Understanding the Personal Loan Process
The personal loan process often includes the following steps:
- Prequalification: Most personal loan lenders will allow you to see if you are likely to qualify for a loan and at what terms without an impact to your credit score. This allows you to more easily compare loan offers.
- Application submission: Once you’ve selected your lender, you’ll fill out a full application. In this phase, which can take anywhere from a few minutes to a few days, borrowers need to fill out the forms provided by the lender. These forms often include personal, financial and employment information. Have all the required documents handy to expedite this stage.
- Underwriting process: Lenders assess the risks associated with lending you money during the underwriting process. This stage typically involves verifying the information provided in the application and checking the applicant’s credit score and history. Underwriting generally takes from a few days to a week, depending on the lender. In some cases, it can be done on the same day you apply.
- Disbursem*nt of funds: Once the loan terms are agreed upon, the loan funds are disbursed to the borrower, usually as a direct deposit or written as a check. This step can be relatively quick, typically ranging from same-day delivery to a couple of days.
You can maintain open communication with the lender throughout this process to make it move as fast as possible.
Factors Influencing Loan Approval Time
Several factors influence the speed at which a loan application progresses. Among these, your credit score and history, as well as your income and employment verification, play critical roles.
Credit Score and History
Your credit score and credit history offer a snapshot of your past financial behavior and are key indicators for lenders to determine your creditworthiness. Your credit score is a numerical representation of how trustworthy you are when repaying borrowed money. A high credit score and a history free of delinquencies can lead to quicker loan approvals as they present a lower perceived risk for lenders.
On the other hand, a poor credit history or a low credit score may either slow down the loan approval process or result in a rejection, depending on the lender. To help you obtain a loan as quickly as possible, regularly check and rectify any errors in your credit report, make your credit card payments on time and avoid accumulating additional debt.
Income and Employment Verification
Income and employment verification prove to lenders your capacity to repay the loan. Lenders need to confirm the reliability of your income as well as the amount you earn. Thus, a stable job with consistent income can expedite the loan approval process. If you’re self-employed or earn other types of non-wage income, you may need to provide additional types of documentation – such as business tax returns or alimony records.
Frequent job changes or inconsistent income can prolong the personal loan process, as lenders may require additional documentation or verifications. To ensure prompt loan approval, have recent pay stubs, tax returns and employment verification letters handy when filling out your application.
Loan Amount and Type
The loan amount and type are significant factors that can influence the time required for loan approval. Essentially, the loan amount refers to the sum of money you intend to borrow, while the type indicates the structure of the loan, such as secured or unsecured, fixed or variable interest rate, among others. Larger loan amounts usually equate to a longer, more scrutinous process. Smaller unsecured loans might be processed more quickly due to the lesser risks involved.
To expedite the loan process, opt for loan offers that align well with your credit profile. If you’re looking for a loan with quicker approval, you might consider applying for a smaller amount or choosing a loan type with fewer complexities. Furthermore, understanding the loan products and carefully preparing your application and documentation can hasten the process.
Lender’s Internal Process
Every financial institution has its own internal process for evaluating and approving loans. If a short timeline is important to you, research and choose lenders known for their swift processing times.
Reading reviews, understanding their advertised timelines and reaching out to their customer service can provide insights into the lender’s efficiency. Additionally, ensuring your application is complete and accurate can prevent unnecessary delays due to back-and-forth clarifications.
Requirements for Obtaining a Personal Loan
Getting approved for a personal loan requires you to meet certain requirements set by lenders to ensure your creditworthiness and ability to repay. Lenders often have a benchmark credit score that applicants must meet or exceed. This score gives lenders an insight into your borrowing history and how reliably you’ve repaid debts in the past. Some lenders may offer loans for individuals with bad credit, but these often come with higher interest rates.
In addition to credit considerations, lenders usually have a minimum income requirement to ensure their borrowers can repay the loan. Applicants will typically need to provide recent pay stubs or tax returns as proof of income. Alongside this, proof of address — usually in the form of utility bills or a rental agreement — is required to verify your current residence.
Lastly, a valid identification, such as a driver’s license or passport, is mandatory to confirm your identity and legal status. Gather these documents beforehand to streamline the application process and bolster your chances of approval.
Tips To Expedite Personal Loan Approval
- Maintain a strong credit profile: A high credit score and a clean borrowing history make you an attractive candidate for lenders. Regularly review your credit report for errors and ensure timely payment of dues to maintain an excellent credit profile.
- Organize and prepare documentation in advance: Having all required documents such as pay stubs, tax returns, proof of address and identification ready can prevent unnecessary delays. A well-prepared application can speed up the review process considerably.
- Choose a lender with a streamlined process: Not all lenders operate at the same speed. Opt for financial institutions known for their efficient processing times, often indicated by customer reviews or even the lender’s own marketing materials.
