How to Borrow Money: Our Step-by-Step Guide to Getting a Personal Loan

A close look at a woman handling her bills. Saturday Aug. 24, 2018, in Cleveland, Ohio.
Carmen Mandato/The Penny Hoarder
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Let’s say you’re suddenly in need of more money.

Maybe you need to move across the country, but you’re strapped for cash. Or it’s finally time to upgrade your outdated kitchen or bathroom. Perhaps you need to pay off medical bills or even finance a large purchase, such as an adoption. Or it might be a smart move to consolidate your high-interest credit card debt.

If you have an immediate financial need, a personal loan might be the answer. An increasing number of Americans are going that route, given the ease.

Here’s our step-by-step guide on how to do it. We’ve got tips for how to find the best loan offers for your needs and how to avoid getting scammed.

1. Know What Kind of Loan You’re Getting

A personal loan is an “unsecured” loan, which means you don’t have to put up collateral to get the money loaned to you.

It’s different from a mortgage or an auto loan, which are “secured” by collateral — namely, your house or your car. If you default on one of those loans, the lender can repossess your car or foreclose on your house.

Instead, with a personal loan, the lender will check your credit and other factors before deciding whether to loan you the money. It’ll decide what interest rate to charge you based on your creditworthiness.

Loan amounts generally range from $1,000 to $100,000.

Tip: Just make sure you’ll really be able to repay your lender a fixed amount every month for a set time period — usually two to seven years.

2. Shop Around for the Best Loan

You have lots of options to find a personal loan. You could talk to your own bank or find another financial institution.

Just make sure to shop around to find the best offers.

You can do the whole thing online through a website called AmOne.

If you $100,000 in debt or less, AmOne will match you with a low-interest loan you can use to pay off every single one of your balances.

The benefit? You’ll be left with one bill to pay each month. And because personal loans have lower interest rates (AmOne rates start at 6.40% APR), you’ll get out of debt that much faster. Plus: No credit card payment this month.

AmOne won’t make you stand in line or call your bank, either. And if you’re worried you won’t qualify, it’s free to check online. It takes just two minutes, and it could help you pay off your debt years faster.

3. See Your Loan Offers

When you search through our marketplace, most online lenders will do a soft credit check on you, which won’t affect your credit score. So it won’t hurt to compare your options before you submit a formal loan application and finalize the deal.

At this point, you might get turned down by a lender. Ugh, rejection. Why does that happen? It’s typically due a low credit score, too much debt or too little income. Or some combination of all of  that.

Tip: If you’re getting rejected, maybe try your luck with a credit union. They can be more flexible with borrowers who have poor credit. You’ll have to join that credit union and open an account there, but that’s typically not hard.

If you’re not eligible for a personal loan, there are other options, such as installment loans or debt relief services.

4. Watch out for Fees

Couple at home sorting through bills and taxes
Milan_Jovic/Getty Images

You’ve heard that old saying, “Read the fine print.” Well in this case, you need to take that advice literally. Squint your eyes and read the fine print — the teeny tiny print at the bottom of any loan offer you receive.

There might be important details there.

Some lenders will charge you an “origination fee,” and the amount can vary widely. They might call it a “service fee” or a “closing fee,” but it’s really the same thing. It’s a fee the lender charges you for issuing the loan. For example, the biggest online lending sites charge origination fees up to 6% of the loan amount.

Tip: When you’re evaluating each loan, don’t just look at its interest rate. Look at its APR — annual percentage rate — which includes the cost of any fees. You need to compare loans’ APRs to make sure you’re choosing the best deal.

5. Watch out for Scams, Too

Like any industry dealing with money and finance, the loan industry has its fraudsters.

Keep an eye out for these red flags, which are warning signs of potential fraud, according to the Federal Trade Commission:

  • A lender that isn’t interested in your credit history. Ads that say “Bad credit? No problem” often indicate a scam.
  • Fees that aren’t clearly disclosed. Beware of any upfront fee the lender wants to collect before granting the loan, especially if you’re told it’s for “insurance,” “processing” or “paperwork.”
  • A loan that gets offered over the phone.
  • A lender using a copycat or wannabe name.
  • A lender that asks you to wire money or pay an individual.

Pst: That’s why we’ve partnered AmOne — so you know you’re only seeing offers from reputable lenders.

6. Seal the Deal — and Remember to Pay It Back!

Finally, you’re ready to close the deal and get your money!

Soon after you’re matched with a preapproved loan offer, you’re one step closer to obtaining your money! You will need to finalize your loan application on the lender site, and that point the lender will request consent for a hard credit pull to review your full credit report for your loan request. This process takes less than a minute on the lender site.

As soon as the lender approves your request, your application is finished. The lender will provide you different loan options, payment terms and APRs for you to choose from. Typically, before processing your money, some lenders will require additional identification; verification of your address with a utility bill or a copy of your lease; and proof of your income with pay stubs or W-2 forms; and your bank information so it can process your funds.

You’ll typically see your money within a week, though with some lenders, you’ll see as soon as the next business day.

Now all you have to do is pay it back. Here’s how six people became debt-free without earning huge salaries. You can do it too!

Mike Brassfield ([email protected]) is a senior writer at The Penny Hoarder. He could use a loan.