What to consider when applying for a personal loan

Do you qualify for a personal loan? Learn more about what you need to get the best rates.

Personal loans can be a great solution in borrowing money when working toward debt consolidation or to cover a significant expense. They typically have a lower interest rate than credit cards and offer the convenience of fixed monthly payments.

If you’re interested in getting a personal loan, understanding how you qualify for a loan and the best way to get, the lowest rates could save you time and money. 

Research is critical when choosing a personal loan – and it's important to know the different types of personal loans. The five to choose from are unsecured loans, secured loans, cosigned loans, debt consolidation loans and a personal line of credit.

Make sure to visit Credible to compare rates and lenders, and consider the following factors during the personal loan application process in order to achieve loan approval.

Your credit score

One of the first things a lender will look at after you fill out a loan application is your credit score. Your credit score is a three-digit number that represents your risk to lenders. If you have a poor credit score, a lender will see you as more likely to default or miss payments. 

While credit scores can vary slightly depending on the scoring company, having a basic idea of a good credit score can help you set goals. 

The FICO credit score metric is as follows:

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

If your score falls in poor or the low end of a fair credit score, you may not qualify for a personal loan and should work toward improving your credit score. Aim for very good and exceptional to get the best rates possible, and work at building credit to avoid bad credit or even fair credit. 


You can visit Credible to check your credit score without negatively affecting it.

Your debt-to-income ratio

A lender wants to know that you can afford monthly payments on your personal loan. In addition to your credit score, they’ll look at your debt-to-income ratio (DTI). Your DTI is the percentage of the debt you have compared to your gross monthly income. 

For example, if you make $5,000 per month and have a mortgage, a car payment, and a credit card payment totaling $2,000, your DTI would be 40% (your debt divided by your gross income). Ideally, your DTI should be 43% or less, according to the Consumer Financial Protection Bureau

If your DTI is too high, a lender may offer a lower loan amount or deny your application. 

Estimated APR

The APR (annual percentage rate) is a number that shows you how much your lender charges for borrowing. Your APR will include your interest rate plus fees. Your lender divides your fees and interests, plus the loan principal over 12 months. 

The APR can help tell you how much of your monthly payment goes toward paying off the balance and how much goes toward paying off fees and interest. A lower APR means you’ll pay less over the life of the loan. 

Visit Credible to see your estimated personal loan rates with a soft credit pull.

Loan amount and loan term

When you apply for a personal loan, take a few minutes to decide how much money you need to borrow. Borrow only what you need to minimize your loan costs.


Your lender will often provide several repayment lengths. A longer repayment term will have lower monthly payments, but you’ll pay more in interest. A shorter repayment term will have a higher monthly payment, but you’ll save on the interest you pay. 

Typically, personal loans will offer anywhere between 12 and 60 months to repay your loan. 

Monthly payments

How much can you afford to repay each month? If you can determine how much you can afford to set aside each month for your personal loan payment, you’ll have a better idea of how much you can afford to borrow. 

Your monthly payment will include principal and interest (plus fees if you don’t pay them upfront). Prepare before you apply. You can utilize a personal loan calculator to estimate your monthly payments.

Collateral required

If your credit score is less than ideal, you may not qualify for a traditional personal loan.

While most personal loans are unsecured (no collateral required), you may need to opt for a secured loan. A secured personal loan extends cash, but you must borrow against your personal property. Other examples of secured loans are an auto loan and home loans, while student loans are unsecured loans. Business loans, on the other hand, can be either secured or unsecured.

Typically, lenders will use property or vehicles as collateral. If you don’t make your payments, they can take your property to cover their loss.

Make sure to do your research when choosing a personal loan. A little time can help ensure you get the money you need at the lowest rate possible. Understanding how to qualify before you submit your application can help you prepare so you can take advantage of low interest rates. Make sure to visit Credible to get in touch with experienced loan officers and get your personal loan questions answered.


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