How to Take out a Loan

Sometimes you need more money than you have set aside. If you decide to take out a loan to raise some extra cash you'll find plenty of options, including various types of personal loans. Some loans are a lot more expensive than others, however. Whatever lending source you choose, shop around to find the best rates and terms.

Research Your Options

More lending companies and loan types have hit the financial scene in recent years, to the potential benefit of consumers. Consider whether you're willing to pledge assets such as your car for collateral, if your credit needs some work and the amount of interest you'll have to pay over time. Compare different loan features, interest rates and repayment schedules to find what works for you. Some lenders sneak in servicing and other fees; if you see any costs you don't understand, don't be afraid to ask for clarification.

Personal Loans

Personal loan providers check your credit rating, so review your credit history and FICO scores before you apply. If you find mistakes, contact the credit bureaus and have the errors fixed. This improves the odds your loan request will be approved. You can see your credit report for free each year at, which is the Federal Trade Commission's authorized source of free credit reports. FICO scores aren't part of the free report, but you can get them included for a small fee.

A personal loan is a cash loan you get from a private loan company, a credit union or a bank. You can use the money for any purpose. For instance, you might take out a personal loan to pay for a wedding or vacation. Personal loans may be secured, meaning you must put up an asset you own as collateral. They can also be unsecured. Unsecured personal loans typically have higher interest rates because there is no collateral to back them up. However, if you have a low credit score, you may be limited to a secured loan and have to pay more in interest anyway; and you may not be able to borrow as much if your credit is spotty.

  • Personal loan application.  To take out a personal loan, you must fill out an application form. Depending on the lender, you may be able to do this online or by phone. 
  • Identification. You need to present identification before being approved for a personal loan. A valid government-issued photo ID like a driver's license, military ID or passport is acceptable. 

    Some lenders will accept two alternative pieces of identification such as a current photo employee ID, credit card with your photograph, a current bank statement or utility bill and a permanent residents card. * Proof of income. You must present documentation of income, such as a recent pay stub or equivalent. Military personnel can use a statement of earnings. A letter signed by your employer may be accepted as well. Retirees can use Social Security or pension award letters or current bank statements. If you are self-employed, bring your tax returns for the last two years. 

"No Credit Check" Loans

When you don't have a strong enough credit history to take out a personal loan, there are alternatives that don't require a credit check. However, these types of loans are expensive. Finance charges can be equivalent to an annual interest rate of several hundred percent. The high cost may make these loans hard to pay off and you could end up renewing them and paying still more finance charges.

  • Payday loans. Payday loans are usually offered by payday loan shops and check cashing stores. You must present proof of your identity and give the lender a signed check for the amount borrowed plus finance charges; or you may be required to give them signed permission to electronically debit your bank account. Payday loans are usually due in about two weeks. 
  • Title loans. For a title loan, you have to give the lender a clear title to your vehicle, fill out an application and furnish identification and proof of income. Repayment is due in one to four months in most cases. If you can't pay back the money, you can lose your means of transportation. 
  • Pawnshops. You can take an item of value to a pawn shop to use as collateral for a loan. If the shopkeeper is interested, he'll offer you cash -- usually a small percentage of the value. You receive a pawn ticket in exchange for the item. You get your property back when you present the pawn ticket along with payment of the loan amount plus finance charges. If you don't repay the loan, the pawnbroker sells the item to recoup the loan amount. 

Creative Cash Options

Given the high cost of car title and similar loans, the Federal Trade Commission suggests trying for a personal loan first or getting a cash advance from a credit card. You can also try applying for a low or zero interest credit card.


  • If you have cash in certain types of retirement products such as a whole life insurance policy or 401k account, you might be able to borrow from your own account and enjoy flexible repayment terms. Check with your broker to find out eligibilty, application and interest rate details.