Your guide to all the personal loan process steps

Key takeaways:

• Understand your financial needs before applying for a loan.
• Your credit report plays a major role in your loan approval and interest rate.
• Comparing lenders can save you money over the life of the loan.
• Prepare all necessary documents in advance for a smoother application process.

Personal loans are a flexible and accessible form of financing that many people use for a variety of reasons. You might be consolidating debt, covering emergency expenses, funding a home improvement project, or paying for a major life event like a wedding. No matter the purpose, a personal loan can help relieve pressure on your monthly budget and protect your savings.

But navigating the loan process can feel confusing if you’re not sure where to start. That’s why we’ve created this guide — to give you the tools and knowledge to make informed decisions with confidence.

This guide is designed to walk you through every step of the personal loan process. From assessing your financial needs to comparing lenders and submitting your application, you’ll learn how to approach each stage with clarity and purpose.

Our goal is to help you feel empowered, not intimidated. With the right preparation, you’ll be in a strong position to find the best loan option for your financial goals.

Let’s get started.

Step 1: Calculate the loan amount you need

The first step in the personal loan application process is identifying exactly what you plan to do with the funds. Once you have a clear purpose in mind, you can begin to calculate how much you’ll need to borrow. This step is all about preparation — making sure you don’t borrow too little and fall short or borrow too much and pay unnecessary interest.

Start by listing the specific expenses the loan will cover. For example, if you’re consolidating high-interest credit card debt, review your most recent statements and identify the full payoff amounts for each account—not just the current balances. Many lenders send real-time updates, so make sure you’re using the most accurate numbers to avoid coming up short.

If your loan is for a one-time cost like car repairs, a medical bill, or home improvements, request an estimate from the appropriate service provider. This might mean asking a mechanic for a detailed quote or having a contractor assess the scope of a project and give you a full breakdown of labor and materials. Don’t forget to account for taxes, fees, or incidental costs.

For larger purchases — like buying a motorcycle or booking a wedding venue — get written quotes whenever possible. It’s better to base your loan amount on exact figures rather than rough estimates.

Once you’ve totaled your expected costs, you can use a personal loan calculator to experiment with different loan terms, interest rates, and repayment lengths. This tool helps you understand how the amount you borrow will translate into monthly payments — and how your chosen repayment term affects the total interest you’ll pay overtime.

Taking time to crunch these numbers up front will not only help you borrow the right amount, but also ensure you’re choosing a loan that aligns with your budget and long-term financial goals.

Step 2: Review your credit report

Once you’ve figured out how much you need to borrow and the loan term that fits your budget, the next step is reviewing your credit. Your credit score is a three-digit number that plays a key role in whether you’re approved for a personal loan and what interest rate you’ll receive. A higher score often means better terms and lower borrowing costs.

What is a good credit score?

Credit scores typically range from 300 to 850. Lenders use these scores to assess your creditworthiness, and most rely on models developed by FICO^®. Here’s a general breakdown of FICO^® Score ranges:

• 800 – 850: Exceptional
• 740 – 799: Very Good
• 670 – 739: Good
• 580 – 669: Fair
• 300 – 579: Poor

(Source: myFICO)

While a score above 670 is considered good, some lenders will work with lower scores. Just be prepared for higher interest rates or more limited loan options.

How to access your free credit report

You can access your credit reports for free through AnnualCreditReport.com. Consumers are entitled to one free report each week from each of the three major credit bureaus: Equifax^®, Experian^®, and TransUnion^®.

These reports give you a detailed look at your credit history, including account balances, payment activity, and credit inquiries. They do not include your credit score, but they are incredibly useful for spotting errors, outdated information, or signs of identity theft.

If you find any incorrect information, you have the right to dispute it directly with the credit bureau. Correcting even small errors can help improve your credit standing.

