Be sure to comply with these requests in a timely manner to avoid prolonging the loan application process.

Business Loans

Business loans are similar to any other kind of bank loan. Lenders look for the same basic attributes in business borrowers as they do in people seeking personal loans. However, new businesses don’t have a long borrowing history (or credit). New enterprises and service businesses typically don’t own assets that can be pledged as collateral, so they have to work a little harder to get loans.

Lenders often look at the borrower’s personal credit and income to determine whether they qualify for a business loan. They may also look at the credit of the business. Business owners who don’t have sufficient business credit may also have to pledge personal assets as collateral to get loans. This is often the only way to get loans in the early years, but you should try to build business credit so you can eventually borrow without risking personal assets.

If You Can’t Get a Loan

You might not initially get approved for a bank loan. Lenders can deny applications for almost any reason, but they should be able to tell you why you weren’t approved. Reasons for loan denial include:

If you do get denied, you may have to figure out another solution, write a letter, or try to borrow with the help of a co-signer with stellar credit and income. A loan denial does not get recorded on your credit report or hurt your credit score. So if you work to resolve the issues that led to the denial, and re-apply, your prior denial won’t be used against you. You may well get approved on your second try.

Frequently Asked Questions (FAQs)

How long does it take to get a loan?

The time it takes to get a loan will largely depend on the type of loan you’re getting, how much you need, your financial situation, and the lender you use. The underwriting process for an auto loan or personal loan can be as quick as a day or two, but the process for a mortgage can take a month or more. Getting pre-approved before you actually make your purchase can help speed up the process.

How much will a bank loan to me?

This depends on the type of loan, your credit and debt situation, and what you’re personally willing to put forward to secure the loan. In general, better credit, lower debt commitments, and more valuable collateral will help you secure a larger loan. The lower your loan balance is, compared to your collateral, the better.

How to Get a Personal Loan in 6 Steps

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Below are six steps to guide you through the process of shopping for and getting a personal loan.

1. Check your credit score

A high credit score gives you a better chance of qualifying for a personal loan and getting a lower interest rate. Assess your creditworthiness by checking your score.

Credit scores typically fall into these categories.

720 and higher: Excellent credit.

690-719: Good credit.

630-689: Fair or average credit.

300-629: Bad credit.

Looking at a less-than-friendly score? Fix any errors that might be dragging it down. You can request a free credit report and dispute wrongly reported missed payments or other inaccuracies it may contain.

Be sure to make on-time payments toward credit card and other loan payments, and keep your credit utilization (the amount of credit you use relative to credit limits) low as these are the biggest factors affecting your score.

2. Compare estimated rates

Knowing your credit score will give you a better idea of the annual percentage rate and payment amounts you might receive on a personal loan. Use the calculator below to see estimates based on your credit score and consider the impact of monthly payments on your budget.

3. Get pre-qualified for a loan

Pre-qualifying for a personal loan gives you a look at the offers you may receive from lenders. Many online lenders and some banks perform a soft credit check during pre-qualification that doesn’t affect your credit score.

Pre-qualifying with multiple lenders lets you compare estimated rates and payment amounts.

4. Compare lenders and shop around

Compare the loan amounts, monthly payments and interest rates on your pre-qualified offers from various online lenders as well as banks and credit unions.

at Universal Credit

Click «Check Rates» to pre-qualify on NerdWallet and receive personalized rates from multiple lenders.

If you have a fair or bad credit score, consider a secured personal loan or adding a co-signer or co-borrower to your loan application. These options can increase your chances of qualifying and getting a lower interest rate. However, note that both options have consequences for the collateral or co-applicant if you fail to repay.

5. Read the fine print

Before signing a loan, carefully read the terms and get answers to your questions. In particular, watch for:

Fees. Prepayment penalties — fees for paying off a loan early — are rare, but lenders may charge other fees, including origination and late payment fees.

Automatic withdrawals. If a lender automatically withdraws loan payments from your checking account, consider setting up a low-balance alert with your bank to avoid overdraft fees.

Additionally, look for lenders that offer consumer-friendly loan features like reporting payments to the three major credit bureaus, allowing borrowers to change their payment date or sending borrowed funds directly to creditors on debt consolidation loans.

6. Application and approval

Application requirements may vary by lender, but you’ll likely need:

Identification: A passport, driver’s license, state ID or Social Security card.

Verification of address: Utility bills or lease agreement.

Proof of income: Pay stubs, bank statements or tax returns.

During the loan application process, you’ll need to provide documents that prove identification, verify your address and show proof of income.

