Americans held $156 billion in personal loans midway through 2020, according to TransUnion. But this high balance doesn’t mean lenders give personal loans to just anyone.
Before lending an unsecured personal loan — or one that doesn’t require collateral — companies need reassurance about your ability to pay it back in full. To determine this, they look at factors such as your credit score and debt-to-income (DTI) ratio.
If you’re interested in borrowing a personal loan, here are seven steps to take to help get your application approved.
- Check your credit score
- Order a copy of your credit report
- Pay your bills on time
- Pay down your debt
- Show you have a stable income
- Submit a joint application with a creditworthy cosigner
- Find the right lender
1. Check your credit score
Your credit score is a major factor when qualifying for an unsecured personal loan. Although lenders typically don’t disclose what score they look for, most prefer good or excellent credit.
Before applying for an unsecured personal loan, make sure you know what your credit score is. You can check it out for free with services such as My LendingTree.
Some credit card companies also offer your FICO Score for free. By knowing your score, you’ll have a better idea of your chances of qualifying for a personal loan.
2. Order a copy of your credit report
Although your credit score represents your creditworthiness, it doesn’t show you the full picture. For a deeper dive into your financial past, order a free copy of your credit report from AnnualCreditReport.com.
You can get a free report annual report from each of the three major credit bureaus: Equifax, Experian and TransUnion — and during the coronavirus pandemic, this was changed to a free report every week, through April 2022. They will show any outstanding debt, along with your history of repayment and other factors that affect your credit score.
Take a close look at your credit report so you can see areas where you’re on track, as well as areas where you can take steps to improve. Also, be on the lookout for any reporting mistakes.
If you find errors, you can submit a written dispute to the credit reporting company. Fixing these errors could improve your credit score.
3. Pay your bills on time
If your credit score is low, you could try to improve it by paying your bills on time.
On-time payments will help increase your credit score and, as a result, boost your chances of getting an unsecured personal loan. If your score isn’t where you’d like it, take some time to improve it before applying around.
Even if your score is high enough to qualify for a personal loan, increasing it also could snag you lower interest rates. With higher rates, of course, you’ll pay more monthly and overall than you would if you wait to borrow until your score is higher.
4. Pay down your debt
Your debt-to-income (DTI) ratio is another major factor affecting your credit score. If you have a high ratio, paying down your debt could help boost your score.
Come up with a plan to conquer your debt, whether by making extra payments or increasing your income by taking on a side hustle.
Debt-to-Income Calculator
You also might open a new credit card to reduce your ratio, but be careful to not spend more than what you can afford just because you have access to more credit.
After all, this will increase your DTI ratio again, hurt your credit score and make it difficult to get an unsecured personal loan.
Also, keep in mind that opening too many new lines of credit in a short time could hurt your score.
5. Show you have a stable income
Your credit report and score as well as DTI ratio are imperative as you’re applying for a personal loan. But don’t forget that lenders also want to get a sense of your cash flow by examining secondary factors like your income and employment history.
While lenders look at your credit score to understand your financial past, they typically also consider your income as a sign of your financial future.
Proof of income, along with a stable employment history, shows the lender that you’ll be able to manage repayment over the life of your loan. Unstable employment, on the other hand, could hurt your chances of qualifying.
Don’t be surprised if a lender asks your salary data or even calls your employer to verify your information.
If you don’t have much money coming in, take steps to improve your employment situation before applying for an unsecured personal loan.
6. Submit a joint application with a creditworthy cosigner
Besides improving your credit score and boosting your income, another step you can take to get an unsecured personal loan is applying with a creditworthy cosigner.
If your credentials aren’t stellar, your cosigner’s credit score and income could make up for them.
Just keep in mind that when getting a personal loan with bad credit, cosigners agree to become legally responsible for repayment if you’re unable to go it alone.
Asking a relative or close friend to act as your cosigner is likely your best bet. Of course, you and your cosigner must be comfortable sharing debt.
7. Find the right lender
Although lenders look at similar factors when considering you for a loan — credit score, income, history of debt repayment — each company sets its own underwriting requirements.
You might have a better chance of approval if you have a relationship with the lender, whether it’s a bank or local credit union.
To ensure you get your best rates and terms, however, it’s wise to shop around with at least three lenders. You might compare the product offered by your neighborhood credit union with personal loans from a bank or online company that lends nationally, for example.
Peer-to-peer lenders, such as Prosper and LendingClub, are other options. Make sure you’re going with a reputable lender offering low rates.
