How to apply for a loan: 6 steps

Getting a loan might differ a bit depending on the type of loan and the lender. But there are steps that might help you prepare, including determining how much you need to borrow, checking your credit scores, and comparing lenders and loan terms. 

What you’ll learn:

• Getting pre-qualified or pre-approved can help you determine which loan options you may be eligible for. 

• When you apply for a loan, you’ll likely be asked to provide your address, income and employer.

• Typically, the higher your credit scores, the better your chances to get approved and offered the best possible terms.

How much you borrow depends on the purpose of your loan and multiple other factors. 

For example, if you’re planning to buy a car, your loan would usually be for the cost of the vehicle and any fees, minus your down payment or trade-in. For a home improvement project or a debt consolidation loan, you might add up all the potential and outstanding debts you’d like to pay with your loan and borrow that total.

In general, the better your credit scores, the better the terms of your loan. Knowing where your credit stands can help you determine how much you might be able to borrow and what your interest rate might be. 

You can get copies of your credit reports from each of the three major credit bureaus through AnnualCreditReport.com. You can also use CreditWise from Capital One. It’s free to use, and it won’t hurt your credit scores.

Comparing lenders can make it easier to narrow down your options. You can consider factors such as:

Interest rates can vary depending on the loan type, lender and your financial profile. Factors like whether the loan is secured or unsecured, your creditworthiness, and your debt-to-income (DTI) ratio might all play a part. Keep in mind that even small differences in the interest rates offered can make a big difference over the life of a loan.

You can weigh things like origination fees, prepayment penalties, late fees, autopay discounts and flexible due dates.

A longer repayment term may mean lower monthly payments. It may also increase the interest rate and the total interest paid over the life of the loan.

Each lender sets their own qualifying criteria, but they could include minimum credit scores, DTI ratio, income and other restrictions.

If it’s an option, getting pre-qualified or pre-approved could be helpful. If you’re buying a home or car, it might signal to the seller that you’re serious about buying. 

Pre-qualification or pre-approval letters usually have expiration dates—up to 90 days from being issued, for example—so you can use the letter to shop around within that time frame.

If you have an idea about things like how much you want to borrow and what repayment terms you prefer, you might be ready to apply. Depending on the loan, it might help to gather documentation, such as:

• Income information from W-2s or pay stubs

• Tax returns

• Address verification, usually through something like a utility bill

• Bank statements, as well as savings account and investment information

• Employer information

If you’re approved for a loan, you can review the offer and accept or decline it. If you’re denied, lenders are required to let you know why. You can use that information to decide your next steps.

Have additional questions about applying for a loan? Check out answers to these frequently asked questions.

While the process of applying for a loan can look a bit different depending on the type of loan you need, there are a few general steps worth taking regardless of the type of loan.

If you’re comparing credit cards, you could start by checking whether you’re pre-approved. It’s simple, and checking won’t affect your credit scores.