The lender will run a hard credit check that may briefly decrease your credit scores by a few points and show up on credit reports for 24 months. Upon final approval, you’ll receive your funds according to the lender’s terms, typically within a week.

About the author: Chanell Alexander is a former personal loans writer for NerdWallet. Read more

Best Personal Loans

Boost Your Chances of Getting Your Personal Loan Approved

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How to get a personal loan in 8 steps

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A personal loan can help you get over a financial hump, cover an unexpected expense, pay down debt faster or make a big-ticket purchase. Most personal loans are unsecured and readily available through banks, credit unions and online lenders.

There are several types of personal loans to choose from, including debt consolidation loans, home improvement loans, medical loans and wedding loans. But before applying, you should know that there are multiple steps involved in the application process. It’s beneficial to familiarize yourself with those steps so you’ll know what to expect and avoid any surprises.

What information to have before applying for a loan

Before you begin the process of applying for a personal loan, gather all the documents and information you need along the way. Doing so will allow you to move through each step of the process efficiently and get your funds as quickly as possible.

The items you may need include the following:

How to get a personal loan in 8 steps

1. Run the numbers

The last thing you or lenders want is for you to take out a personal loan and not be able to afford to pay it off. While lenders typically do their due diligence to make sure you have the ability to repay the debt, it’s smart to run your own numbers to make sure it’ll work out.

Use a personal loan calculator to find out what your monthly payment will be. This can be difficult if you don’t know what kinds of rates and repayment terms lenders will offer, but you can play around with the numbers to get an idea of what the loan will cost you and decide if your budget can handle it.

Takeaway: Before you apply for a personal loan, find out whether the lender charges an origination fee — and if it does, ask what the fee is. Figure out how much cash you’ll need after fees, and a monthly payment you can comfortably afford.

Next steps: Use Bankrate’s personal loan calculator to estimate your monthly payments.

2. Check your credit score

Most lenders will run a credit check to determine how likely you are to repay your loan. While some online lenders have started to look at alternative credit data, they will still typically look at your credit score.

The best personal loans typically require that you have at least fair credit — usually between 580 and 669. Good and excellent credit above 670, however, will give you the best chance of getting approved with a competitive interest rate.

If your credit score is low for other reasons, you may still have a chance to get a loan. But the interest rates and fees may be too high to make it worth it, so take steps to improve your credit before applying.

Takeaway: Checking your credit score will give you an idea of where you stand. The better your credit score, the more likely you are to get approved for a loan and the lower your interest rate could be.

Next steps: Check your credit score and history. If your score is lower than the qualification requirements and you don’t need a loan immediately, work on improving it.

3. Consider your options

Depending on your creditworthiness, you may need a co-signer to get approved for a personal loan with a decent interest rate. If you can’t find a co-signer, or the lenders you’re considering don’t allow co-signers, you may have the option to get a secured personal loan instead of an unsecured one.

Secured loans require collateral, such as a vehicle, a house or cash in a savings account or certificate of deposit, in exchange for more favorable terms. If you fail to repay the loan, the lender can seize the collateral to satisfy the debt.

You’ll also need to think about where to get a personal loan. With traditional banks, for instance, you may have a hard time getting approved if you have bad credit. Some online lenders, however, specialize in working with bad-credit borrowers, and some credit unions have short-term loans that serve as cheap alternatives to payday loans.

If you don’t meet the typical qualifications and your purchase can wait, take some time to build up your credit score so you can qualify.

Next steps: If you don’t think you’ll get approved, research your loan options or reach out to a family member or friend with good financial health about being your co-signer.

4. Choose your loan type

Once you know where your credit stands and you’ve considered your options, determine which type of loan is best for your situation. While some lenders are flexible in terms of how you use the funds, others may only approve loan applications if the money will be used for specific purposes.

For example, one lender might let you take out a personal loan to fund your small business, while a different lender might not allow you to use borrowed funds for business purposes at all. It’s generally smart to find a lender that is comfortable loaning you money for the exact reason you need it.

You can search the Bankrate personal loan marketplace for different types of loans, such as:

Takeaway: Find a lender that offers loans designed for your specific needs.

Next steps: Search the Bankrate personal loan marketplace to find the loan that’s ideal for you and your borrowing needs.

5. Shop around for the best personal loan rates

Avoid settling for the first offer you receive; instead, take some time and shop around for the best possible interest rate. Compare several types of lenders and loan types to get an idea of what you qualify for.

Some online lenders also allow you to get prequalified with a soft credit check, which won’t impact your credit score. Check with the lenders you are considering to see if they offer a prequalification process. Utilize this option to get a full understanding of the rates available to you.

