Prequalifying for a personal loan is an excellent way to obtain personalized loan information without submitting an application. Prequalifying without harming your credit score is possible, and it can help you understand your loan options and terms. Prequalification entails researching and providing information about your income and employment to lenders.
Paying your bills on time, keeping balances low, and aiming to pay off credit card balances in full each month can all help you get prequalified. In this article, we will go over how to prequalify for a personal loan and what information you will need.
What is the definition of personal loan prequalification?
Personal loan prequalification is the process of providing a lender with personal information such as your credit history, income, and assets in order to see if you are approved for a loan without completing a full application. If you are pre-approved, the lender will send you the loan offer details, such as the loan amount, interest rate, loan fees, and other terms.
Prequalifying for a loan means that a lender believes you are a good candidate to apply for the loan formally. You can even prequalify with bad credit in some cases, though the loan may have a higher interest rate. A soft credit inquiry, which has no effect on your overall credit score, can be used to determine your eligibility. The amount of loan you are offered is determined by your borrower eligibility, such as your income.
What information do I need to get a personal loan pre-approval?
Before applying for a personal loan, gather some financial information, check your credit score, calculate your debt-to-income ratio, and look into lenders who are compatible with your credit level.
Here is some information to have on hand for prequalification:
- This is your Social Security number.
- Income documentation, such as pay stubs, W-2 statements, and tax returns.
- Account numbers for your bank and brokerage.
- Your contact details.
- Name and contact information for your current employer.
Prequalification for a Personal Loan
When prequalifying for a personal loan, you should do the following:
1. Examine your credit score
Before applying, check your credit score to see which lenders are likely to consider you. Those with credit scores of 740 or higher are more likely to receive the best rates and terms, but those with good or bad credit can still prequalify. If you are denied, the lender must send you an adverse action letter explaining why you were denied. If it’s because of your credit score, there are several things you can do to improve it over time.
2. Establish your budget
Lenders will consider your income, available credit, and current debt obligations in addition to your credit score when deciding how much to lend you. You can help determine your budget by calculating your monthly payments and comparing them to your monthly income. This is referred to as the debt-to-income ratio.
3. Look into lenders
Prequalification entails researching lenders within your credit range. You can either go directly to a lender’s website and quickly complete the prequalification process, or you can use a loan marketplace. You’ll know which lenders are most likely to approve you if you do this extra legwork before submitting your formal application.
4. Complete a prequalification form
You must provide your financial information to the lender in order to receive a loan offer. Prequalification forms vary by lender, but most require the following information:
- Debt that is currently outstanding.
- Loan amount desired.
- Loan term preferred.
- Range of credit scores.
- Justification for borrowing.
Before committing to the loan and its terms, review the interest rates and fees, loan terms, funding timeframe, and borrower perks that you have received.
To prequalify with a lower credit score, you must shop around for the best loan options for your credit profile.
Is it possible to prequalify for a personal loan without affecting your credit score?
Prequalifying for a personal loan without harming your credit is possible; look for language such as “view rate without affecting your credit,” “no credit check,” or “no hard inquiry required.”
Prequalification entails providing the lender with information about your income and employment as well as undergoing a soft credit check, which does not appear on credit reports and has no effect on your credit score. The lender will then inform you of your estimated APR, monthly payment, loan amounts, and whether or not you meet their basic requirements.
With a lower credit score, you may be able to prequalify with a cosigner or by first improving your credit score. Giving accurate information and taking the time to back it up with supporting documents can help you get prequalified.
Is prequalification the same as preapproval?
Prequalification and pre-approval are terms that are frequently used interchangeably, but pre-approval is usually associated with the homebuying process. Prequalification is the preliminary stage of borrowing any type of loan, including a home loan, auto loan, or personal loan, in which a lender gathers basic financial information from the borrower in order to calculate an estimated amount of money they can afford.
Pre-approval is a more formal step in which the lender confirms the borrower’s financial information and credit history. In short, prequalification is based on information provided by the borrower to the lender, whereas preapproval requires a formal loan application and additional documentation of a borrower’s income, savings, and debt, as well as a credit check.
How to Get a Personal Loan Approved
If you want to get approved for a personal loan, you should plan ahead of time to increase your chances of getting the best offers. You can improve your chances of approval by taking a few steps.
Examine your credit report
Examine your credit reports before applying for a loan and dispute any errors you find. List additional sources of income on your credit card application to provide the lender with a complete picture of your financial situation.
Increase your credit score
A good credit history will put you in a good position to be approved for a loan. Pay all of your bills on time, keep credit card balances low, and aim to pay off revolving balances in full each month. Lenders consider the most recent balance on your credit cards to be owed, even if you pay it off in full. Charging less on your credit cards will improve your credit.
Check to see if you are prequalified
Before applying, it is always a good idea to see if you are prequalified. This is possible with a soft credit check, which has no effect on your credit score. This is an excellent way to learn about your options and terms.
Consider getting a cosigner or a joint applicant
If your credit score is low, a cosigner or joint applicant with a higher credit score may be able to help you get approved for a personal loan. If you are unable to repay the loan, the cosigner should be aware that they may be required to do so.
Determine whether the loan is appropriate for you
Consider whether the personal loan meets your needs before signing. If you’re consolidating debt and the interest rate is lower than what you’re currently paying, or if you can’t save for a larger purchase, it may be the best option for your finances. Even if it’s a requirement, make sure you’re getting the best deal before signing.
Prequalifying for a personal loan is an excellent way to obtain personalized loan information without submitting a formal application. Use any of the steps outlined above to improve your chances of getting prequalified and finding the right lender.