How to Obtain a Loan (Tips & Checklist)

There will probably come a day when you need to borrow money for a large purchase. After all, most people don’t have thousands upon thousands of dollars saved up but at some point will need to buy a car or house or cover the exorbitant cost of unexpected medical bills. While it’s usually preferable to carry as little debt as possible, there will inevitably be times in your life when you have to borrow money to afford what you need.  

So how exactly do you go about obtaining a loan? This post provides an easy-to-follow checklist that outlines all the steps you can take to accomplish this. Although there are lots of loan types that serve different purposes - like auto loans, mortgages, student loans, and so on - the focus of this article is on personal loans (which are frequently used to consolidate debt, fund home remodels, and cover emergency expenses). Keep reading to find out more.       

Step #1: Lay the Groundwork 

Like anything else, preparation is key. First, you need to determine if you’re financially ready to take on debt. You can do this by checking your credit score (if it’s below 670, pay down your balances, make all your payments on time, and don’t apply for any new credit to improve it so you receive better loan terms and interest rates or find a cosigner for your loan) and looking over your credit report to make sure it’s accurate. (If it isn’t, dispute any errors with the appropriate credit bureau.) Consider calculating your DTI (debt-to-income ratio) too by dividing your total monthly debt by your gross monthly income. If your DTI is above 36% pay down some debt before applying for any loans. 

Perhaps most importantly, think about how much money you need to borrow and then use an online personal loan calculator to estimate what your monthly payments will be (as well as the amount of interest you’ll pay) if you take out the loan. Make sure this fits into your budget because you’ll be required to make these payments.  

Tip: You can lower your monthly payments by choosing a longer-term loan but note that you’ll end up paying more in interest over time. If possible, get the shortest-length loan you can with payments that you can afford.  

Step #2: Decide Where to Apply 

Not all lenders are the same. Shop around and compare different loans to see which ones have the best terms, lowest APRs (annual percentage rates), and fewest/lowest fees given your credit score and history. In addition, consider what the monthly payment amounts will be if there are any restrictions on how you can use the money, and how soon you will receive the funds. 

It’s always a good idea to start by asking your current bank. They might be more apt to give you better loan terms because you already have a history with them. Online lenders can be a good option too; sometimes their online application processes are easier, you can get approved quicker, and their requirements are more flexible.  

Ultimately, you should submit applications to at least a couple of lenders. When you apply, they may check your credit report, but, fortunately, several inquiries in a short period usually won’t affect your credit score.      

Step #3: Apply for the Loan 

After all the research you’ve conducted, this might actually be the easy part! In most cases, you can apply online, which simplifies things. Be prepared to provide information that identifies you (like your name, address, birth date, phone number, email address, and social security number), as well as your driver’s license, employer information, gross monthly income (and sources of income), total monthly debt and mortgage/rent payments, and how much you want to borrow for how long and why.  

Some other documents that lenders might ask for include pay stubs, W-2s, bank statements, tax returns, proof of residency (like a utility bill), and an SSN/ID card. 

Step #4: Choose Which Offer to Accept 

If more than one of your loan applications gets approved, carefully compare them and decide which one is the best for you. Remember what we wrote in Step #2: “... see which ones have the best terms, lowest APRs (annual percentage rates), and fewest/lowest fees … consider what the monthly payment amounts will be if there are any restrictions on how you can use the money, and how soon you will receive the funds.”  

At this point, accept the offer you think is right for you and get ready to receive the funds. They might be direct deposited into your account or sent to you as a check in the mail. Be sure to use the money for its intended purpose and make it a priority to pay your monthly payments on time (missing payments or paying them late will negatively impact your credit score). 

So there you have it: four easy-to-follow steps that will help you secure a personal loan when the need arises. While it’s crucial not to rack up unnecessary debt, there may be instances when you need a loan - now you’ll know just what to do!