Even if you have no trouble getting approved, it’s smart to shop around and compare personal loan offers. That way, you can find the best offer for your financial situation, as well as a personal loan with the lowest rate.
Andrew Pentis contributed to this report.
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How Student Loan Hero Gets Paid
Student Loan Hero is compensated by companies on this site and this compensation may impact how and where offers appear on this site (such as the order). Student Loan Hero does not include all lenders, savings products, or loan options available in the marketplace.
Student Loan Hero Advertiser Disclosure
Student Loan Hero is an advertising-supported comparison service. The site features products from our partners as well as institutions which are not advertising partners. While we make an effort to include the best deals available to the general public, we make no warranty that such information represents all available products.
| Lender | RATES (APR) | loan amount | |
|---|---|---|---|
 | 7.99% – 23.43%1 | $5,000 to $100,000 | |
 | 4.37% – 35.99% | $1,000 to $50,000 | |
 | 7.46% – 35.97%* | $1,000 to $50,000 | |
 | 99.00% – 199.00%2 | $500 to $4,000 | |
 | 5.99% – 24.99%3 | $5,000 to $40,000 | |
 | 7.99% – 35.99%4 | $2,000 to $36,500 | |
| compare rates on Lendingtree now | |||
1 Includes AutoPay discount. Important Disclosures for Sofi. Sofi DisclosuresFixed rates from 7.99% APR to 23.43% APR APR reflect the 0.25% autopay discount and a 0.25% direct deposit discount. SoFi rate ranges are current as of 8/22/22 and are subject to change without notice. Not all rates and amounts available in all states. See Personal Loan eligibility details. Not all applicants qualify for the lowest rate. Lowest rates reserved for the most creditworthy borrowers. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, income, and other factors. See APR examples and terms. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. Upgrade DisclosuresPersonal loans made through Upgrade feature Annual Percentage Rates (APRs) of 7.46%-35.97%. All personal loans have a 1.85% to 8% origination fee, which is deducted from the loan proceeds. Lowest rates require Autopay and paying off a portion of existing debt directly. Loans feature repayment terms of 24 to 84 months. For example, if you receive a $10,000 loan with a 36-month term and a 17.59% APR (which includes a 13.94% yearly interest rate and a 5% one-time origination fee), you would receive $9,500 in your account and would have a required monthly payment of $341.48. Over the life of the loan, your payments would total $12,293.46. The APR on your loan may be higher or lower and your loan offers may not have multiple term lengths available. Actual rate depends on credit score, credit usage history, loan term, and other factors. Late payments or subsequent charges and fees may increase the cost of your fixed rate loan. There is no fee or penalty for repaying a loan early. Personal loans issued by Upgrade’s bank partners. Information on Upgrade’s bank partners can be found at https://www.upgrade.com/bank-partners/ . Opploans DisclosuresDirect Deposit required for payroll. Opploans currently operates in these states: . *Approval may take longer if additional verification documents are requested. Not all loan requests are approved. Approval and loan terms vary based on credit determination and state law. Applications processed and approved before 7:30 p.m. ET Monday-Friday are typically funded the next business day.
Happy Money Disclosures
Lendingpoint DisclosuresApplications submitted on this website may be funded by one of several lenders, including: FinWise Bank, a Utah-chartered bank, Member FDIC; Coastal Community Bank, Member FDIC; Midland States Bank, Member FDIC; and LendingPoint, a licensed lender in certain states. Loan approval is not guaranteed. Actual loan offers and loan amounts, terms and annual percentage rates (“APR”) may vary based upon LendingPoint’s proprietary scoring and underwriting system’s review of your credit, financial condition, other factors, and supporting documents or information you provide. Origination or other fees from 0% to 7% may apply depending upon your state of residence. Upon final underwriting approval to fund a loan, said funds are often sent via ACH the next non-holiday business day. Loans are offered from $2,000 to $36,500, at rates ranging from 7.99% to 35.99% APR, with terms from 24 to 72 months. Minimum loan amounts apply in Georgia, $3,500; Colorado, $3,001; and Hawaii, $1,500. For a well-qualified customer, a $10,000 loan for a period of 48 months with an APR of 24.34% and origination fee of 7% will have a payment of $327.89 per month. (Actual terms and rate depend on credit history, income, and other factors.) The $15,575.04 total amount due under the loan terms provided as an example in this disclaimer includes the origination fee financed in addition to the loan amount. Customers may have the option to deduct the origination fee from the disbursed loan amount if desired. If the origination fee is added to the financed amount, interest is charged on the full principal amount. The total amount due is the total amount of the loan you will have paid after you have made all payments as scheduled. | |||