Lenders that don’t offer a prequalification process will typically run hard credit inquiries as part of the loan application process. To limit the effect of hard inquiries on your credit score, it’s best to do your rate shopping within a 45-day period to count them as a single inquiry for credit-scoring purposes.

Takeaway: Don’t settle for the first offer you receive. Compare several lenders and loan types and check for a prequalification option before applying to avoid an impact on your credit.

6. Pick a lender and apply

Depending on the type of lender, you may be able to do the entire application process online. Alternatively, some lenders may require you to apply in person at your local bank or credit union branch.

Every lender is different regarding what information it’ll need on the application, but you’ll typically need to provide your name, address and contact information, your income and employment information and the reason for the loan.

The lender will also request you share how much you want to borrow. It may then give you a few options to consider after a soft credit check. You’ll also have a chance to review the complete terms and conditions for the loan, including fees and your repayment period. Read through the loan agreement thoroughly to avoid hidden fees and other pitfalls.

Takeaway: All lenders have different qualification requirements and may ask for different information. Lenders may also require you to apply in person, while others let you complete the entire application online.

Next steps: Determine the application process for the lender you have chosen. Once you are ready to apply, gather all of the information you will need for the application and apply as directed.

7. Provide necessary documentation

Every lender is different when it comes to what you need to apply. Once you submit your application, your lender will likely ask you to provide some additional documentation. For example, you might need to upload or fax a copy of your latest pay stub, a copy of your driver’s license or proof of residence.

The lender will let you know if it needs any documentation from you and how to get it to the right person. The faster you provide the information, the sooner you’ll get a decision.

Takeaway: Be prepared to present additional documentation as requested during the application process.

Next steps: Gather pay stubs, proof of residence, driver’s license information and W-2s in advance to speed up the application process. Submit all requested documentation quickly to your lender to get your decision as soon as possible.

8. Accept the loan and start making payments

After the lender notifies you that you’ve been approved, you’ll need to finalize the loan documents and accept the terms. Once you do this, you’ll typically get the loan funds within a week — but some online lenders get it to you within one or two business days.

When you are approved, start keeping track of when your payments are due, and consider setting up automatic payments from your checking account. Some lenders even offer interest rate discounts if you set your account to make autopayments.

Takeaway: You could receive the funds as early as one to two business days after getting approved and accepting the loan terms. Once you’re approved, start considering how you’ll pay down your balance.

Next steps: Create a plan to make your monthly payments and pay your loan off. Consider automatic payments and think about paying extra each month to save on interest.

Tips for speeding up the process

If you’re looking for a personal loan, you likely want to get your hands on the money as soon as you can. These tips can help you avoid delays when applying for a personal loan”

How to find the best personal loan rates

Personal loans are readily available through banks, credit unions and online lenders. So, it can be challenging to find products with competitive interest rates and other terms that work for you. The upside is you can sign up for a Bankrate account to get prequalified for a personal loan in under two minutes and compare options based on interest rates and fees.

Unsecured Personal Loan Options

How They Work and the Various Types

Nigel Carse / E+ / Getty Images

Unsecured loans allow you to borrow money for almost any purpose. You can use the funds to start a business, consolidate debt, or buy an expensive toy. Before you borrow, make sure you understand how these loans work and the other alternatives you may have available.

Basics of Unsecured Personal Loans

A lender that offers you an unsecured loan won’t require any property or collateral to secure or guarantee the loan. With a secured loan, such as a mortgage loan, the loan is secured by property. If you don’t repay the loan, your lender has the right to sell your home and collect what you owe out of the sales proceeds. With unsecured loans, nothing specific has been pledged as collateral. This makes them a little less risky for you, the borrower, because the consequences are not as immediate if you fail to repay.

Lenders, on the other hand, take more risk with unsecured personal loans. They don’t have any property to sell if you don’t pay the loan, but they have other options available if they want to pursue repayment—such as, for example, taking legal action against you and attempting to garnish your wages. Because lenders take on more risk on unsecured loans, they generally charge higher interest rates than they do for secured loans.

Your credit is one of the most important factors in determining whether you’ll receive an unsecured loan. If you have good credit, you’ll pay lower interest rates and have more loan options available to you. With bad credit, you won’t have as many choices, and you may need a co-signer to get approved for a loan. Whenever applying for a loan, it’s a good idea to learn more about how credit scores work.

Loan Types

Lenders offer several types of unsecured personal loans, and each one comes with tradeoffs. Look for the loan that best meets your needs while minimizing your costs.

