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Personal Loan Tips That Can Help You Get Approved

Personal Loan Tips That Can Help You Get Approved
Sulaiman Abdur-Rahman

Sulaiman Abdur-Rahman

Updated March 28, 2022
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
Consumers must satisfy minimum requirements to get approved for a personal loan. Lenders may require borrowers to provide proof of identity and proof of income, among other requirements. With so many lenders to choose from, you can shop around for the best deal before submitting any personal loan applications. Credit scores are important, but borrowers with bad credit may still qualify for a personal loan by pledging collateral or accepting higher interest rates.Below we provide 10 tips that can help you get approved for a personal loan.

Personal Loan Tips: Finding the Right Lender

Banks, credit unions, and other financial service providers are among the large pool of lenders who offer personal loans. Some lenders charge origination fees and others offer better rates, so shopping around to find the right lender is in your best interests.

Personal Loan Tip 1: Compare the APRs

The annual percentage rate, also known as APR, is the interest rate and fees a lender charges when offering loans or revolving credit. Lenders must disclose the APR in nearly all consumer credit transactions under the Truth in Lending Act, so consumers generally have the ability to compare APRs on personal loans.Consumers can compare APRs to see which lenders offer the best loan rates. Lenders may allow you to check your rate as a prequalified borrower going through a soft credit pull, and this can help you find the right lender.

Personal Loan Tip 2: Compare Loan Fees 

Some lenders charge origination fees between 1% and 8% of the total loan amount, and some don’t. Some lenders charge prepayment penalty fees if you pay your loan off early, and some don’t. Consumers can compare loan fees to see which lenders offer the best financing deal.

Personal Loan Tip 3: Compare Savings

Some of the personal loan benefits include the fact that it can help you build your credit history. The average interest rate on a 24-month personal loan stood at 9.09% in the fourth quarter of 2021 compared with 16.44% for credit cards, according to Federal Reserve data.Consumers can consolidate credit card debt with a personal loan and compare savings to see how much relief the personal loan provides.

Personal Loan Tip 4: Compare Terms & Conditions

Different lenders may offer different terms and conditions on a loan. Consumers can compare terms and conditions across lenders to help find the best loan offer. The cons and pros of personal loans include several advantages and disadvantages. Personal loans can promote debt consolidation, but monthly payments on a personal loan could be higher than credit card minimum payments.

Personal Loan Tip 5: Compare Payment Plans

Lenders may offer personal loans with repayment terms ranging from 12 months to seven years. Compared with shorter terms, longer terms may carry higher interest rates and lower monthly payments. Consumers can compare payment plans to help determine the best plan they can afford.

Personal Loan Tips: Applying for a Loan

As mentioned earlier, all consumers must satisfy minimum requirements to get approved for a personal loan. To avoid surprises in the application process, consumers may consider the following tips below:

Personal Loan Tip 6: Know Your Credit Score

Lenders may inspect your credit report with a hard pull inquiry before deciding whether to approve or deny your personal loan application. Applicants with good credit are more likely to be approved at better rates of interest than applicants with bad credit. As such, it can be helpful to to know your credit score before submitting any loan applications.Some of the major credit scoring models, including VantageScore® 4.0 and base FICO® Scores, range from 300 to 850. A credit score above 660 is generally considered good or prime. Applying for a personal loan can cause your credit score to drop a few points if the lender conducts a hard pull inquiry into your credit report.

Personal Loan Tip 7: Provide Proof of Income

Lenders may assess your debt-to-income ratio before deciding whether to approve your personal loan application. You may need to provide proof of income to satisfy a lender’s minimum requirements.A personal loan for unemployed consumers is possible, particularly if you have a steady source of unearned income. Lenders may consider multiple forms of income beyond salaries and wages, including Social Security, child support, and alimony.Lenders may approve your personal loan application if your credit history and debt-to-income ratio suggests you can afford monthly payments on the loan.

Personal Loan Tip 8: Be Prepared to Pay the Origination Fee

Some lenders charge origination fees for processing your loan application. Origination fees can effectively reduce your loan amount. For example, a $5,000 personal loan with an 8% origination fee can leave you with a lump sum disbursement of $4,600 due to the $400 upfront fee.Origination fees reduce risk to the lender, so it might be easier for you to qualify for personal loans if you’re prepared to pay origination fees.

Personal Loan Tip 9: Be Prepared to Risk Collateral

Some lenders may offer secured and unsecured personal loans. A secured personal loan requires the borrower to pledge an asset as collateral, such as a car or deposits in a savings account. An unsecured personal loan does not require collateral.Collateral reduces risk to the lender, so it might be easier for you to qualify for personal loans if you’re prepared to risk collateral. Lenders may seize your collateral if you default on a secured loan, and that’s the risk you take when pledging collateral.

Personal Loan Tip 10: Insure Your Loan

Lenders expect you to repay the loan at all costs, even if you fall sick and die. You can insure your loan with credit insurance to help cover you in the event you become unable to repay the loan.Personal loans defined in the finance world are a consumer lending product that you can take out for a wide variety of purposes. Signing a personal loan agreement gives you the financial responsibility and liability for repaying the loan under the terms and conditions of the loan agreement.

The Takeaway

Personal loans can provide borrowers with quick financing and flexible terms of repayment. You can spend the lump sum of money on almost any purpose, including debt consolidation and emergency expenses.Lantern by SoFi can help you find competitive interest rates for a personal loan. Just provide basic information about yourself and the loan you need, and Lantern can guide you in the process to apply for a personal loan with the lender of your choice.
Photo credit: iStock/fizkesThe tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.Third-Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.LCPL0322019

Frequently Asked Questions

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About the Author

Sulaiman Abdur-Rahman

Sulaiman Abdur-Rahman

Sulaiman Abdur-Rahman writes about personal loans, auto loans, student loans, and other personal finance topics for Lantern. He’s the recipient of more than 10 journalism awards and currently serves as a New Jersey Society of Professional Journalists board member. An alumnus of the Philadelphia-based Temple University, Abdur-Rahman is a strong advocate of the First Amendment and freedom of speech.
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