What to Expect with a Personal Loan in 2025

What to Expect with a Personal Loan

Short on cash? Join the club! From pandemic-related job losses to not quite having enough in savings for a big home remodel, there are lots of reasons why Americans are taking out personal loans in record numbers: from $72 billion to $143 billion just between 2015 to 2019 alone, and the totals have only climbed since then.

Whether you're interested in a personal loan for the purpose of debt consolidation - more than 60% of borrowers are refinancing credit card payments and other debts this way - or for some other purpose, do you know what to expect during the application and approval process? With the vast majority of lenders, the experience is exactly the same regardless of your reasons for requesting the funding.

Your first step is to compare your options online. Yes, you could go to your local bank and request a loan, but you're almost guaranteed not to get the best possible rates and terms. (We're all for being loyal to small businesses, but facts are facts!) Instead, choose a website that lets you get loan quotes from many different lenders at once: just like booking flights or buying shoes, you're more likely to get something that fits your needs when you have many options to choose from. (You can always take this information to your local lender and see if they can meet or beat any offers you get, too!)

During this initial step, you often enter basic, non-identifying information, like the range in which your credit score falls, your approximate annual income, and so forth. You'll get a results list of typical loan amounts and terms for consumers with your profile. That makes it easy to get a short list of lenders you want to consider for your personal loan application. By the way, at this step or any other, you may be asked to disclose your reason for requesting a loan: debt consolidation, home remodel, medical expenses, etc. You aren't obligated to use your personal loan funds for that purpose, however: it's often used simply to provide you with options that may only be available to people borrowing money for a particular reason.

The middle step is getting pre-qualified for a loan. Here you'll have to give them your Social Security number or verify your identity in some other way, so that the lender(s) can do a "soft pull" on your credit history. Your score will not be impacted at this stage of the process. Some lenders have minimum borrower requirements, like a credit score of 650+, no delinquent accounts on your credit report, or 3+ months of consistent employment history. Other financial institutions offer personal loans regardless of your credit profile, but expect that the best rates and terms go to those customers with higher credit scores and income levels.

Once you've been pre-qualified and have offers from several lenders, you'll choose one to fund your personal loan and complete their full application. You'll probably need to provide proof of income (e.g. pay stubs and/or bank statements from the last three months), detailed information about your monthly expenses like student loan payments and rent/mortgage amounts, and so forth. During this final step of the application process, your lender will do a hard check of your credit, so don't be surprised by the (temporary) dip in your credit score.

When you receive your final loan offer, that's the time to read all of the fine print. Be sure you know the answers to these questions:

• How much will be deposited to your account and in what approximate timeframe?v
• What is the interest rate?
• What is the repayment term? In other words, for how many months or years will you be making payments?
• Are there any origination fees? If so, will they be added on to the total amount of your loan or deducted from the proceeds? For example, if you take out a loan of $10,000 and the origination fee is 5%, you could either receive funds of $9500 or have a loan amount of $10,500 to account for those charges.
• Can you pay off the loan early without penalty?
• Are you required to set up automatic payments from your checking account?
• Will your payments be reported to the credit bureaus? If your lender does this, you'll get a boost to your credit score for making on-time payments.

Once you've gotten answers to these questions and you like what you see, you can accept the loan offer! Depending on the lender you've chosen, your funds should be in your account within a week or less. Congratulations!