Signature loan: This is the most basic type of unsecured loan. As the name suggests, the loan is secured by nothing but your signature or your promise to pay. You can find these loans through banks and credit unions, and you can use the money for any purpose you desire. Just make sure you are aware of any restrictions your lenders might have regarding how you are going to use the loans to avoid legal troubles.

These loans are generally installment loans that amortize over time, so you borrow one sum of money and pay it back with a fixed monthly payment until you’ve paid off the loan. These loans make a good choice if you’ve got good credit because they generally have relatively low-interest rates. Signature loans can also help you build credit so that borrowing becomes easier and less expensive in the future. To get a signature loan, tell your bank that you’d like to borrow money using a personal loan.

Credit cards as loans: Using credit cards is a form of borrowing for many people. When you use a credit card, you don’t get a lump sum at the beginning of the loan, as you do with a signature loan. Instead, each time you use your card, you effectively borrow whatever you need whenever you need it, as you would with a personal line of credit. If you need more money at a later time, you can charge more to the credit card up to your credit limit.

Credit cards make a popular solution because once you’re approved, you can borrow money practically instantly. Unfortunately, you’ll generally pay a quite high-interest rate on credit cards. Sometimes you can get a teaser rate and borrow at zero percent for a while, but those rates eventually end. It’s easy to get in trouble with credit cards, finding yourself paying hundreds of dollars monthly in interest charges alone.

To use a credit card as a loan vehicle, check your mailbox, which is likely full of offers if you have good credit. You also search for online credit cards that offer zero percent or low-percentage-rate deals.

Peer-to-peer loan: This newer type of funding allows you to borrow from individuals, as opposed to borrowing from a traditional lender such as a bank. Several websites allow you to post a loan request online, and people have the opportunity to step in and fund your loan. These loans, like signature loans, generally have fixed-rate installment payments and competitive interest rates. They also allow you to borrow a decent amount.

Student loans: These unsecured loans offer education funding to students. They’re often a good choice because student loans have features that you can’t find elsewhere, such as flexible repayment options, grace periods, interest subsidies, and more. With some loans, it doesn’t even matter if you have good credit. However, with student loans, you must be a student and use the funds for school costs. Also, it’s important to note that student loans can’t be discharged in bankruptcy court, so you are stuck with them forever until you pay them off.

To get a student loan, start by visiting the financial aid office at your school. The folks in that office, who work with these loans every day, will guide you through the process of completing the paperwork involved and help you understand your options.

Each one of the loans in this section will have its own unique rates and terms. Use your loan calculator to get an idea of what your repayment could look like:

Which Loan Makes Sense for You?

When reviewing your loan options, decide which criteria are relevant to your decision, and consider the following:

These loans can be more attractive and cost-effective, depending on your financial situation. However, you may not qualify for a larger loan if you don’t have enough monthly income to support the lender’s requirements.

Options If You Have Bad Credit

Getting an unsecured loan with bad credit may be challenging, but it’s not impossible. You’ll have fewer choices and will likely pay higher interest rates than a borrower with good credit. If you’re having a hard time borrowing, learn about getting an unsecured loan with bad credit. If you’re not approved for an unsecured loan, try a small loan secured by cash in the bank to gain momentum by building a positive credit history.

If it’s feasible, hold off on borrowing until you’ve built your credit up to the point where you can get loans on more attractive terms. You can strengthen your credit by borrowing and repaying loans, and even small loans can make a difference. If you currently have a low credit score, be proactive about rebuilding it.

How to Apply for a Personal Loan

There are five steps to applying for a personal loan:

We’ll go into these in more depth below. But first, the basics.

What is a personal loan?

When a bank or other financial institution lends you money to make a major purchase or refinance existing debt, it’s a personal loan. You sign a promissory note to repay the loan at an interest rate set by the bank. Personal loans are typically repaid in monthly payments. There are two types of personal loans:

Decide how much you need to borrow

What will your monthly payments be?

Most loans have the same monthly payment every month, so you have no surprises. There are a couple things that determine your monthly payments:

Use the calculator below to estimate the monthly payments for different loan amounts, interest rates, and more.

Check your credit score

Different lenders have different minimum credit score requirements. Some of the best personal loan lenders will only offer you a personal loan if your credit score is near-perfect. Other lenders specialize in personal loans for bad credit.

Here’s our pick for the best lenders by minimum credit score

How to check your credit score

How to raise your credit score

Here are a few immediate steps you can take to boost your credit score before you get a loan:

Check our guide to how to build credit fast for more information on raising your credit score before you apply for a loan.

How to qualify for a loan

There’s more to qualifying for a loan than having a high credit score. Lenders also look at your income and debt-to-income (DTI) ratio. We’ll break it down for you.

