4 Things to Know Before Your First Loan Application

If you’re considering a personal loan for the first time, it’s important to be ready with the information, application materials and plan for tackling your first application.

Some information you may know off the top of your head, like your income. But there are others you’ll want to look into before applying for your loan, such as your credit score.

Let’s dive into what you need to know before you apply and why.

  • 1. Credit score and credit history
  • 2. Income
  • 3. Monthly debt payments
  • 4. Assets and additional applicants
  • Next steps: Compare and apply

1. Credit score and credit history

A good credit score and credit history show lenders that you pay your credit obligations on time. The better your credit, the better your chances of getting favorable loan terms. The best terms can save you thousands over the life of the loan.

For example, here’s what a 2- or 4-percentage-point difference in interest can mean for your wallet on a $25,000 loan paid over five years.

Interest rate

Monthly payment

Total interest paid










In this case, the difference between a 6% and 10% interest rate is $2,872 in interest over five years. This number increases substantially if you’re considering a larger, longer-term loan.

2. Income

Your take-home pay affects your ability to repay a loan, so you’ll need proof of income for your application. If you’re an employee, you may need pay stubs, W-2 forms and/or a salary letter from your employer. Some lenders may contact your employer directly to verify your income and employment. If you’re a self-employed applicant, you’ll need tax returns for at least the past two years and bank statements that show your income.

Of course, you have to know just how much you bring home each month to see whether you can afford monthly loan payments. Make sure to include all income sources, not just your primary one. This may include a spouse’s income, child support, a second job or freelancing income.

3. Monthly debt payments

Your income is only one part of the equation. It’s also important to know your monthly debt obligations.

If the majority of your income already goes toward other debt payments, a new loan will likely overextend your finances. A loan application requires you to list certain obligations — typically rent or mortgage payments and existing payments toward credit cards or other debts.

The percentage of your monthly income that goes toward debt payments is called your debt-to-income ratio, and lenders often prefer applicants with DTIs below 40%.

4. Assets and additional applicants

More information is required to apply for a secured loan, joint or co-signed loan.

Secured loans are backed by an asset, such as a car or an investment account. You’ll need to show proof that you own the asset on your application. Collateral helps guarantee the loan, meaning you may qualify for a lower interest rate, but you risk losing the asset if you fail to make payments.

If you want to apply for a joint or co-signed loan, you’ll likely need to provide the same information for your additional applicant as you did for yourself, including their Social Security number and proof of income.

Adding someone else to your application, particularly if they have good credit, can help you qualify for a personal loan. This person will be held equally responsible for the repayment of the loan.

Next steps: Compare and apply

Once you know what you need for a personal loan application, it’s time to compare lenders and loan offers to find the best fit. Most importantly, look for a loan with a low annual percentage rate (APR) and manageable monthly payments.

Calculate monthly payments. Review your budget to see how much room you have for monthly loan payments. Then, use a personal loan calculator to determine what loan amount, rate and repayment term will keep those payments affordable.

Pre-qualify. Most lenders let you pre-qualify for a personal loan to preview potential rates and terms. Pre-qualifying requires only a soft credit check, so you can compare loan offers from multiple lenders without affecting your credit score. The loan with the lowest APR is usually the best offer.

Compare lenders. Compare borrowing requirements from different lenders to determine which you are likely to qualify with. Weigh other loan features, like fast funding and credit-building assistance, too.

Apply. When you submit a formal application, you’ll be asked to provide documents verifying your identity and income. A lender will perform a hard credit check, which may temporarily drop your credit score by a few points. If approved, expect to receive the funds within a week and make the first loan payment 30 days later.

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