A Rate Check and a Formal Application May Be Different
One of the first things borrowers may encounter is the difference between checking out potential loan options and submitting a formal application.
Does applying for a personal loan affect your credit? Some lenders let prospective borrowers run a personal loan credit check to see estimated rates or prequalify with a soft inquiry. Soft inquiries don't affect your credit score.
However, a formal application may involve a hard inquiry, which can affect your credit score. The Consumer Financial Protection Bureau (CFPB) explains that hard inquiries are commonly associated with new credit applications. According to myFICO, hard inquiries can stay on a credit report for up to two years, although FICO scores only take into account inquiries from the past 12 months.
Lenders May Review More Than a Credit Score
Your credit score matters when you apply for personal loans; however, it isn't the only factor lenders consider. Other factors may include:
- Credit history
- Payment history
- Income
- Employment status
- Existing debts
- Debt-to-income ratio
- Requested loan amount
Also, personal loan requirements vary by lender, and submitting an application does not guarantee approval just because of your credit score or because you've been approved for credit elsewhere.
Supporting Information May Be Verified After You Submit
Another part of the personal loan application process that sometimes surprises borrowers is the amount of documentation that they must provide after submitting the initial form. Lenders may ask for supporting documents to verify your identity, residence, income, employment, or banking information.
Service Loan South offers a personal loan application checklist to simplify the process. By following this checklist, you can gather the relevant details in advance so you can respond easily to document requests. Examples include pay stubs, tax returns, bank statements, W-2s, and 1099s.
The Amount and Terms Offered May Differ From the Request
The dollar amount that you enter in a loan application is a request – not necessarily the exact amount that you’ll receive in a final loan offer. After reviewing your application, a lender may decide that a different loan amount is appropriate or that different loan terms apply.
Before you accept the loan offer, consider whether the amount and payments fit your budget. Also, review the final disclosures and loan agreement to decide if these terms match your financial needs.
The Monthly Payment Is Only Part of the Cost
When you apply for personal loans, look beyond the monthly payment because it doesn't show the full cost of borrowing. Here's a list of what to review before accepting a personal loan:
- Annual percentage rate (APR)
- Finance charge
- Amount financed
- Payment schedule
- Total of all payments
- Any applicable fees
- Whether any prepayment terms apply
The CFPB's disclosure rules explain how prepaid finance charges can affect the amount financed. For more information, see Service Loan South's interest-rate guide and fixed-payment loan calculator guide.
Overall, the thing to remember is to compare the complete cost and repayment obligation – not just whether monthly payments fit into your current budget.
Approval, Acceptance and Funding Are Separate Steps
Another common misconception is that loan approval means the money is automatically available. In reality, what happens after applying for a personal loan may involve several steps, including the following:
- Submit your application
- The lender reviews and verifies your application information
- You receive a credit decision
- You review the loan terms
- You accept the loan and complete the required documents
- The lender processes the funds
Ultimately, approval and funding aren’t the same event in the personal loan application process. The timing of actually receiving funds depends on the lender you work with, how quickly you complete the required documents, and bank processing.
A Denial or Request for More Information Is Part of the Process
There is no guarantee you will receive a loan just because you apply, and not every application results in immediate approval. After reviewing your application, a lender may approve it immediately, deny it, make a counteroffer, or ask for additional information.
If your application is denied, federal law generally requires the lender to provide an adverse-action notice that includes reasons for the decision or information about how to obtain those reasons. The CFPB explains that applicants denied based on their credit report also receive additional information about the credit reporting company and, when applicable, the credit score used in the decision.
Just because a lender asks for more information doesn’t mean your application is denied. They simply may need more paperwork or clarification to complete their review. If your application is officially denied, see Service Loan South’s application denial guide to understand possible next steps.
What to Expect When Applying Through Service Loan South
We offer borrowers the opportunity to begin their personal loan application online. Once we receive your application submitted from a phone, tablet, or computer, a local branch representative will contact you.
From there, the application may move through the review and underwriting process. If approved, borrowers may need to provide additional documents to complete the closing process. Once we receive those documents and finalize the loan, we can begin processing the transfer of funds via direct deposit.
Keep in mind that, as with any borrowing decision, submitting an application does not guarantee approval or securing a particular loan amount, APR, monthly payment, or repayment term. These details depend on the relevant loan terms and our application review.
Review Service Loan South personal loan options to learn more, or contact a local branch with questions about the application process.
Frequently Asked Questions About Applying for Personal Loans
Below are answers to common questions about how to apply for a personal loan. You can learn more in the financial education section of our website or by calling or visiting a local branch.
Does applying for a personal loan affect your credit score?
Possibly, because a formal loan application may result in a hard credit inquiry, which can temporarily impact your credit score. However, a soft inquiry to simply check rates does not affect your score. Since lenders use different processes, confirm which type of inquiry will be used before you submit an application.
Why might a lender request more information after you apply?
A lender may need to verify information you provide on your application, such as your identity, residence, income, employment, or banking details. This documentation helps the lender complete its review.
Can the loan amount or terms change after you submit an application?
Yes, the amount you request on your application isn’t necessarily the same as the final offer you’ll receive. Based on the lender’s review, you could receive a different APR, repayment term, or monthly payment than you initially expected.
Does personal loan approval mean the funds are already available?
No, loan approval and funding are separate steps in the personal loan application process. Once you're approved, you may still need to complete closing documents and satisfy any remaining requirements before the lender transfers funds. Funding timing can vary based on the lender you choose and your bank's processing.
