How to Get a Loan: Your Complete Guide [2020]

Whether you’re financing a car or borrowing money for college, here’s everything you need to know about getting a loan.
Last updated Aug 26, 2020 | By Lindsay Frankel
How to Get a Loan

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If you need to borrow money, whether it’s to fund a large purchase or get through a time of financial need, you’ll not only need to know where to go for that money and how to apply for it, but you’ll also want to have a plan to repay it. All of this means you need to start by understanding how to get a loan and how loans work.

In this guide, we’ll cover everything you need to apply for a loan. We’ll go over the details of each type of loan product and how to apply. We’ll even cover how to get a loan if you have bad credit or no credit history at all. Finally, we’ll discuss what you need to look for when applying for a loan and define helpful terminology so you pick the right loan for you.

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Before you apply for a loan

Before you apply for a loan, you’ll want to have some basics in order and know the answers to certain financial questions. Here’s a checklist of things to work through before you even start filling out a loan application:

  • Check your credit score. Whether you have excellent or poor credit, your credit score will impact the amount you’re eligible to borrow, the terms of the loan, and your interest rate. If you have bad credit, consider taking steps to improve your credit score before borrowing, if possible.
  • Determine the amount you need to borrow. You should never borrow more than you need. The associated expenses are just not worth it. If you can get help from friends or family or pick up a weekend side job, you’ll be able to borrow less, which will put less of a strain on your finances in the long run. Try to get money from other sources before you take out a loan, and if you still need to borrow, apply only for what you need.
  • Understand loan terms. To effectively compare loan offers, you need to understand origination fees and annual percentage rate (APR). You should also know the difference between a soft credit check and a hard credit pull. If you need to review any of this terminology, we’ve included a list of important definitions at the end of this guide.
  • Understand the pre-qualification process. Pre-qualification allows you to see an estimate of what you’ll be approved for and what your APR might be. Lenders use a soft credit check of your credit report to pre-qualify you. Doing this won’t hurt your credit and it puts a lot of shopping power in your hands. You can check to see whether you pre-qualify with a variety of lenders before you decide which loan to officially apply for.
  • Have your personal info ready. Before you start the application process, you should have some essential info on hand. You’ll likely need to provide your Social Security number, bank account information, and employment and income information like pay stubs. You may also need to provide identification and proof of your residential address.

Now let’s talk about a variety of loan options you may be considering. It’s important to understand how the various loan types work and what they can be used for before you apply for one.

How to get a personal loan

Personal loans can be either secured or unsecured debt. If they are secured, it means you are putting up collateral, such as a house or a car, that the lender can seize should you fail to pay. Unsecured personal loans don’t have any collateral and therefore can be harder to qualify for or come with higher interest rates.

Personal loans are offered by a variety of financial institutions and can vary greatly in amount. Personal loans tend to be short-term loans that typically last one to five years, and there are often few restrictions on what they can be used for.

Some common uses for personal loans include:

  • RVs and boats
  • Weddings
  • Divorce
  • Vacations
  • Funeral costs
  • Moving expenses
  • Debt consolidation
  • Medical bills
  • Veterinary bills
  • Home improvement

You can get a personal loan through a bank, credit union, or online lender. Some of the best personal loans with the lowest rates and fees are available online. You won’t even need to visit a physical location to be approved. To find out more, read our guide on how to get a personal loan.

Some lenders charge something known as an origination fee, which can typically range from 1% to 8% of the loan amount, in addition to interest. The APR on a loan reflects the total cost of borrowing, including both interest and fees. Personal loans can sometimes have APRs that are lower than what you would pay on credit card debt (the average interest rate on a two-year personal loan is just 9.5%, compared to 14.52% on credit cards). However, keep in mind that the lowest interest rates on these loans are reserved for the most creditworthy customers.

Personal Loan Pro Benefits

  • Loans from $1,000 to $50,000
  • Min. Credit Score: 600
  • APR: 3.49% - 35.99%
  • Comparing Rates Does Not Affect Your Credit Score
  • APR as of December 2020


How to get a home loan

Homes loans come in a few different variations: mortgages, home equity loans, home equity lines of credit, and mortgage refinancing.

If you’re looking for an initial mortgage, you can get one through a bank, credit union, or online lender. Loan rates on mortgages tend to be among the lowest interest rates (the average currently is around just 3%), but you’ll also typically need to place a large down payment on a home in order to be approved. Most conventional home loans require a 20% downpayment if you want to avoid purchasing private mortgage insurance, which protects the lender in case you default.

If you have only fair credit or can’t afford a 20% downpayment, you might consider an FHA loan. You’ll likely pay more in interest, but you’ll be able to get approved with a lower credit score and a downpayment as low as 3.5%. These loans come from private lenders, but are insured by the Federal Housing Administration. You may also be eligible for a Veterans Affairs loan or U.S. Department of Agriculture loan, and some local programs will offer assistance to first-time homebuyers, low-income borrowers, or public service workers.

