Young couple standing in their apartment while woman holding blueprint and man showing to her new ideas. Concept: personal loan
Derek Tallent
By: dtallent
Read in 12 minutes

Everything You Need To Know About Personal Loans

From a family vacation to a home project, there are many instances where you may find yourself in need of some extra funds. A personal loan is one option to consider when facing an unexpected expense. Personal loans can seem intimidating.

While they are a serious commitment, they can also be life-changing if handled appropriately.

In this article, we will be telling you all that you need to know about applying for, using, and repaying a personal loan.

What to do Before Applying for a Personal Loan

Getting a personal loan may be intimidating at first, but with proper planning is perfectly doable. Here we’ll see what to do before applying for the loan, during the application process, and even once you receive your funds to make sure you comply with what’s expected:

1. Prepare Accordingly for a Personal Loan

Take these actions before you approach a lender:

  • Find out your credit score- Credit scores are one of the premier determinants of whether you will be approved for a personal loan (and how generous the interest rate will be). You need to find out what your credit score is and adjust your expectations accordingly. If your credit score is poor, it will be tough to get a personal loan. Keep in mind that you can always raise your credit score if you are not happy with it!
  • Check your math- You always want to make sure you will be able to repay a loan when you take it out (including interest!). When you are looking at your options for loans, keep in mind the interest rates and other added fees (like the closing costs), and use a loan calculator to find out exactly how much your monthly payments will be. To get guidance on how much you should pay every month without stressing your finances, you can apply the same rule used for a mortgage: no more than 28% of your monthly income should be used for monthly payments on your personal loan.
  • Research LendersYou want to really do your research on the lender that will be right for you. Obviously, you want the lender to be reputable, but you also want to look at things like payment schedules (how long they give you to pay off the loan) and interest rates. Some lenders may even give guidance or other benefits, which would also be ideal. The main thing is to make sure that your lender is reputable and that the interest rates are calculated fairly (more on that later).

Not sure on what lender to approach? Check the Top Personal Loans in the U.S.

2. Gather your Documents and Information

Once you decide on a lender, they will have guidelines on how you apply for the loan. Typically, you will need the following information when applying for a personal loan, but keep in mind this list can be longer depending on the lender of your choice:

  • Identity documents- Lenders will need to know you are who you say you are. Most personal loans require you submit one or more of the following documents:
    • Driver’s License
    • Social Security Number
    • Passport
    • State ID
    • Military ID
    • Certificate of Citizenship
    • Government-issued ID

Maybe you don’t have an SSN. But that doesn’t mean you won’t be able to receive the funds you need! There are some lenders that will gladly approve your loan even if you only have an ITIN number.

  • Proof of Address Not only do you need to provide your address to lenders, but some may also require you to prove your address is correct by providing one of the following documents:
    • Utility bills (water, electricity, cable, etc.)
    • Lease
    • Voter ID
    • Insurance card for your home or rental
  • Income statements Lenders will want to know you can repay the loan you are asking for, so they will want to know your financial situation. You will likely need to provide some of the following to show your current financial situation:
    • Bank statements
    • Paystubs
    • W2 forms
    • Tax returns
    • Verification of employment

If you have any other loans currently active, you will likely have to list them on your application.

Timeline for a Personal Loan

Below is a rough timeline of getting a personal loan, although it can change drastically depending on the lender, as some may be much faster to fund than others

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When Should I Get a Personal Loan?

The question you might ask is when you would need a personal loan in the first place. In reality, there is no right answer to this question. There is a myriad of possible scenarios, but, in any case, getting and repaying a personal loan is a serious commitment. You should know exactly your purpose before even applying for a personal loan.

Here are 3 particular situations where getting a personal loan would be appropriate:

1. Consolidating Debt

If you already have other loans like car payments, mortgages, or student loans, you can take out a personal loan that consolidates all of your debt into one loan. Consolidating your debt has several advantages, including not organizing multiple loan payments and having one interest rate instead of many different ones.

2. Improving Your Home

A lot of people find it necessary to do home improvement projects. Personal loans can really help with adding a new room, doing renovations, or even adding a pool to your backyard. It is recommended that you only take out a personal loan on a home improvement that will raise your home’s value -think of it as an investment to raise your home’s value.

3. Starting a Business

If you are a small business owner and could not get approved for a small business loan (since the requirements are usually stricter), it may be possible to get the required capital through a personal loan. Personal loans do not often have stipulations on how they can be used, so as long as you meet the lender’s requirements, you can use the loans for your business. However, keep in mind that personal loans often aren’t for as large amounts as business loans.

If you need a loan for business expenses, it will always be better to apply for a business loan. We know that banks have very stringent requirements when it comes to business loans, but there are alternative lenders that have fewer requirements. Keep reading to find the best business loan alternative.

BONUS! Measures to Take Once Your Loan is Approved

If you have a good credit score and have provided proof of a stable income, you will hopefully be approved for the loan. If you are, here are a few things to keep in mind:

  • Pay on time- You always want to make your payments on time. Failure to do so will negatively impact your credit score. If you don’t think you will be able to make a payment, contact your lender as soon as possible to work something out.
  • Be Aware of Early Payment Penalties- Many people get a personal loan with a plan to pay it off as soon as possible to save money on interest in the long term. Keep in mind that some lenders have early payment penalties that will prevent you from doing this, so be sure to research whether this will be in play on your loan.
  • Take measures to reduce your interest rate- Another way lenders will prevent losing money on early payments is using pre-computed interest. This essentially means that you will pay more interest in the early life of the payment schedule and less interest at the end. This will make no difference if you pay the loan along with the payment schedule, but if you pay off the loan early, you will pay more than if the interest rate was fixed or simple. Here you can find some good tips on how to lower your interest rate.

A Lending Alternative for your Small Business

If you need capital to finance your business needs, a personal loan might not be what you need.


You might not get enough funds for your needs, and even if you do, a personal loan won’t help you build business credit. Plus, it’s always recommended to keep your finances separate, and a personal loan will complicate your bookkeeping and tax filing.

At Camino Financial we’re well known for offering small business loans and microloans.

Here are just some of the benefits we can offer you:

  • Instant Loan Quote. After filling out our application online, you will know, instantly if you prequalify.
  • Business Loan Calculator. Our loan calculator can help you can figure out if the monthly payments fit your current income.
  • Best Available Rates and Terms. We strive to match our clients with the best possible interest rates and terms.
  • Graduation. After 8 monthly payments are made, you may be even eligible for a second loan with even better terms.
  • Minimal Paperwork. Our application is fast, easy, and takes place entirely online, so you don’t need to visit a branch or spend hours gathering documents.
  • Excellent Customer Service. Our loan specialists are bilingual and will work personally with you to find the financing solution that best fits your goals.

Do you need a business loan and want a lender you can trust?

Learn more about our small business loans!



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