Getting a personal loan comes down to a handful of predictable steps, and knowing them ahead of time can save you both money and stress.
September 14, 2026
Personal loans offer fast access to funds, with fixed interest rates, predictable monthly payments, and few restrictions on how you spend the money, whether that's consolidating debt or paying for home repairs. Some lenders do bar certain uses, so check before you apply. As of May 2026, the average rate on a 24-month personal loan from a commercial bank was about 11.86%, according to the Federal Reserve.
Expert Take: An average is not an offer. The spread around that number is wide enough that two borrowers with similar credit scores can land several points apart depending on the lender they pick, which is the whole argument for prequalifying with three to five lenders rather than accepting the first approval you get.
Applying is generally quick, especially with an online lender, and knowing what happens at each stage puts you in a better position to borrow with confidence. Start by comparing personal loan offers side by side rather than accepting the first one you see.
Applying for a personal loan comes down to eight steps in order: check your credit score, decide how much to borrow, estimate your monthly payment and total cost, prequalify with multiple lenders, compare the offers, gather your documents, submit your formal application, then review your final offer and get funded.
Since lenders will give the best terms and interest rates to applicants with good to excellent credit, check your FICO score for free before you do anything else, because it drives both your approval odds and the rate you'll be offered. Your bank, your card issuers, or free online services can show you your score at no cost.
It also helps to know how your credit score is calculated before you start comparing lenders. Treat it as a close estimate rather than an exact match, since lenders don't all pull the same version of the score.
Where Your Credit Score Falls
Lenders set their own cutoffs, but FICO groups scores into five ranges:
Credit Band | FICO Score Range |
Exceptional | 800–850 |
Very Good | 740–799 |
Good | 670–739 |
Fair | 580–669 |
Poor | 300–579 |
Pro Tip: Your credit report isn't the same as your credit score, and many people are surprised to find no score on it. You can pull your report for free from all three major bureaus, weekly, at AnnualCreditReport.com. It won't give you a number, but it will show you why your score landed where it did, including your borrowing history, your credit utilization, and any recent inquiries.
If Your Score Needs Work
If your score is lower than you'd like, take time to move the needle before you apply:
Pay every bill on time: Payment history carries the most weight in your score.
Lower your credit card utilization: Aim to use less of your available credit.
Dispute any errors on your report: Incorrect information can drag your score down unfairly.
Borrowing at all, and how much, affects your credit score, so it's worth weighing before you take on new debt.
Decide why you're borrowing the money. Is it for debt consolidation? A home renovation project? Or are you going on vacation and need a little extra? If you have strong credit, you may have plenty of offers, but while it's tempting to build in a little cash cushion, most experts recommend only borrowing what you need and can afford.
A larger loan means a larger monthly payment and more interest over the life of the loan, so making a conscientious decision about what you're borrowing from the get-go is a simple way to save.
Watch for Origination Fees
Personal loan origination fees may range from 1% to 8% of the loan amount, and while some lenders charge none for strong-credit borrowers, you're not immune. When the fee's taken out of what you borrow, you'll end up with less in hand than you expected.
For example: If you need $6,000, but the origination fee is 5%, or $300. You'll receive $5,700, not the full $6,000, so account for the fee up front and either borrow a little more from the outset or plan to cover the difference yourself.
From My Experience: How an Origination Fee Caught Me Off Guard
Before I started covering personal finance, I took out a small personal loan to do a minor home renovation in anticipation of my first child. I needed to convert a tiny closet into a safe sleeping space. When I took out the loan to the penny I needed to pay the local contractor, I was surprised that the funds came up short in my bank account.
If I'd been writing about loans, I would've known about the detail that trips up many borrowers: the origination fee, which many lenders take straight off the top of what you borrow. I was able to cover the fee using my savings and then put the rest of the funds toward the closet conversion, all for around $2,500. But if I'd needed to borrow more or the fee had been higher, I wouldn't have had enough money.
Two numbers matter the most when considering a personal loan: the monthly payment you can comfortably make, and the total interest you'll pay across the full term. It can be tempting to choose the lowest monthly payment, but you still pay interest on the full amount either way.
If you can afford a shorter term with higher payments, you may save money in the long run, although that can be hard if you're living paycheck to paycheck and using a personal loan, for instance, to consolidate your debts.
A Shorter Term vs. a Longer Term
Here's how the same loan can play out differently depending on the term you choose:
Three-year term: About $322.67 a month, totaling roughly $11,616 over the life of the loan.
Five-year term: About $212.47 a month, but totaling roughly $12,748, about $1,132 more in interest than the shorter term.
That $1,132 difference could cover a car payment, a deposit into your emergency fund, or a month's worth of groceries, so it's worth weighing against the lower monthly payment before you decide.
Check Your Debt-to-Income Ratio
Your debt-to-income ratio compares your monthly debt payments to your gross monthly income and gives you a sense of how much new payment your budget can actually absorb. A lower DTI means more room to take on a personal loan payment without stretching your finances thin. If you're not sure where you stand, you can calculate your debt-to-income ratio before deciding on a term.
Prequalifying lets you see real rates with a soft credit pull that doesn't affect your score, and it's how you'll compare origination fees and interest rates across lenders before committing to anything.
The hard inquiry only happens later, when you submit a formal application. Consider prequalifying with three to five lenders to give yourself a range of offers to compare.
Know Before You Shop
Rate-shopping window: If you apply with several lenders, your "rate-shopping window" treats multiple inquiries for the same type of loan within 14 to 45 days as a single inquiry.
