Here’s exactly how to borrow money with a personal loan

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How to get a loan
Before you start shopping for a loan, make sure your credit is as strong as possible. 10’000 Hours/Getty Images
  • Anyone wondering how to get a loan should take the same first step: checking their credit score, and making sure their credit is as high as possible.
  • Lenders look at your credit score and your debt-to-income ratio to indicate how trustworthy you might be as a borrower, so it’s smart to know what to expect.
  • Once you have those numbers, make sure to get a few different rates before you commit. You can compare rates directly through sites like Credible, or contact individual lenders for quotes.

While rates vary from lender to lender and from borrower to borrower, personal loan interest rates can often be lower than credit card rates, and once you get approved for a personal loan, the rate is fixed.

“This means your rate won’t go up or down every month unlike credit cards, which can fluctuate,” says Dana Marineau, VP brand, creative and communications at Credit Karma.

Another benefit of personal loans is they have a fixed term, which means you have a set amount of time to pay off what you borrow. “The fixed term can vary but we see many run from three to five years, and you pay it off monthly,” says Marineau. “A personal loan can be a good option for budget-conscious borrowers since the amount is predictable and consistent every month.”

If you’re looking at taking out a loan, here’s how to do it:

How to get a loan

1. Check your credit score

If you’re beginning the loan process for the first time, start by getting your credit score.

You can check it for free at any time at sites like Credit Karma, Credit Sesame, and You don’t need a perfect credit score of 850 to get a loan, but lenders see your credit score as an indication of your trustworthiness as a buyer and adjust their offers accordingly – so the higher your score, the better.

2. If something looks amiss, pull your credit report

Your credit score is three-digit shorthand for the information contained in your credit report, which monitors all of your credit-related activity. According to the Federal Trade Commission, you’re entitled to one free copy of your credit report every 12 months from each of the three nationwide credit reporting companies: Experian, Equifax, and TransUnion.

Considering a loan? Our partner Credible can help find the best options for you »

Note that there are plenty of opportunities to pay for your credit report, but is the best place to get your report for free (or call 1-877-322-8228). Be prepared to provide your name, address, Social Security number, and date of birth to verify your identity.

3. Boost your score as much as you can before putting in your application

Checking your score is easy, but the next step can be harder: boosting it as much as you can before applying for a loan.

“Anything you can do to improve your credit score, like taking care of overdue bills or paying down credit card balances, can help you get a better interest rate,” says Jamie Young, personal finance expert and writer at Credible, an online loan marketplace. “Your credit score is the most important factor in deciding what interest rate a lender will offer you. Although many lenders offer personal loans to borrowers with only fair credit, you can expect to pay higher interest rates.”

4. Understand your debt-to-income ratio

Your debt-to-income ratio is how much of your monthly income is required to pay recurring expenses like your rent or mortgage, car loan, and other bills. has a free calculator to find your debt-to-income ratio.

Knowing your ratio can help you get an idea of what to expect from lenders.

“A debt-to-income ratio below 36% is considered healthy,” says Young. “If the monthly payments on a personal loan would push your debt-to-income too high – over 45% or 50%, say – you won’t be approved for a personal loan by most lenders, no matter how good your credit score is.”

5. Get a grasp of interest rates

When shopping for a personal loan, realise interest rates can range from 5% to 36%, says Marineau. Your interest rate is set when the loan is granted, and that rate is for the life of the loan.

6. Assemble your personal information for your application

When applying, have the following information:

  • personal contact information
  • date of birth
  • Social Security number
  • employment and income information – including recent pay stubs or W-2 tax forms
  • loan amount needed

7. Shop around before you commit

Before applying, take time to shop for a personal loan by comparing rates, fixed terms, and fixed payments.

There are sites, like Credible or Credit Karma, where you can comparison-shop for personal loans from banks and credit unions. You can also ask your community bank, friends or family, or do your own research from individual lenders.

How much would a loan cost you? Find out with these offers from our partners:

8. Get at least two quotes before committing

Before choosing a loan, you should always receive at least two quotes from lenders. “That’s really the only way to know if you’re getting a good deal,” Lou Haverty, CFA with Financial Analyst Insider, tells Business Insider. “After you receive the better quote, go back to your original lender and let them know the terms of the other offer. You’ll be surprised at how often they will come back with a better offer,” he says.

9. If you can’t get a loan, try applying for a smaller amount

If you’re checking rates with lenders and keep getting turned down even though you have a good credit score, try applying for a smaller loan, says Young from Credible. It will have a smaller impact on your debt-to-income ratio, and you might be approved.

Or, look for lenders that offer longer repayment terms, which will have smaller monthly payments. “Lenders available through Credible offer repayment terms of two to seven years. Just remember that the longer you take to pay back your loan, the more you’ll pay in interest charges. Choose a loan with the shortest repayment term,” Young says.

10. Make a plan to keep up with your loan payments

Once you decide which loan is the right one for you, make sure you have a plan in place to pay your loan on time. “Think about ways you can stay organised, whether it’s with automatic payments or setting up reminders every month,” says Marineau. “Remember: Personal loans need to be paid back on time every month, so make sure to stay on top of payments.”