Income

You’ll need to show a lender you have a dependable income. Let’s say you own a carpet installation business and some months are busier than others. Provide income records for the past two or three years to give the lender a fair sense of your «average» income.

If you’ve changed jobs frequently, be prepared to explain your situation. For example, if you’re a nanny who has worked for several families over the past three years, have your income statements together to show the lender you’ve stayed in the same field during that time.

Control your DTI ratio

Your debt-to-income (DTI) ratio is the amount of money you owe in relation to the amount of money you earn. To calculate your DTI ratio, lenders add up your fixed monthly debts (such as rent or mortgage, car payments, HOA payments, child support, alimony, credit card payments, and payments on other loans), then they divide that number by your monthly income to come up with a DTI ratio.

If you calculate your DTI ratio and learn it’s too high, here are three steps that can help bring it down:

Shop around for a personal loan lender

To get a loan that works for you, it’s important compare multiple lenders. There are plenty of quick and easy online loans available, as well as loans from brick-and-mortar institutions.

Start by looking for lenders that fit your situation. Some lenders specialize in specific loan types, like renovation loans or medical loans. Others specialize in specific offers, like low-interest personal loans. For example, here are three types of personal loans:

Home improvement: Loans for people looking to make upgrades to their homes. A home improvement loan can be a good idea, particularly if the upgrades increase the value of the property.

Debt consolidation: Loans for those who wish to consolidate several high-interest debts into one loan with a lower interest rate. Debt consolidation loans can be an effective way to pay debt off at a faster clip and improve your credit score.

Peer-to-peer lending: Loans for people who need an alternative loan source. This may be someone who is self-employed and has trouble proving their income, or it could be someone with poor credit who’s having trouble securing a traditional personal loan. How this loan is used determines whether it’s a good idea.

How to compare lenders

Once you’ve narrowed your search to a handful of lenders, the best way to compare loans is to get pre-qualified. Getting pre-qualified for a personal loan is simple, and doesn’t require any commitments on your end.

Only compare loans with similar terms when deciding where to get a loan. Because fees and interest rates can vary so much, it’s a good idea to look at the annual percentage rate (APR) for different loans when comparing. The APR takes into account both the fees and the interest rate, so you get a better picture of what the loan actually costs.

Note: If you’re unemployed, you can still qualify for a personal loan. For information on what counts as income on a loan application, check out our guide to getting a loan while unemployed.

Do you need a cosigner?

If you’re having trouble getting pre-approved for a loan, you can ask a friend or family member with better credit to be your loan cosigner. If you have a cosigner, the lender will consider both you and your cosigner’s credit scores and income instead of just yours.

As a result, a cosigner can make it easier to qualify for a personal loan. You also might get a lower interest rate with a cosigner than you would on your own.

Be careful, though. A cosigner shares the responsibility of paying back the loan. That means if you miss a payment, your cosigner’s credit score will suffer. And if you don’t pay back the loan, the lender can take legal action against your cosigner. Asking someone to cosign on a loan is not something that should be taken lightly.

Do you need collateral?

Similar to a cosigner, collateral can help you qualify for a loan if your credit history isn’t perfect. Examples of collateral include a car, a house, or a savings account. If you think you may need collateral, you’ll need to look for lenders offering a loan type called a secured loan.

Submit your loan application

After deciding on a lender, it’s time to apply for a loan. Most lenders allow you to apply for a loan online.

Before applying, gather these documents that you’ll be asked for:

The lender will also check your credit and consider relevant factors, such as job stability, to decide if you qualify for the loan. Then, the lender will either deny your loan or approve it.

Wait for funding

Once your loan is approved, you’ll have to agree to the interest rate and repayment schedule. Then, you’ll sign a promissory note indicating you’ll pay back the loan.

At this point, the lender will release the funds to you. The release of funds can take anywhere from one day to two weeks, depending on the lender. If you need the money quickly, be sure to ask the lender how long it takes to fund an approved loan before applying.

Bottom Line

There are many personal loan lenders offering loans to people with all different credit scores. Even if you aren’t a perfect borrower, you should be able to find a personal loan when you need the funds. The real question is: How can you get a loan that benefits you financially?

Rule number one when you apply for a loan is to only borrow what you need. In addition, make sure you don’t take a loan without understanding the terms and you pay back the loan as due. If you follow this basic advice, getting a loan doesn’t have to be hard.

The Ascent’s best personal loans

Looking for a personal loan but don’t know where to start? Our favorites offer quick approval and rock-bottom interest rates. Check out our list to find the best loan for you.