- Opt for online applications: Many modern lenders offer online application processes that are faster and more efficient than traditional methods. Online systems often provide instant feedback or quicker response times, ensuring faster turnaround.
- Consider preapproval options: Some lenders offer preapproval, which involves a soft credit check to determine your eligibility and potential loan terms. Engaging in this step can expedite the final approval as well as provide clarity about your options during the process.
Comparing Different Lenders’ Timelines
When seeking a personal loan, it’s crucial to understand that different lenders operate on varying timelines. Let’s delve into the typical time frames associated with traditional banks, online lenders and credit unions.
Traditional Banks
Traditional banks are established financial institutions that offer a wide range of services, including personal loans. Their processes are streamlined and well-established, potentially allowing them to fund loans quickly.
For example, U.S. Bank states that current customers may be approved for a personal loan within hours of applying, given they meet certain criteria. PNC Bank, on the other hand, states that it makes personal loan decisions within a few days.
Online Lenders
Online lenders are digital-first platforms that specialize in offering financial services, including personal loans, via the internet. They typically harness advanced algorithms and automated processes, which often translate to faster approval times than traditional banks.
Some online lenders can provide loan decisions within minutes and fund the loan within a single day. Platforms like SoFi or Upstart are examples of this kind of lender. They can typically process loans in as little as 24 hours, although it may extend to a few days based on individual circ*mstances.
Credit Unions
Credit unions are member-owned financial cooperatives that provide banking services, including personal loans, to their members. Since they operate with a member-focused approach, their processes might be more personalized and flexible. Credit unions might have shorter approval timelines than larger banks, often ranging from a day to a week.
Examples include local community credit unions or larger entities like Navy Federal Credit Union. It’s worth noting that one’s experience can vary based on the specific credit union’s size, capabilities and workload at a given time.
The Bottom Line
To secure a personal loan quickly, understanding the various aspects that influence approval time is essential. The processing time can range from a few hours to a few weeks, contingent on various elements, including the type of lender, their internal processes, the borrower’s credit profile and the nature of the loan applied for.
Being well-informed about the steps and factors influencing loan approval timelines enables you to make informed decisions that align with your financial goals and needs. As you navigate this path, it’s imperative to assess your financial standing meticulously and explore the lender options available, be it traditional banks, online lenders or credit unions.
Frequently Asked Questions About Personal Loans
Getting approved for a personal loan can vary depending on a range of factors, including your credit score, income level, employment status and the lender’s specific criteria. You may find it relatively easy to get approved if you have a high credit score, stable income and solid employment history. However, it’s always advisable to research and ensure you meet the lender’s requirements to increase your chances of approval.
The credit score required for a personal loan can differ from lender to lender. A score in the good to excellent range (670-850) might fetch you favorable terms and lower interest rates. Some lenders specialize in offering personal loans to individuals with lower credit scores, but these loans might come with higher interest rates and more stringent terms. It’s advisable to check the general credit score requirements of lenders in your region or category of choice.
Secured personal loans, where you provide collateral, are often easier to obtain compared to unsecured loans, as they present a lower risk to lenders. Furthermore, payday loans and title loans are often relatively easy to acquire because of their high interest rates and fees, but they can be risky and expensive in the long run. Always make sure to consider the terms and your ability to repay when choosing a loan type.
Taking out a personal loan can have a varied impact on your credit score. Initially, you might see a small dip in your score due to the credit inquiry during the application process. However, responsibly managing the loan by making timely payments can potentially improve your credit score over time. Maintain a good repayment history and avoid defaulting on the loan to prevent a significant drop in your score.
Editor’s Note: Before making significant financial decisions, consider reviewing your options with someoneyou trust, such as a financial adviser, credit counselor or financial professional, since every person’s situation and needs are different.
If you have feedback or questions about this article, please email the MarketWatch Guides team ateditors@marketwatchguides.com.
Divi SharmaContributor
Divyakshi Sharma is a professional copywriter and a proud North Carolina State University graduate. Divi is the CEO and founder of Writeable: A Copywriting Agency and works with a variety of different brands, including Atlas Obscura, Bigmouth Copy and Gale Creative Agency. While her 9-to-5 is running her own business, her weekends are filled with hiking, yoga, reading Letterboxd reviews and conducting mostly successful food experiments.
Jen Hubley LuckwaldtEditor
Jen Hubley Luckwaldt is an editor and writer with a focus on personal finance and careers. A small business owner for over a decade, Jen helps publications and brands make financial content accessible to readers. Through her clients, Jen’s writing has been syndicated to CNBC, Insider, Yahoo Finance, and many local newspapers. She is a regular contributor to Career Tool Belt and Career Cloud.
