Leon Garnet
Written by Leon Garnet
Last updated: Feb.23,2022

How to Take Out a Personal Loan

Personal loans are a type of financing you can get from online lenders, banks, or credit unions. The lender will allow you to borrow a lump sum of cash in exchange for monthly payments with interest. Generally, personal loans come with much better interest rates than credit card debt so it is good to know how taking out a personal loan works. Personal loans can be a great way to fund a big purchase without having to drain your bank account. Even though this sounds great, it is important to understand loan interest and how much money it will cost you to borrow as well. As long as you have a good credit history and proof of income you should be able to secure a great deal from a multitude of lenders.

Taking Out a Personal Loan With an Online Lender

There are many ways to get a personal loan nowadays. The most common option is going to an online lender as you do not even have to leave your house. They also come with great features like potentially receiving the funds in your account the same day you apply. They can also show you estimated loan offers if you get pre-approved. This will allow you to compare and pick an offer you like before starting the full application process. Many people prefer this to a traditional bank due to the ease of access with all the same benefits of a large financial institution.

Taking Out a Personal Loan From a Bank or Credit Union

Banks and credit unions can be a great option for a personal loan, especially if you get can get a good deal with the bank you already deal with. This will prevent you from having to open up a new account with an online lender. Usually, you will have to go into the bank to get a personal loan but some offer online loan applications as well.

Even though using your current bank or credit union to take out a personal loan may be the most convenient route, you will still want to compare your options. Make sure to check around with other banks and see how their rates compare to ensure you get the best deal possible. Depending on your loan size, getting a lower rate can save you thousands in the long run.

Getting Approved for a Personal Loan

Now that the basics are out of the way, let’s talk about how to get approved for a personal loan. Your credit history will be one of the most important factors when it comes to getting approved. If yours isn’t perfect, you can still get approved, but you might have to settle for a higher interest rate. Before you even apply for a personal loan, you should check your credit score to see what type of loan to expect. Some lenders have minimum credit score requirements so you might as well check any of these off the comparison list if you don’t meet them. If this is your situation, you can consider getting somebody to co-sign for you. This means they will apply on the loan and vouch for you to get you a lower rate or approval.

Another important factor that will affect your ability to get approved is your current amount of debt. If a lender sees that you already have mountains of debt they might be reluctant to let you borrow their money. They will check your credit utilization rate and if you are using a lot of it then they could view you as a bigger risk. 

In addition to a good credit score and a low amount of debt, you will need some additional documents. This can include proof of income, bank statements, and other personal information like your social security number and address. 

How Long Does it Take to Get Approved for a Personal Loan?

The approval time will depend on where you are getting the money from. Online vendors can approve you and get the funds into your account the same day. Depending on the lender and your personal situation, this process can take several days even with an online vendor.

Traditional financial institutions like banks and credit unions can take a bit longer. It can take several days to get approved and then longer for the funds to be put into your account. This is something that you should consider when choosing between the two.

At the end of the day, you will want to pick the lender that will give you the best deal. This means you should spend time shopping around and comparing offers from various lenders. If you need the money soon then consider using an online vendor as opposed to a traditional financial institution.

Bottom Line

Depending on your situation, taking out a personal loan can be the best way to borrow money. When compared to credit cards you will get a much better interest rate. You have a lot of choices when it comes to finding a good lender. The most common way to get a personal loan is through an online lender. You literally will not even have to leave your house to secure funding and you can receive money in your account as soon as the same day. 

Taking out a personal loan through a traditional bank is another option. This method is especially convenient for those who already work closely with their current bank and are not willing to open another account. Banks will generally require you to go into a branch to secure a personal loan. However, sometimes they will have online applications as well.

Before you start looking into taking out a personal loan, it is recommended that you check your credit history and score. For those with bad credit scores, the process of getting approved might be a bit harder. You should also consider how much debt you already have. Lenders will check your credit history and utilization to determine whether or not they will let you borrow money from them. If they see you already have lots of debt to pay back they will charge higher interest rates or not let you borrow at all.

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