How to Get a Loan from a Bank

Understand Your Credit

You generally need credit history to get a bank loan. In addition, your credit will often dictate the type of loan and loan terms a lender grants you. This means that you should have a history of borrowing and repaying loans to get a loan. How do you get a loan when you need money if you don’t have credit?

You have to start somewhere, and that generally means borrowing less money at higher interest rates. You can also consider alternative lenders such as online lenders, who are often willing to look at aspects of your financial record beyond your credit when deciding whether to grant you a loan. Once you develop a strong credit history, lenders will lend you more—and at lower interest rates.

You can view your credit for free—you get one free report per year from all three major credit reporting agencies: Experian, TransUnion, and Equifax. Review your credit history to see what lenders will see when you ask for a loan. If there’s not much in there, it will generally be harder to get a loan because lenders can’t assess your risk as a borrower. This means you may need to build credit before you obtain a loan by gradually adding loans to your history.

Be sure to fix any mistakes in your credit files, as they make you a risky borrower in the eyes of lenders and hurt your chances of getting a good loan.

4. Collateral

If you’re applying for a secured personal loan, your lender will require you to pledge valuable assets—or collateral. In the case of loans for homes or vehicles, the collateral is typically related to the underlying purpose of the loan. However, secured personal loans can also be collateralized by other valuable assets, including cash accounts, investment accounts, real estate and collectibles like coins or precious metals.

If you fall behind on your payments or default on your loan, the lender can repossess the collateral to recoup the remaining loan balance.

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5. Make sure your bank offers personal loans

To get a personal loan from a bank, you’ll generally need to be an existing customer with good credit. Some banks don’t offer personal loans, so you’ll want to find out what your bank does offer.

If your bank doesn’t offer loans — or even if it does — you may want to get quotes from online lenders and credit unions. These options can be an alternative to bank loans, or a basis for comparison.

After you’ve checked rates offered by online lenders and credit unions, see if your bank will offer you a better deal.

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Check Out the Details

Now that you know you are pre-qualified, it’s time to pre-qualify the lender. Go through information and disclosures in your pre-approval letter and revisit the website to look for the following:

  • Expected Loan Amount, APR, Monthly Payment, and Loan Term. It may or may not be exact, but it will give you something with which to compare other pre-approved loans.
  • Fees and Penalties. Will this loan have an origination fee? If so, how much? What are the penalties or fees for late or missed payments? Are there any other charges?
  • Type of Interest. Is the interest rate fixed or variable? Do I have a choice, and if so, what’s the difference in rates?
  • Unsecured or Secured. Will this be an unsecured or secured loan? For a secured loan, what is required collateral?
  • Automatic Withdrawal. Are automatic withdrawals of monthly payments mandatory or optional? If optional, will I get a lower interest rate if I agree to automatic withdrawals?
  • Arbitration. In the event of a conflict, is arbitration mandatory, or can I take the lender to court?
  • Prepayment Penalty. If I pay my loan off early, will I pay a penalty?
  • Fine Print. There’s always fine print, even in pre-approval letters. Look for anything not answered above or anything you hadn’t thought of.

2. Consider your budget

Setting up a budget gives you an idea of how much money you earn every month, where it’s going and whether you can afford to take on an additional expense. Here’s how to figure out whether the loan payment fits into your budget.

  • Write out your regular expenses, including groceries, gas and all of your monthly bills. Add these expenses together.
  • Calculate the income you earn each month after taxes.
  • Subtract your monthly expenses from your monthly earnings.
  • See how much is left. Is it enough to cover the loan payment on a monthly basis?

The key to successful budgeting is being realistic. If the loan payment barely fits within your budget, then you might not be able to afford it. You could wind up missing payments down the road, which could lead to penalty fees and damaged credit history. Consider borrowing less money, requesting a longer loan term or finding a different way to pay for your expense.

Looking for a loan? Shop for Personal Loans Now

How to get your credit report and credit score

You can request your credit report at no cost once a year from the top 3 credit reporting agencies ― Equifax®, Experian®, and TransUnion® through annualcreditreport.com. When you get your report, review it carefully to make sure your credit history is accurate and free from errors.

It is important to understand that your free annual credit report may not include your credit score, and a reporting agency may charge a fee for your credit score.