If you already own your home and need to borrow against the equity you’ve built, you might consider a home equity loan or home equity line of credit (HELOC). A home equity loan allows you to borrow a sum of money, typically at a fixed interest rate, whereas a HELOC works more like a credit card and is an ongoing credit line you can borrow from at a variable interest rate.

Figure Benefits

  • 100% online application and appraisal
  • Apply in 5 minutes & close in days
  • Use to consolidate debt or finance your next project
  • HELOC rates start at 2.99% APR


You may also be able to lower your monthly payment by refinancing your loan. When you refinance a mortgage, you essentially replace your current mortgage with a new loan. When interest rates are low, you may find that it is beneficial to do a refinance. But before you refinance an existing loan, it’s always a good idea to run all the numbers and understand how it might change your monthly payment and the overall cost of the loan over its lifetime.

Figure Benefits

  • Take advantage of historically low interest rates
  • Apply in minutes, get refinanced in 5 days
  • 100% online application done from the comfort of your home
  • Good/excellent credit needed


How to get a student loan

Federal student loans are available from the U.S. Department of Education. Some require you to demonstrate financial need, and others do not. You can also access private student loans from a bank, credit union, or online lender. Loans for your education typically come with very low interest rates, especially if you have good credit. Variable rates can start at under 2%.

If you are done with school and have private student loans, you may want to consider refinancing. There are a variety of companies that can help you with refinancing student loans, and this can allow you to achieve a lower interest rate or reduce your monthly payment. This means you could get out from under the debt of student loans earlier in life and be able to save for other financial goals instead.

Credible Student Loans Benefits

  • Accepts Credit Scores From 630
  • 100% Free Prequalification
  • Works with Federal, Private, Parent PLUS Loans
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How to get a loan for a car

If you’re shopping around for a loan to finance the purchase of a new or used vehicle, you should first decide whether it’s best to get a personal loan vs. auto loan. You can get either type of loan at a bank, credit union, or online lender. The difference is auto loans are secured by your vehicle, which means the lender could repossess your car if you default on the money you owe. Most auto lenders will also require you to make a downpayment, though you can often make a car down payment with a credit card.

A personal loan, on the other hand, will typically be unsecured and may not require a downpayment. But personal loans also typically have higher average interest rates. The average interest rate on a 24-month personal loan was 9.5% in the second quarter of 2020, whereas the average interest rate on a new vehicle was 5.76% in the last quarter of 2019.

If you’re buying a used vehicle, you might find that interest rates between a personal loan and a traditional auto loan are more comparable, or you may even be able to get a better rate from a personal loan if you have good credit. Experian data showed the average interest rate on a used vehicle purchased in the last quarter of 2019 was 9.49%.

If you’re buying an older, high-mileage vehicle or buying through a private sale directly with an individual, your only option may be to get a personal loan. But if you’re purchasing a new vehicle from a dealership, you’ll likely be better off with an auto loan, especially if you need a longer repayment term.

How to get a loan with bad credit

You should make every effort to improve your credit score before borrowing, but if you need cash right away, it’s possible to get a loan with bad credit. In fact, many online lenders specialize in offering these types of loans. Some of these loans will be secured, which means you’ll need to offer collateral, such as the title to your vehicle. Others will be unsecured.

Here are a few lenders who specialize in bad credit loans:

You can also use something known as a credit builder loan to improve your credit score, but you won’t have access to the cash right away. With a credit builder loan, the lender puts the money aside for you in a savings account until you finish paying it off. It may seem strange to take out a loan and not be able to use the money, but by making regular on-time payments, you can show you are a responsible borrower and improve your credit history.

Keep in mind that if your credit score is fair or poor, you’ll likely get stuck with a high interest rate when taking out a loan. One way to avoid this is by asking a friend or family member to be a cosigner with you on the loan. The lender will then also take the cosigner’s credit score and personal finances into consideration when you submit your loan application.

The drawback to this strategy is that your cosigner will also be on the hook if you fail to repay your loan, so make sure to discuss your plan for repayment beforehand and be confident you can successfully make all your loan payments.

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How to get a loan with no credit

Getting a loan with no credit can be difficult, but it’s not impossible. You’ll find several online lenders that don’t require a credit inquiry to approve you for a loan. But be forewarned that you should expect a very high interest rate on these loans. Your credit score is a measure of how risky you are deemed to be by the credit bureaus based on your past behavior, so if you have nothing for a lender to judge you on, it has to make up for the potential risk by charging high interest rates.

It also may be possible to get a secured loan from a bank or credit union, even if you don’t have a credit history. This type of loan requires you to put forth collateral, such as your vehicle title, which the lender can recoup in the event of default.