Where to find your credit score for free

While your official reports don’t include a score, there are several ways to check your credit score at no cost:

• Experian^® provides access to your FICO^® Score 8 based on Experian^® data
• Credit Karma offers your VantageScore^® from TransUnion^® and Equifax^®
• Many banks and credit card companies show your FICO^® Score on your monthly statements or account dashboards

It’s important to know that the score you see for free may not be the exact one a lender uses. Lenders choose from different versions of FICO^® scoring models, and your score can vary depending on which bureau’s data is being used.

Still, checking your score gives you a strong understanding of where you stand and what to expect when applying for a loan.

Step 3: Evaluate your loan options

After you assess your credit score and its impact on your interest rate, your next step is to determine what type of personal loan you want to use. Your options include:

• Secured loans: These loans are backed by collateral (such as a car or home). If you default, the lender can seize the collateral. They typically offer lower interest rates.
• Unsecured loans: These loans don’t require collateral, but they usually come with higher interest rates, as the lender is taking on more risk.
• Fixed-rate loans: With these loans, the interest rate stays the same for the entire term. This means your monthly payments are predictable and will not change.
• Adjustable-rate loans: These loans have an interest rate that can fluctuate over time, usually starting lower than a fixed-rate loan but potentially increasing over the life of the loan.

Your best loan option depends on your financial situation. If you have poor credit or want a low interest rate, you might want to opt for a secured personal loan and use collateral. If you don’t have an item of value to use for collateral, an unsecured loan might be the better option. Choose a fixed-rate loan if you prefer a payment amount that remains static.

Step 4: Compare interest rates and lenders

Interest rates for personal loans vary by lender and loan type. When assessing your loan options, compare loan terms and interest rates to determine the most affordable loan for you. Evaluate the interest rate and annual percentage rate (APR) offered by multiple lenders. Some types of personal loans and types of lenders offer lower interest rates and origination fees than others. For example, online lending platforms and credit unions are often more affordable because they don’t have the same operational costs or financial goals as a traditional bank.

You should also compare repayment terms and disclosures from financial institutions. Some lenders might only offer terms of 60 months while others allow for up to 84 months. Consider all your options and remember to use the personal loan calculator to accurately understand costs (and cost comparisons).

Step 5: Fill out a personal loan application

With your analysis of current interest rates complete, you may be tempted to fill out an application with the lender advertising the lowest APR. However, before applying directly, it's a good idea to take the time to get prequalified first. This step helps you confirm that you're eligible for a personal loan and ensures you’re making the best decision for your financial situation. Keep in mind that not all personal loan companies offer prequalification, but it’s an important step to take when available.

Prequalification vs. preapproval

To understand the loan process more clearly, it’s important to differentiate between prequalification and preapproval:

• Prequalification: This is the first step where you submit basic information to a lender, such as your annual income, Social Security number, the loan amount you’re seeking, and the purpose of the loan. Based on this data, the lender will provide an estimate of your potential interest rate and monthly payments. However, prequalification is not a guarantee of approval. It simply gives you an idea of the loan terms you may qualify for based on the information you’ve provided.
• Preapproval: Preapproval is a more in-depth process, often requiring a hard pull of your credit report. The lender will review your full financial profile and credit history to provide a specific loan offer, including the exact terms of the loan. Preapproval is a stronger indication that you’re likely to be approved for the loan and typically involves a detailed review of your financial situation.

Soft pulls vs. hard pulls

The terms soft pull and hard pull refer to how lenders check your credit during the prequalification and preapproval processes:

• Soft pull: During prequalification, a lender will typically conduct a soft pull of your credit report. This type of inquiry does not affect your credit score and is used to give an estimate of the loan terms based on the information you've provided. Soft pulls are useful when you’re just exploring options and don’t want to impact your credit score.
• Hard pull: In contrast, a hard pull occurs when you submit a formal loan application or seek preapproval. This is a more thorough inquiry where the lender checks your full credit report. Unlike a soft pull, a hard pull can have a temporary, slight impact on your credit score. However, it is necessary to determine your eligibility and exact loan terms.

What to expect on the loan application

Once you’ve decided to move forward, it’s time to fill out the loan application. Most loan applications are straightforward but require detailed personal and financial information, such as:

• Your name, address, Social Security number, and date of birth
• Your work history and employment details
• The most recent tax return and pay stubs

This information helps lenders assess your financial stability and determine whether you qualify for the loan.

