How to Get a Loan | Guide to Loan Approval

People take out loans for a variety of reasons, including building their credit history or making a large purchase they couldn’t make with cash on hand. But if you’ve never had a loan before, you might wonder what you need to get approved for one. Find out more in the step-by-step guide to getting a loan below.

1. Determine the Purpose of the Loan

car keys sit next to person filling out paper form

The first step to getting a loan is determining why you need the loan and what you intend to use it for. The reason this is important is that the type of loan you apply for is dictated by this information.

For example, if you want a loan so you can buy a car, a short-term loan for $1,000 is unlikely to help you much. But if you need to cover an emergency expense, such as an HVAC repair for your home, or you want to build your credit by adding an installment loan to your credit mix, a short-term personal loan may be exactly what you need.

It’s also a good idea to inject some real-talk and realism into this process as you consider the reason you want a loan. You can get a loan for almost any legal purpose, but should you get a loan? Before you embark on the process, make sure that the purpose of the loan is important enough to justify any costs. Because loans aren’t free money; you pay for them in the form of interest charged on the amount you borrow.

2. Understand Your Budget and How Much You Can Afford to Pay Back

a person types on smartphone next to a piggy bank, which sits on top of a pile of coins, to represent a budget

Once you decide that you definitely need the loan, take time to understand how much of the loan you can really afford. It’s critical that you can reasonably afford to pay the loan as agreed, whether that’s in monthly or biweekly installments.

First, making your payments in a timely manner can help you build credit or positively impact your credit score. Missing your payments could result in negative items being reported on your credit reports. That can lower your score and make it harder for you to get other loans in the future.

Missed payments can also result in your account being sent to collections. Depending on how far that issue goes, it could result in you being sued for the money you owe and the collector garnishing your wages.

Help yourself avoid such issues by starting with your budget. If you don’t have one, make one before you apply for a loan. That way, you know how much you can afford to apply for and agree to pay.

3. Check Your Credit Reports and Score

"Credit Report" text on paper sheet with magnifying glass on chart

You can get a loan with no or bad credit, but it helps to know where you stand before you apply for a loan. Your credit score is a three-digit number that helps lenders understand how likely you are to pay back your debts as agreed. The higher the number, the more likely the credit scoring models believe you are to make those payments.

A low score, then, indicates risk for the lender. Some lenders won’t approve you at all if your credit score is below a certain amount. Other lenders may offer you loans even if you have bad credit, but those loans may come with less desirable terms. That typically means higher interest rates, which makes the debt more expensive overall.

Checking your credit lets you accomplish a few things. First, you can see where your score is so you know what types of loans you might be able to qualify for. Second, you can see what’s on your credit report and take some time to make any corrections that might improve your score before you apply for a loan.

Start the process by getting your free credit reports from You can get one free report from each of the three major credit bureaus once a year. For a time during the COVID-19 pandemic, and the credit bureaus are offering free credit reports weekly to help people better manage their finances.

Check over those reports to ensure all the information is accurate. If you find anything inaccurate, you can dispute it with the credit bureau in question. Getting inaccurate negative information corrected is one of the fastest ways you can improve your credit score.

The free reports you get from don’t include your credit score. To see your credit score before you apply for a loan, you can use services such as Experian Boost.

4. Research Loan Options

a person does research on loans on laptop and jots down notes on paper

Once you know what kind of loan you want, how much you can afford to pay on it and what your credit looks like, you can start researching loan options. Here are some things to look for and consider:

  • What credit is required for the loan? If it’s clear that you need excellent credit to get approved by a certain lender, for example, it’s not ideal to apply with them if you only have fair credit. Applying for a loan can cause a hard inquiry on your credit report, and each one can drop your score by a bit. Too many hard inquiries in a short time period can make it potentially more difficult to get credit, so you want to limit them when possible and not apply willy-nilly for loans.
  • What are the potential terms and interest rates? While you might not know the exact terms until you apply and are approved for a loan, find out what you can. Many lenders publish information about rates and terms online so you can make an educated decision about applying for a loan.
  • Does the lender report to the credit bureaus? If you’re looking to build your credit, you want to work with a lender that reports payment information to the credit bureaus. That means when you make timely payments on your loan, you get some positive information in your history that can potentially boost your credit score. Wise Loan reports to two of the three major credit bureaus.
  • What do you need to apply for the loan? Typically, you’ll need at least a valid form of identification, a banking account for accepting funds from the loan and a valid address and email address. Some lenders may ask for more, though, so make sure you know what’s required and whether you can produce it before you apply for a loan.

5. Apply for the Loan That Seems Best for You

a couple applies for loan online

After doing all the research to find the loan that seems right for you, it’s time for the easy part: completing the application. Online loan applications can often be completed in just minutes. Wise Loan’s application is super simple and only takes a few minutes. And if you qualify for the loan and apply early in the day, you can even get instant funding for same-day access to your new funds.

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