How To Get a Personal Loan Online

Getting a personal loan online can be as easy as uploading a couple documents to a lender’s website and providing some basic personal information. If approved, you could see the new funds in your bank account within days—yours to spend on practically anything. To secure a favorable deal with minimal hiccups, there are some additional steps to follow.

Key Takeaways

• To get a personal loan online, all you need are a few documents that verify your identity and show you have a stable financial background.
• The better your income, debt-to-income (DTI) ratio, and credit score, the more likely you are to be approved and the better the loan terms you can get.
• Use personal loans to consolidate debt or fund unexpected expenses, major life events, or home improvements.

How to Get a Personal Loan Online

Your chance of getting a personal loan—on the best possible terms—largely depends on how well you follow these six steps and best practices:

1. Get your finances in order: Lenders won’t extend you a personal loan without reviewing your credit history, so check yours first and dispute any errors you find. You can pull a free report from each of the three major credit reporting agencies once per week by accessing AnnualCreditReport.com.
2. Shop around and compare lenders: Many lenders—potentially including your current bank or credit union—advertise their basic loan terms and eligibility requirements on their websites. Compare these along with any online reviews and ratings from past borrowers.
3. Get pre-qualified: Once you have a shortlist of potential lenders, find out which ones will let you pre-qualify. Pre-qualification requires you to provide some basic information and agree to a soft credit check in order to secure a preliminary loan estimate.
4. Choose a lender and apply: Based on the results of your research, select the lender that has the best offer for you and then submit an application. This typically requires a hard credit check and uploading documents to verify your identity, address, income, and financial situation.
5. Review the loan offer: Once approved, carefully review the loan offer to ensure you understand the terms and cost, including any fees. Also be sure to double-check for any changes from your pre-approval estimate.
6. Accept the loan: If everything looks good, sign the closing documents to collect your loan funds (typically as a lump sum) and start making monthly payments. Most lenders let you schedule automatic payments to help you avoid late fees.

Once you close on a personal loan, you could receive the loan funds anywhere from a week later to the same day, depending on the lender.

How to Choose a Personal Loan Online

Now that you know how to get a personal loan, let’s dive deeper into how to evaluate and compare loan offers. After all, subtle differences can have a significant impact on a loan’s final cost and your overall borrowing experience. Here are some factors to consider.

Loan Size

Before you spend too much time entertaining a loan offer, make sure it’s large enough to meet your needs. For example, if you require $25,000 to renovate your kitchen but the lender has a $20,000 loan maximum, then you may want to look elsewhere.

However, you also don’t want to borrow more than you need. If a lender sets a minimum loan amount of $2,500 and you only require $2,000, that could be more debt than you want to take on and/or have the ability to repay.

Loan Cost

Pay special attention to each loan’s interest rate—even a small difference can greatly affect the total cost. For instance, a seven-year loan for $30,000 with a 10% annual percentage rate (APR) will cost approximately $11,835 in interest over the life of the loan, while the same loan with an 11% APR costs about $13,149.

Also be sure to check for any origination fees, late fees, and other charges that could increase the loan’s cost. Avoid loans with prepayment penalties, which penalize you for paying the loan off early, offsetting any interest savings.

Use a loan calculator to determine total loan cost based on the amount, term, and interest rate. This way, you can rule out unfavorable loan offers more quickly.

Loan Term

The loan term is the time you have to repay the debt. Longer terms generally mean lower monthly payments but higher total interest costs, while loans with shorter terms have higher monthly payments but lower total interest costs. To save on interest, pick the shortest loan term for which you can afford the monthly payment.

Lender Reputation

On top of securing favorable loan terms, it’s just as important to work with a reputable lender. For example, check what past borrowers have to say about each lender you’re considering on third-party review sites like the Better Business Bureau.

User Experience

Online loans are all about speed and convenience. The application process prior to closing and the loan servicing afterward should require minimal effort on your part. To see how different lenders stack up in this regard, explore their websites and mobile apps.

You may also want to contact the lender’s customer service department to see how quick (and willing) it is to answer your questions. Be sure to ask how long loan disbursements typically take. Look out for red flags, such as long hold times, pushy sales tactics, or a lack of transparency.

Negotiation

It’s worth checking if there’s room for negotiation regarding interest rates, fees, etc. While some lenders won’t budge, others will, especially if you have a strong borrower profile and quotes from other lenders.

What’s Needed to Get a Personal Loan Online?

Of course, just as you’ll want to vet lenders before applying for a loan, they’ll want to confirm that you’re a trustworthy borrower who will repay your debt in full and on time. As a result, they typically require the following:

• A copy of your driver’s license, passport, birth certificate, or other form of identification
• Proof of address, such as a utility bill, lease agreement, or property tax bill
• Your contact information, such as your phone number or email address
• W-2 forms, tax returns, pay stubs, 1099s, or other proof of income
• Bank and/or debt statements
• Access to your credit report 

When reviewing your information, lenders look for proof of a stable income to ensure you can keep up with your monthly payments. They’ll also check that your total debt-to-income (DTI) ratio won’t exceed a certain threshold. This lessens the chance that you’ll be taking on more debt than you can handle. Finally, most lenders have a minimum credit score requirement of 580 or higher to minimize the risk of you defaulting on the loan.

That said, the better your credit score, DTI ratio, and income, the more likely you are to be approved for a personal loan and offered more favorable loan terms. 

If you have a poor credit history, you may still be able to get a personal loan. It’ll just come with a higher interest rate.

When to Get a Personal Loan Online

Depending on the situation, getting a personal loan can be either a smart move or a risky one. Here are some scenarios when taking out a loan might make sense:

• Debt consolidation: Consolidating higher-interest debts (such as credit card balances) into a personal loan can save money and simplify payments. 
• Emergency expenses: An unexpected medical bill or car repair could justify getting a personal loan—especially if it means avoiding higher-interest credit card debt.
• Major life events: Funding a wedding, funeral, move, or other significant event with a personal loan can make sense if you have a solid repayment plan.
• Home improvements: Renovating your house can raise its value, potentially beyond the cost of a personal loan.

In contrast, using a personal loan to fund discretionary spending on vacations, luxury items, or entertainment is often a bad idea. You’d be taking on unnecessary debt, which could damage your credit and lead to long-term financial strain.

A few alternatives to getting a personal loan include:

• Home equity loan: As the name suggests, a home equity loan lets you borrow against the equity in your home. It may offer a better rate than a personal loan, but you could lose your house if you default. 
• Home equity line of credit (HELOC): This option is similar to a home equity loan, except that it’s a revolving line of credit instead of a lump sum.
• Balance transfer credit card: This is a credit card with a low or 0% introductory APR that can help you consolidate and pay off other credit card balances faster.
• 401(k) loan: This essentially lets you take money out of your 401(k), which you pay back via automatic payroll deductions.

The Bottom Line

Getting a personal loan online can be a fast and convenient way to get cash for a worthwhile purpose. In order to borrow responsibly, you must carefully compare loan offers and read the fine print. Ultimately, you should only take out a loan if you have a good reason to do so, a solid repayment plan, and the confidence that the potential benefits outweigh the costs.