What to Expect When Taking Out a Personal Loan

When it comes to borrowing money, a personal loan can provide you with quick access to funds. Whether you need cash to cover bills, unexpected repairs, or other large purchases, a personal loan allows you to finance these expenses while locking in a fixed interest rate to repay what you borrow.

As for getting a personal loan, the application process is fairly straightforward. Here’s a look at what you can expect, as far as comparing different lenders, rates, terms, and more.

Decide How Much You Need

Before you can start looking for the right personal loan to meet your needs, it’s important to determine what your needs actually are. This means calculating how much you need to borrow with your new loan.

Personal loans can be used for almost any expense. You can use the funds to pay for:

• Medical or dental bills

• Unexpected repairs

• Home renovations

• Life events (e.g., wedding)

• A vacation 

You can even refinance and consolidate existing debt — including credit cards, student loans, and auto loans — into a new personal loan with a preferably better rate and terms. 

Each lender sets its own minimum and maximum loan amounts, so knowing how much you need to borrow is the first step in shopping around for the right lender.

Your Credit History and Credit Score Will Be Important

Personal loans are typically unsecured financial products. This means that you won’t be asked to put up collateral (e.g., a house, car, or other valuable assets) to secure the loan.

Instead, personal loans rely more heavily on the applicant’s credit rating and history. 

Your personal credit history and FICO (or VantageScore) will help lenders determine:

• Whether to approve your application

• How much to lend you

• What your interest rate will be

• What loan terms you’ll be offered

Lenders will pull your credit at least once in the application process, and may utilize a soft and/or hard credit inquiry. 

While it is possible to get approved for a personal loan with bad credit, it is more advantageous to do so with a good-to-great rating. The better your credit history, and the higher your credit score, the greater your chances of getting a higher amount and lower interest rate.

Your Income Will Come Into Play

Before funding you, lenders will want to know that you can afford to pay back the loan. They’ll ask you questions about your current income, as well as any existing debt obligations you may already have.

If too large a percentage of your gross income is offset by other loans or debts, you may have trouble getting approved for the loan you want. 

You’ll Probably Be Asked for Documentation

During the application process, lenders may require you to submit certain documents. These could include proof of identity, proof of employment, or proof of address, among other things. 

Before you even apply, gather the essentials: 

• Driver’s license

• Previous pay stubs

• Recent bank statements

• Proof of Address (e.g., bill featuring name/address)

That way, you’ll be ready to upload these requested documents when asked, which can help in expediting your application process.

Funds as Soon as Next Business Day

Once approved for your personal loan, you’ll need to provide any remaining documents and sign your loan’s promissory note (essentially an agreement to repay the debt according to the terms). Then, it’s just a matter of waiting to receive the funds.

Depending on your disbursement method and the lender you chose, your personal loan funds could be available on the next business day ― and even the same business day in some instances. Once the funds are provided, you’re free to make purchases, pay off debt, or spend it however you need.

Bottom Line

A personal loan can be a great financial tool if you need cash for a big purchase, home repairs, or other expenses. It can also be used to consolidate and refinance existing debt.

With Fiona, you can compare top lenders all in one place, to find the right option for you and your borrowing needs.