A better route would be to use a no credit check credit builder loan. Just know that you won’t have access to the cash right away. The funds will be available to you once you’ve paid off the amount over time. If you need the money now, ask a friend or family member with good credit to cosign on a loan with you. Their credit score will get you access to more favorable rates and terms, but they’ll also be responsible if you can’t repay your debt, so be sure you have a repayment plan.

How to get a loan for a business

Business loans are available from banks, credit unions, online lenders, and nonprofit or community organizations. The U.S. Small Business Administration also guarantees eligible business loans even for business owners with bad credit, which can make it easier to get a loan. When applying for a business loan, lenders will generally consider your business credit score along with your personal credit score.

There are a variety of types of business loans. They come secured or unsecured, and revolving credit like a credit card may also available. Some of the best small business credit cards can give you all the convenience of a loan and also earn you cash back or travel rewards. Some nonprofit organizations also offer microloans of less than $50,000 to eligible business owners.

There is also something known as a merchant cash advance. These may be easier for many business owners to access than traditional bank loans, but they are considered predatory and have been compared to payday loans. These are not the most affordable or reliable way get a loan for your business.

Fundera Benefits

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What to look out for when you apply for a loan

Before you allow a lender to do a hard credit pull so you can officially apply, you’ll want to compare pre-qualification offers from a variety of lenders. Here’s what to look for when you apply for a loan:

  • Origination fee and other fees
  • APR (interest rate)
  • Term (how long you have to repay the loan)
  • Amount of money approved to borrow
  • Monthly payment
  • Down payment required (if applicable)
  • Prepayment penalties

Generally, you’re looking for a lender that can offer you the amount of money you need with the lowest APR and a monthly payment that fits your budget. If you think your income could increase, you should also choose a loan without prepayment penalties. If you can pay off your loan early, you’ll save money on interest. But because some lenders bank on the money they make off interest, they may charge you if you try to pay off your loan early.

You should also consider the reviews of the lender on sites like Trustpilot and ConsumerAffairs. You’ll want a lender with good customer service in case you run into any issues with your loan. You may also personally prefer a lender who has an app or other online access. Some people might prefer a traditional brick-and-mortar bank. Whatever type of financial institution you choose, be sure to read all the fine print before officially applying to make sure you completely understand the loan terms.

When you’re ready to apply for your loan, keep in mind that some additional information may be required, such as proof of employment and income. Also, be aware that there’s a possibility that your rate could look slightly different from the one offered to you during the pre-qualification. The lender doesn’t have all the information about you until you officially apply, so your rate or the approved amount may change from your initial quote.

Loan terminology you need to know

  • Annual percentage rate (APR): A percentage that reflects the total cost of borrowing, including the interest rate and any fees associated with the loan
  • Debt-to-income ratio: How much you owe each month versus how much money you bring in each month; a lender will examine this during your application process and if your debt-to-income ratio is too high, you may not be approved
  • Downpayment: Money you put down on the purchase, typically the difference between the cost of the purchase and the amount of the loan
  • Equity: The difference between a home’s fair market value and the borrower’s current debt owed on the property
  • Hard credit check: A credit check requested by a lender in connection with an application for credit (a loan, credit card, etc.)
  • Interest: The percentage of the principal you’ll pay to the lender for the opportunity to borrow money
  • Loan-to-value ratio: the ratio of the loan principal to the value of the property; for example how much money you borrow to pay for a house compared with the market value of the house
  • Origination fee: an upfront charge for taking out a loan
  • Pre-approval/pre-qualification: An estimate of whether you’ll be formally approved for a loan and at what rate, based on a soft credit check
  • Principal: How much you owe on a loan, excluding interest
  • Refinancing: Replacing an existing loan with a new one, typically at a better interest rate or with more preferred terms
  • Secured loan: A loan that requires collateral, often in the form of a car or house, which the lender can take possession of in the case of default
  • Soft credit check: Also known as a soft inquiry or soft pull, this type of credit check does not affect your credit score
  • Title: a document that proves your ownership of an asset
  • Unsecured loan: A loan that does not require any collateral

The bottom line

Whether you need a loan for home improvement, a new car, or getting your cat’s teeth cleaned, you’ll likely find a lender willing to work with you. However, you should always be on the lookout for high interest rates and fees that could make repayment difficult. Never borrow more than you need, and only agree to a monthly payment you know you can afford. Furthermore, always read the fine print before officially applying for a loan and before you sign the final contract.

If you’re in a situation in which you need to borrow money you didn’t plan for, you should also assess how the financial hardship occurred and why you weren’t prepared. If you have to borrow money unexpectedly, be sure to come up with a plan to pay off your debt and return to financial solvency. Then start working on putting money aside in both savings accounts and an emergency fund so you can reach your future financial goals while also having a security net and improving your credit score.

Personal Loan Pro Benefits

  • Loans from $1,000 to $50,000
  • Min. Credit Score: 600
  • APR: 3.49% - 35.99%
  • Comparing Rates Does Not Affect Your Credit Score
  • APR as of December 2020