Red flags to avoid: Watch for lenders who ask for an upfront fee before approval or promise guaranteed approval, even with bad credit.
Compare the APR first, since it reflects how your interest rate is calculated alongside most fees, then look at fees, terms, funding speed, and discounts, rather than judging offers by the monthly payment alone. A low monthly payment can hide a long term and higher total cost, so the APR and fees tell the fuller story.
Line your offers up against these factors:
Factor | What to Check |
APR | The all-in yearly cost, including interest and most fees |
Origination fee | 1%–8% of the loan, or none for some borrowers |
Repayment term | Shorter terms cost less overall; longer terms lower the payment |
Funding time | Hours for some online lenders; 1–5 business days for banks |
Autopay discount | A low rate cut many lenders offer for automatic payments |
Restrictions | Prepayment penalties, use limits, or minimum amounts |
Once you've picked a lender, gather your paperwork before you start the application. Having these ready in advance keeps the process moving so you can get your money faster.
Here's what you'll likely need, and most lenders ask for a similar set of documents:
Government-issued photo ID: A driver's license or passport works for most lenders.
Social Security number: Used to verify your identity and pull your credit.
Proof of income: Recent pay stubs, W-2s, or tax returns.
Monthly housing cost: Your rent or mortgage payment.
Bank account information: Used so the lender can disburse funds and set up your payments.
Since the exact list varies by lender, confirm what's required before you apply.
Choose your lender and fill out a loan application. Some lenders run the hard inquiry the moment you apply, while others wait until you formally accept an offer, so ask about the timing if it matters to you. Many lenders have streamlined the process, so you can apply online and still chat or call directly with questions.
Your application goes through underwriting before you get a decision:
Online lenders: Often decide within a few hours.
Banks and credit unions: May take a few business days or longer.
Even if you were prequalified, your application can still be denied. If that happens:
You'll get an adverse action notice: The lender must send this within 30 days, explaining the decision or telling you how to request the specific reasons within 60 days.
Credit-based denials include your score: If the denial involved your credit report, the notice must also state the credit score the lender used.
You've received an offer. Before you sign, read the loan agreement closely and confirm the APR, fees, repayment term, and monthly payment match what you were quoted. How soon you get your funds will depend on the lender you chose.
Pro Tip: Once the loan is active, setting up autopay helps you avoid missed payments and may earn a rate discount.
Staying current matters just as much as getting funded:
Late payment reporting: Creditors generally don't report a payment as late until it's 30 or more days past due.
How long it stays on your report: A late payment that reaches your credit report can stay there for seven years.
Turn this into action with a checklist that follows the eight steps:
Check your credit: Pull your free credit report at AnnualCreditReport.com and dispute any errors, since corrections take time to process. Get your credit score online from MyFICO or through your bank, credit union, or card issuer.
Set your borrowing amount: Decide how much you want to borrow, and include origination fees in the total.
Compare loan terms: Run the numbers on two terms, a shorter and a longer one, and compare total cost rather than monthly payment.
Prequalify with multiple lenders: Prequalify with three to five lenders and review each offer's APR, origination fee, term, and total cost side by side.
Gather your documents: Collect what you'll need for the application ahead of time.
Submit your application: Expect a hard inquiry on your credit, and decide what you'll do if you're turned down.
Review and activate: Read the offer carefully and set up autopay (if available) once funded to protect your payment history and capture any rate discount.
If you don't qualify for a good rate, don't qualify at all, or borrowing feels premature after weighing the pros and cons of a personal loan, it's fine to pause and rebuild your credit first. When you're ready, comparing personal loan offers will show you what you actually qualify for.
There's no universal minimum, since lenders set their own cutoffs, but many look for a score in the good range (670 and up on the FICO scale) for competitive rates. Borrowers with fair or poor credit may still qualify, often at higher rates or with a co-borrower.
Prequalifying uses a soft pull and won't affect your score. Submitting a formal application is what triggers the hard inquiry, which for most people takes fewer than five points off a FICO score, and the effect fades within a year.
It depends on the lender. Online lenders can disburse funds within hours of closing, while banks and credit unions typically take one to five business days.
The lender has to send an adverse action notice stating the main reasons for the decision, or explain how to request them within 60 days. The notice only covers the "why," not the "what now." Common next steps include lowering your credit utilization, correcting report errors, adding a co-borrower, or taking out a joint personal loan.
For this article, we relied on published primary and secondary sources rather than a proprietary BestMoney survey, because no first-party survey data exists for this specific topic. We consulted regulatory and primary sources directly, including the Federal Reserve's G.19 Consumer Credit release, the CFPB's consumer guidance, and myFICO's credit education pages.
We supplemented those with Experian's consumer guidance on origination fees, funding timelines, and application requirements. We also reviewed current search results and AI answers on this topic to identify gaps, such as undated rate claims and overstated funding speeds, and addressed them with dated, scoped figures.
Federal Reserve, G.19 Consumer Credit release (average 24-month personal loan APR at commercial banks, May 2026 preliminary data)
myFICO credit education (FICO score bands and hard inquiry and rate-shopping rules)
Consumer Financial Protection Bureau, Ask CFPB (how long information stays on a credit report)
Experian, Ask Experian (origination fees, funding timelines, application documents, and late-payment reporting)
Maya Dollarhide is a writer specializing in personal finance, with a special focus on student loans and debt consolidation and management. She has written for Yahoo Finance, Investopedia, Student Loan Hero, Bankrate, and other publications.