If you’re applying with Rocket Loans^SM, we’re here to assist you at any stage in the process. Don’t hesitate to reach out if you have any questions or if there’s a part of the application that seems unclear. Our team is ready to help guide you through each step.

Step 6: Collect the necessary documentation

After completing the loan application, you must submit the required documents to process the loan request. Your lender will require you to provide your contact information along with documents such as:

• A form of identification. You can use a driver’s license, state-issued ID, or passport to confirm your identity.
• Proof of income. You can provide pay stubs, bank account statements, and tax returns. If you own a business, you might have to include profit and loss statements, income tax returns, and court-ordered agreements.
• Proof of address. Your lender will want a copy of your voter registration card, a recent utility bill, a lease agreement, or an insurance policy to verify where you live.

Step 7: Submit the loan application

The final step is to submit your loan application. Before submitting, always double-check the application to ensure that all required details are filled in correctly. Any missing or inaccurate information can result in delays in the approval process.

Once submitted, your lender will review your application and the supporting documentation. This includes assessing your personal finances, credit history, and potentially your debt-to-income ratio. While underwriters are reviewing your information, they may have questions or need additional documents from you. It's important to stay proactive and be available to provide any requested materials or clarification.

Responding promptly to your lender

Timely communication is crucial at this stage. If your lender reaches out for additional information, make sure to respond as quickly as possible. Delays in providing requested documents or answering questions can halt the loan approval process, potentially causing you to miss out on your preferred loan terms. In some cases, a delayed response might result in your application being put on hold, further extending the time it takes to secure the loan.

To avoid any setbacks, set aside time to regularly check your email and phone for any communication from your lender. Ensure you provide the requested information promptly, and if you have any doubts or concerns, don’t hesitate to ask for clarification. Being responsive and thorough throughout the process will help you stay on track and avoid unnecessary delays.

FAQ

Use the answers to these frequently asked questions to learn more about applying for a personal loan.

How do I apply for a personal loan online?

These days, most lenders offer services online, allowing borrowers to get a personal loan without visiting a brick-and-mortar location. If you prefer the online method, you can start by creating an account on the lender’s website. Then, you can fill out the online application and attach scans of your documents.

You can typically use the online portal to track your application’s progress as you wait for approval. Your lender might even offer an instant messaging feature you can use to chat with them without sending an email. After you’re approved, your lender will likely notify you via phone, email, or text message.

How long does the approval process take?

Compared to other types of financing, the approval process for a personal loan is short—usually 1 to 3 business days. Receiving your payment will likely take between 1 and 5 additional business days.

With Rocket Loans, you could qualify for same-day financing, meaning you get the funds the same day you’re approved.

While the process is typically quick, delays can occur due to missing or incorrect information on the application, additional documentation requests, or high volumes of applications. Banking delays or issues with your credit report could also slow down the approval or disbursement process.

What can I use as collateral on a secured personal loan?

A secured personal loan has several advantages, such as a lower interest rate and a longer term. If you decide to use this type of personal loan, you could use any of the following as collateral:

• Motor vehicles
• Pieces of real estate
• Certificates of deposit (CDs)
• Savings accounts
• Stocks
• Mutual funds

In most cases, the item must have a high enough monetary value to ensure your lender feels protected.

Will applying for a personal loan affect my credit score?

Applying for any type of loan can negatively impact your credit score. That’s because most lenders will do a hard inquiry on your credit to determine your creditworthiness. In other words, they’ll check your financial information to make sure you can pay back the loan.

Thankfully, you’ll likely only see your credit score drop by a few points during the application process, and it should recover within a short period of time.

The bottom line: Applying for personal loans is easier than you think

Researching and assessing multiple options before applying for a personal loan can feel overwhelming. By using the steps outlined above, you can simplify your efforts while securing the most affordable option. When you’re ready to apply, you can get started online with Rocket Loans.