Did you know? Eligible Wells Fargo customers can easily access their FICO® Credit Score through Wells Fargo Online® – plus tools tips, and much more. Learn how to access your FICO Score. Don’t worry, requesting your score or reports in these ways won’t affect your score.

Qualifying Through Your Bank Or Credit Union

It’s becoming increasingly difficult to qualify for a personal loan through your bank or credit union, especially if you want a larger amount, but it is possible to get a reasonable loan if you meet the requirements.

Unsecured Personal Loans

Unsecured personal loans are great if you lack the collateral needed for a secured loan.  Due to the enhanced risk the lender takes on, unsecured loans come with higher interest rates and steeper credit score requirements. You can also expect to find short loan terms and smaller amounts of funding available.

Once again, LendingTree can unlock all of your options, presenting you with a comparison of your top options for unsecured personal loans. It will give you access to banks, but also online lending sources.

If you are a good customer and have good credit, you could get a “signature” loan for $3,000 to $5,000. These loans, also called “character loans,” are offered through banks. To give you an idea, you’ll probably need above 700 if you want to even be considered for an unsecured personal loan).

Not sure how your credit looks? Use services from Credit Sesame, Credit Karma and Transunion to figure that out first.

Secured Bank Loans

Most personal loans are going to be unsecured; however, there are a number of unsecured loans available for personal financing needs. If you want a bigger loan, you’ll need a personal one, and you will need to jump through some hoops.

You will need to fill out a loan application and designate collateral. The collateral you offer for a personal loan might be your car or a savings account.

While secured loans typically come in the form of auto loans or mortgages, you can find a number of secured loans from banks, credit unions, and lending companies.

A secured loan will likely give you access to bigger loans and far better interest rates, and the credit score requirements might be less stringent.

What are the different types of personal loans?

The different types of personal loans are:

  • Debt consolidation loan: rolls multiple debts into one new loan
  • Co-signer loan: a loan that you need a co-signer to qualify for 
  • Secured and unsecured loans (unsecured are more common)
  • Fixed- and variable-rate loans (fixed are more common)

2. Income

Lenders impose income requirements on borrowers to ensure they have the means to repay a new loan. Minimum income requirements vary by lender. For example, SoFi imposes a minimum salary requirement of $45,000 per year; Avant’s annual income minimum requirement is just $20,000. Don’t be surprised, however, if your lender doesn’t disclose minimum income requirements. Many don’t.

Evidence of income may include recent tax returns, monthly bank statements, pay stubs and signed letters from employers; self-employed applicants can provide tax returns or bank deposits.

3. Know that loans can actually boost credit scores

If you are looking to take out a loan to consolidate credit card debt, or pay debt down faster, it can help in more ways than you may realize. Making payments in a reliable, timely manner will have a positive impact on your credit score as the lender reports these payments to the three major credit bureaus. 

Paying down debt can also help improve your credit utilization ratio, which is the percentage of available credit you are using. Experts advise keeping this ratio at 30% or below. 

Taking out a personal loan can actually help boost your credit score because your credit mix — which refers to the types of different credit accounts you have — determines 10% of your overall credit score.

A personal loan to pay off debt

Taking out a personal loan can also be a way to consolidate debt. This is the idea of putting all your debts together. If you have several different debts and find it hard to keep track of them, combining them into a personal loan can make it easier to focus on sending out just one payment.

You might also be able to get a lower interest rate if you consolidate debt with a personal loan. If you have credit card debt on a few different cards that have a high interest rate, you could get an installment loan to pay off the credit card debt. Instead of paying off several debts with high interest rates, you can work toward paying off one personal loan to pay less overall.

To get a deeper dive into how installment loans work, consider these two scenarios.

1. Using a personal loan to get back on track

Sue’s daughter recently broke her leg. While her daughter’s feeling much better, the incident left Sue with a few extra medical bills she wasn’t expecting.

For this reason, Sue is looking for help to get the medical bills paid. She decides to see if a personal loan might be the solution. After researching how to apply for a personal loan, Sue learns she can take one out through a bank or online lender.

Since she doesn’t need collateral for this type of loan, Sue feels comfortable taking out a loan for $5,000 with an 8% interest rate. By taking out a personal loan, Sue can be better able to handle this unexpected expense without it being a huge financial blow.

