Loans & Borrowing

Thinking About a Personal Loan? A 3-Question Check Before You Apply

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By , Editor · 4 min read

If you've decided a personal loan could make sense, the order in which you do things matters. Following these steps keeps your credit score protected and gives you a fair comparison.

How to apply, step by step

  1. Check your credit reports first

    In the US you can get free reports from Equifax, Experian and TransUnion at AnnualCreditReport.com, the official site. Look for mistakes, such as accounts you don't recognise, and dispute them before applying.

  2. Work out the payment you can afford

    Decide the maximum monthly payment that fits your budget, then choose the loan amount and term from that, not the other way round.

  3. Prequalify with several lenders

    Many lenders show estimated rates after a soft credit check, which doesn't affect your score. Compare at least three: a bank, a credit union and an online lender.

  4. Compare the APR and total cost

    Line up the APR, any origination fee, the term and the total amount you'll repay. A lower monthly payment over a longer term can cost more overall.

  5. Gather your documents

    Lenders usually ask for proof of identity, proof of income (such as pay stubs or tax returns), your address and your bank details.

  6. Submit one full application

    Apply formally with the lender you choose. This is when the hard inquiry happens, so avoid scattering full applications across many lenders.

  7. Read the agreement before signing

    Check the APR, fees, payment date, late fees and whether there's a prepayment penalty.

Red flags: signs of a loan scam

  • A promise that you will be approved no matter what your credit looks like.
  • Any request to pay a fee before you receive the loan, especially by gift card, wire transfer or crypto.
  • Pressure to decide immediately.
  • A lender that isn't registered to do business in your state.
  • Unsolicited offers by phone, text or social media.

Alternatives worth comparing

  • Credit union loans: often lower rates for members. Federal credit unions also offer small payday alternative loans (PALs) with capped costs.
  • 0% balance transfer cards: for card debt you can repay within the promotional period; see how balance transfers work.
  • A payment plan with the provider: hospitals, utilities and repair shops often agree to interest-free installments.
  • An emergency fund for next time: our starter emergency fund guide shows how to build one gradually.

First step: check your free credit reports

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