How To Apply For a Loan

Young man using tablet.

When you find yourself in need of money for a large purchase, such as a car, house, or education, chances are you’ll be looking to apply for a loan. While the actual application process for a loan isn’t usually too difficult, there are some things to review, evaluate, and prepare before deciding on a loan and mortgage lender.

Review your credit and score

When you are getting ready to apply for a loan, the first step you should take is to request a copy of your credit report and make sure that all of the information contained on the credit report is accurate. You can download a free copy of your report from

It's also a good idea to check your current credit score. Borrowers with a higher credit score are more likely to obtain a favorable interest rate and borrowing terms.

Your credit score won't be included with your credit report, so you'll need to obtain that separately. Many credit cards offer free access to your credit score (well, technically one of your credit scores). There are also separate services like Credit Karma and Credit Sesame that can provide you with a credit score for free. So while there may be some instances where you'll want to pay for your credit score, the free version is usually good enough.

If your score and credit report aren’t ideal, you may consider waiting to improve your credit before proceeding with your loan applications. There are some things you can do to improve your credit and following those steps may help you get a better interest rate.

Determine how much you need to borrow

It may seem self-evident, but be sure that you understand what the loan is for and how much money you'll need to borrow. There are costs associated with both taking out a loan and paying back what you've borrowed, so it's important that you avoid borrowing more than you actually need. 

Evaluate lenders and loan offers

Once you are happy with your credit report and score, it’s time to evaluate loans and lenders. Remember that the higher your credit score, the more options you'll likely have.

Where to obtain a personal loan

Most loans are provided through banks, credit unions, and online lenders. Each have their own distinct pros and cons. 


Traditional brick and mortal banks will typically mix the convenience of digital banking with readily available physical locations. National banks may charge higher fees and offer slightly less appealing interest rates on loans, but will often balance that with technology that makes handling banking transactions simple and efficient.  

Credit unions

Regional credit unions often offer slightly better rates with lower fees, as compared to national banks. Their digital offerings, on the other hand, tend to lag a little behind their other competitors. 

Online lenders

Lenders that existing strictly in digital spaces can often offer the best rates, thanks to the fact that they don't pay for locations and other expenses associated with operating a physical bank or credit union. Customer service will still be available, it's just unlikely that you'll be able to meet with anyone face-to-face.

Review loan details

Every loan offer will come with different terms. Be sure to review any loan proposal carefully to make sure that you understand these terms. Failing to understand your loan terms could lead to costly mistakes.

  • Principle balance. The loan principle is the amount you're borrowing, separate from any fees or interest charges. While the principle is the amount you're borrowing, you'll likely repaying much more than that amount.
  • Loan term. When will the loan be paid off? Most loans have a timetable with a date when the loan will be repaid (assuming payments aren't missed or deferred). Some loans may even penalize you for paying off your balance too early.
  • Interest rate. The annual percentage rate (APR) goes a long way toward determining how much your loan is going to cost you (above and beyond the principle).
  • Fees. There may be fees to close the loan, as well as penalty fees for missed payments and other infractions. Make sure you know what fees you'll be responsible for and how they may be triggered.

Prepare necessary financial documents

When going through the process of applying for a loan, there are some documents and information that you’ll need to have available to provide to the lender. If you can have these documents available in advance, it will make the entire process run more smoothly.

While the documents may differ by lender and loan amount, in most cases you’ll need proof of income, such as pay stubs and/or prior year W-2 forms, as well as savings and investment account statements. 

Make payments on time

Once you have been approved for your loan, keep your end of the bargain by making your payments on time. Making timely payments will keep your account in good standing and help improve your credit over time. Missing payments, on the hand, could result in fees and may result in your credit score dropping.

Considering a debt consolidation loan? A debt management plan (DMP) offers many of the same benefits, with bigger potential savings, and no credit score requirement. See if a DMP is right for you.

Tagged in Loans, Mortgages and foreclosure

Jesse Campbell photo.

Jesse Campbell is the Content Manager at MMI, with over ten years of experience creating valuable educational materials that help families through everyday and extraordinary financial challenges.

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