How to Prequalify for a Personal Loan

Preapproved vs Prequalified loans

When you are shopping for a personal loan, getting pre-qualified can be a really prudent idea. It will let you move much more quickly since you have already completed most of the work involved in terms of providing information and documents. You also get a good sense of the amount of money you will qualify to borrow. To prequalify is easy. You simply complete the requested information required. 

This gives lenders an idea of your creditworthiness while you can preview the best loan rates and terms to suit your needs without hurting your credit score. Prequalification by multiple lenders makes it easier to compare rates and terms when looking for the best offer.

One of the best reasons to get prequalified for a personal loan is it does not require a hard credit pull on your application, so it does not hurt your credit score. This also gives you insight with lenders to learn where your odds of approval might be low or perhaps the interest rates they offer are too high. You should note that to prequalify does not ensure you will get the loan and that it is based on preliminary personal and financial information, without an analysis of your debt-to-income ratio or credit history, it’s like a positive maybe suggesting that you’re definitely a good candidate for a loan.

If you are wondering what the point of prequalifying is and why not just submit your application to a lender, we will explain the difference with Pre Qualified vs Pre Approved, how they can impact your credit score, and what else you should know.

Once you’re pre qualified, don’t celebrate just yet. This does not mean that you are approved for a loan, but it does mean you are a step closer and things look good so far. Once you have made it to this stage some lenders often share further details regarding your personal loan request. From monthly payment amount or the length of the loan to other information like the interest rate and other fees that a lender may charge.

Pre Qualified vs Pre Approved

You have probably heard the terms pre approved and pre qualified used interchangeably, but there’s important differences between the two that are essential to know before you start applying for any type of personal loan. 

Pre Qualified

To be pre-qualified for a personal loan means that you’ll have an idea of the amount that you will qualify for based on your creditworthiness. To prequalify is based on data submitted by the consumer, such as your claimed income and debt. In other words, to be pre-qualified isn’t a sure thing and based on information you have provided. When you are pre-qualified you will not get specific details such as loan amount or interest rate available. At the same time, it is not based on a review of your finances, a credit history check and no hard credit check.

Pre Approved

To be preapproved is based on verifiable consumer data, like a credit check, and is when a lender agrees to fund your personal loan request. These types of offers would not affect your credit score unless you were to actually follow through and apply. Being preapproved means the lender believes you have a good chance of your loan request being approved based on your credit score, but it is not a guarantee. You would still need to provide any requested necessary documentation for the process to be verified. At this stage you would also get a better idea of the interest rate available to you, since there is a difference between consumer submitted data and a credit rating.

How to Get Pre Qualified Works

After you have completed a pre-qualification form about income and debt you may have, the lender performs a soft pull or soft credit check to review your credit score and history. This allows them to assess how risky you might be as a potential borrower.

If the lender decides to grant you pre-qualification, you will receive further details about the loan you may receive, which typically includes interest rates and loan amount. You now have the option to accept or ignore your pre-qualified offer. Should you move forward and accept, you would be able to formally apply for a personal loan. It’s at this stage that some lenders might also ask for additional information and verification details.

Being pre qualified or pre approved isn’t specific to personal loans either, you can also have the same opportunity with pre approved credit cards, pre qualify for auto loans, or mortgages.

How Much can I get Preapproved For?

To become pre approved for a personal loan a lender will evaluate your credit profile and annual income, along with monthly debt payments and expenses you may have.

The actual amount you might get pre approved for when it comes to a personal loan has everything to do with your income, debt, amount you are requesting and your credit history.

Prequalify for a Personal Loan with Bad Credit

If you are looking for a personal loan to pay off debt, possibly fund home improvements, or to pay off a sudden expense, there are numerous options available.

But if you are looking to prequalify for a personal loan with bad credit, sometimes things don’t look the same. Since a lender will use your credit score to assess your financial picture, having bad credit can make things more challenging to find one to fund your request. 

When you submit an application to get prequalified for a personal loan, there is no hard credit check and your credit score is not affected. It’s only when you actually apply that a lender will do a hard credit pull. It is because of this that getting prequalified for a personal loan with bad credit is often your best first move when comparing, so that you are able to review interest rates, terms, any additional fees if applicable, and other details to find the right choice.

Getting a personal loan with bad credit can be extremely helpful if you are struggling with high-interest debt and thinking to consolidate or take care of unforeseen expenses and don’t have an emergency fund to help cover the costs. 

Having poor credit can make it difficult to get most types of loans. Having bad credit does not necessarily mean that you will not be able to get a loan, but it often means that you will have to pay to get one. People with higher credit scores usually get better terms and  interest rates, and people with poor credit usually pay more to borrow.

How Can I Boost My Chances of Getting Approved for a Personal Loan

When it comes to applying for a personal loan, it’s your credit score that is the most important factor to lenders. This is how they determine your creditworthiness and what kind of actual risk you might be if they were to allow you to borrow. Your credit history of being able to pay your bills, pay on time, and debt to income ratio (DTI) are all carefully considered by lenders, and it’s your credit score that provides the most insight from verifiable data.

If you are interested to boost your chances of getting approved before applying, you should know your credit score beforehand. Review it carefully for discrepancies or errors. You might also find that if your credit score was in the low to mid 600 range, that you might be able to improve it in a few short months. If you don’t need the funds immediately, sometimes putting your application plans on hold and focusing on increasing your credit score can save you thousands of dollars that would otherwise go to interest.

The main things to improve my chances of pre qualifying and building or maintaining a strong credit score would be to pay bills on time, pay down debt, and avoid opening new lines of credit. You should also consider that when paying off credit card debt, you might not want to close the account since the length of credit history as well as credit utilization ratio are both factors with credit-scoring and closing a credit card can adversely affect your rating.

When you are applying for a personal loan online you will often get pre-qualifed in minutes. If you received an adverse action, this is a form of notification that your loan request was denied. This can often be related to information on your credit report or your income was too low, but not if you fail to pre-qualify. To receive an adverse action you will typically get a copy of your current score and factors contributing to how the decision was arrived at. If it should happen that you do not prequalify, you would not be able to move forward with your loan application and need to either look at ways of repairing your credit history or building your credit score, or loan alternatives available.