2. Using a personal loan to consolidate debt

Jack had very little savings when he started his food truck business. To pay for supplies, he used his credit cards. He now has balances of $5,000 on two cards, and one card with a balance of $10,000. That’s $20,000 of debt that needs to be paid off.

Jack researches his options and finds out he can get a $20,000 personal loan to pay off his debt. Jack’s credit cards have high interest rates, ranging from 10% to 20% on the balances. Instead of paying hundreds of dollars on interest, he can save by putting the amounts together in a personal loan to focus on paying off the lump sum of $20,000. And since his loan has an interest rate of just 8%, this lowers the amount he’ll pay overall on the debt.

4. Compare loan options

Getting prequalified with multiple lenders can help you compare your loan options and find the best deal for your situation. Compare loan amounts, terms, interest rates and any fees, such as origination fees and prepayment penalties.

If you don’t meet one lender’s requirements, then you can shop around to see if you can find another lender who will consider you for a loan.

More on the prequalification process

A prequalification helps you see the likelihood of your being approved for a loan, but it also helps the financial institution gauge whether you’ll repay the loan as agreed. Loan prequalification applications will vary based on the type of loan and the lender. Here are some examples of what you may need to provide.

  • Identification details, such as your name, date of birth, address and Social Security number
  • Information about your employer, gross monthly income and bank account balances
  • Information about your monthly debt obligations, such as rent, student loan payments and credit card balances
  • Permission to perform a soft credit inquiry

If you prequalify and move forward with a full application, the lender will likely perform a hard credit inquiry.

Tips for speeding up the process

If you’re looking for a personal loan, you likely want to get your hands on the money as soon as you can. These tips can help you avoid delays when applying for a personal loan”

  • Check your credit report before applying. Know where your credit stands before shopping around for personal loans. Good credit can make it easier to qualify for a personal loan at a lower interest rate. Furthermore, spotting and correcting errors immediately is a simple way to avoid issues later on when you’re applying for a loan. Pay off debt. If you have debt and you don’t need the loan funds urgently, paying some debt off can raise your credit score and lower your DTI ratio, which can increase your chances of approval.
  • Talk to your existing financial institution. Banks and credit unions might be more willing to consider a personal loan application from a customer with whom it’s had a positive, long-standing relationship.
  • Get prequalified. Some lenders have a prequalification process that you can undergo without a hard credit check. You can also get an idea of what your loan rates and terms may be before you apply to determine if moving forward with the lender is worthwhile.
  • Consider online lenders. Many online lenders offer next-day loan decisions, and funds may be deposited into your bank account within a few days after applying if you are approved.
  • Pick loan funds up in person. If your lender has a brick-and-mortar location, ask if there is an option to pick funds up at the branch so you can get the money faster.

Before Getting A Personal Loan: What To Know

We are going to be honest, getting a personal loan isn’t easy. There are a lot of things you need to consider before you apply for a personal loan.

Loan Amount

The first, and most obvious, is to decide how large a loan you actually need. This might seem like a ridiculous tip to include, but it’s important enough to reiterate.

Before you apply for your loan, sit down and calculate how much money you will need. That amount will impact the type of loan you pursue.

Secured vs Unsecured Personal Loans

Understanding the differences between these two types of loans is critical as you decide your goals and shop for rates.

A secured loan will usually give you lower interest rates, but you have to put something up as collateral. If you don’t pay back the loan, they take your collateral. While unsecured loans don’t require any collateral, they will have higher interest rates.

Personal Loan Requirements

Just about every loan is going to require basic information like address, birthday, and social security number. You will also need employment information, like your work history and pay stubs to verify your income. You will need to provide other sources of income like alimony.

Depending on the loan type and amount, the lender may ask for other documents like a copy of your W-2 and tax information, as well as proof of address, bank statements, and your mortgage or rent statements.

The Terms

Once you understand the basics, you should spend some time researching the different loan types, examining which might work best for you. There are several different ways to get a personal loan, and not every type will be a good fit for your situation.

Fully understand the type of loan you are getting, the loan period, the payment methods, payment amounts, and any other important information.

How much will a bank loan to me?

This depends on the type of loan, your credit and debt situation, and what you're personally willing to put forward to secure the loan. In general, better credit, lower debt commitments, and more valuable collateral will help you secure a larger loan. The lower your loan balance is, compared to your collateral, the better.

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