How to apply for a personal loan

Personal loans are a smart way to consolidate debt, fund home projects or cover other major expenses.

To avoid any delays or mistakes, it's important to understand the application process. Missing information or incorrect calculations can result in processing delays, higher rate quotes or even being denied a loan you actually qualify for.

Here's what you need to know about applying for a personal loan, including the documents you need to have ready, how long it can take to get an answer, lenders that tout fast approval times and more.

Your credit will have a big impact on whether you are approved and the rate you are offered, so it's worth looking at your credit score. You can check your Experian FICO Score for free with Experian Credit Monitoring and visit myFICO for your free Equifax and TransUnion FICO scores.

Most lenders want a FICO Score of 580 or better to approve a personal loan and 670 for the most desirable rates. If you're below that, you may want to look for lenders who accept co-signers or collateral. You could also take some time to improve your score by making on-time payments in full, lowering your credit usage and disputing any errors on your credit reports. 

Upstart considers factors beyond just your credit score, including education, employment and work experience.

Your income is also an important factor in loan approval, especially your debt-to-income (DTI) ratio. You can calculate your DTI by dividing your total monthly debt payments (including housing, car payments, student loans, and credit card bills) by your gross monthly income.

There isn't one universal DTI for personal loans, but here's a general rule of thumb:

• Below 36%: Considered good
• 36%–43%: Acceptable, depending on the lender and your credit
• 43%–50%: May qualify, but receive less favorable rates
• Above 50%: Can make approval more difficult without a co-signer or collateral

Loan amounts can vary widely: PenFed Credit Union approves financing for as little as $600 and as much as $50,000, for example. Another top lender, Happen Bank, sets its minimum at $1,000 and caps its loans at $75,000 — one of the widest ranges we've found.

Once you know how much you need, compare rates, terms, fees, funding speeds and other factors from at least three to five providers, including banks, credit unions and online lenders.

Prequalifying is an easy way to see what offer you're likely to get without a full application and have a hard credit inquiry, which can temporarily lower your credit score.

Online lender Happy Money offers prequalification with just your name, Social Security number, income and basic debt information.

Once you've had a chance to review your loan options and have selected the lender you want, it's time to submit a complete application. Ideally, you should do this only once, as it's a hard inquiry on your credit report and will temporarily lower your score.

The necessary information varies by lender, but typically, you need:

• Name, address and telephone number
• Social Security number
• Government ID, like a passport or driver's license
• Proof of employment
• Several months of bank statements — often the most recent 1–3 months
• Proof of address
• Credit cards, mortgage and other debt information, auto loans, and other monthly obligations
• The purpose of the loan
• Bank account information for direct deposit

If you have a co-signer, they'll need to provide most of the same documentation.

You may get approval notice in as little as an hour or it may take up to a week, depending on the lender, the loan size, whether you've submitted all the necessary information and other factors.

When reviewing a personal loan offer, make sure the APR, interest rate, monthly payment and loan term all match what you were initially told. Pay attention to origination fees, which will be deducted from the funding amount you're given, as well as late fees and any prepayment penalties.

You should double-check the total amount you'll need to repay, your monthly payment and when you're expected to start repaying the loan to make sure it all comfortably within your budget.

After you accept the loan agreement and complete any remaining requirements, the lender will disburse your funds, minus any origination fee.

Some lenders may take several days to fund your loan, but SoFi and Citi advertise that eligible borrowers can get their money within 24 hours.

In most cases, the money will be deposited directly into your bank account, but you can request a bank check. For a debt consolidation loan, you may be able to have the funds sent directly to your creditors.

Once you have the funds, you typically have 30 days to make your first loan payment. On-time payments will help you avoid late fees and improve your credit score. Many banks offer a rate discount if you set up autopay.

At CNBC Select, our mission is to deliver high-quality service journalism and comprehensive consumer advice to help readers make informed financial decisions. Every loan article is based on rigorous reporting by our team of expert writers and editors, who possess extensive knowledge of personal loan products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content independently of our commercial team and any outside third parties, and we pride ourselves on maintaining high journalistic standards and ethics.

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