prequalify for a personal loan

How to Prequalify for a Personal Loan: A Complete Guide

Getting a personal loan can be a great way to pay for major expenses or consolidate high-interest debt. But before you apply for a personal loan, it’s wise to prequalify with multiple lenders first. Prequalifying lets you check rates and terms without a hard credit check. Read on to learn everything you need to know about prequalifying for a personal loan.

What Is Prequalification for a Personal Loan?

Prequalification is the process of providing your basic personal and financial information to a lender without formally applying. The lender will use this information to conduct a soft credit check and give you an estimate of the loan amount interest rate and fees you may qualify for.

Prequalification does not guarantee approval, but it’s a useful way to compare potential loan offers between multiple lenders without hurting your credit. Formal applications usually require a hard credit check, which can temporarily lower your credit score. With prequalification, you can avoid unnecessary hard checks and focus your applications only on lenders likely to approve you.

Benefits of Prequalifying for a Personal Loan

Here are some of the main benefits of prequalifying for a personal loan:

• Get an idea of your chances of approval – Prequalification gives you an early indication if you’re likely to be approved based on your credit, income, and existing debts.

• Compare rates and terms – By prequalifying with multiple lenders, you can compare interest rates, fees, loan amounts, and repayment terms. This allows you to find the most competitive offers.

• Avoid excess hard credit checks – Each hard credit check from a formal application can temporarily ding your credit score. Prequalifying minimizes hits to your score.

• Save time – Prequalifying weeds out lenders that are unlikely to approve you. You don’t waste time completing full applications that have little chance of success.

Overall, prequalifying for a personal loan simplifies the application process. You go into the formal application informed about your eligibility and focused only on lenders likely to give you the best rates and terms.

How to Prequalify for a Personal Loan

Follow these steps to prequalify with lenders and get estimates for the personal loan you may be eligible for:

1. Research lenders

Search online for top lenders that offer personal loans. Look for ones that service your state and work with applicants with your credit score range. Compile a list of at least 3-5 potential lenders to prequalify with.

1. Provide basic personal and financial information

Visit lender websites and look for prequalification or preapproval forms. These forms will ask for basic details like your name, contact info, Social Security number, income, and estimated credit score.

Double check that you’re providing accurate details, as incorrect info could negatively impact your prequalification results.

1. Authorize a soft credit check

The lender needs to check your credit report to estimate rates and terms. The prequalification process involves a soft inquiry, meaning your credit score won’t be affected.

1. Review prequalified loan offers

Within minutes, you’ll typically get a prequalified loan offer showing estimates for the loan amount, APR, fees, term lengths, and monthly payments you may qualify for. Review the terms and make sure they fit your budget.

1. Compare offers from multiple lenders

Repeat the process with all lenders on your list. Contrast the prequalified offers side-by-side so you can identify the best loan for your needs. Key factors to compare include APR, fees, loan amounts, and lender reputation.

1. Proceed with formal application

Once you’ve identified the lender likely to give you the best deal, you can go ahead with a formal application and complete the process to get your funds. Be sure to only submit one formal application, since multiple hard checks can excessively lower your score.

What Information Do You Need to Prequalify?

To prequalify for a personal loan, you’ll need to provide lenders with some key details on your identity, income, debts, and credit history. Information commonly required includes:

• Full legal name
• Date of birth
• Social Security number
• Contact details like phone number and address
• Employment status and income amount
• Income sources and frequency
• Housing payment amounts
• Estimated credit score range
• Total monthly debt obligations
• Loan purpose and amount desired

Take some time to gather this info before starting the prequalification process. Entering accurate details will get you the most precise prequalified offer estimates from lenders.

Prequalification vs. Preapproval – What’s the Difference?

While the terms sound similar, there are some notable differences between prequalification and preapproval for a personal loan:

Prequalification:

• Soft credit check only
• Based on limited info provided by you
• Gives estimated loan terms you may qualify for
• Does not guarantee approval

Preapproval:

• Hard credit check required
• Lender verifies your financial information
• Provides specific loan terms you are likely approved for
• Much closer to a guarantee of final approval

Preapproval involves the lender taking a deeper look at your finances before estimating your loan terms. The hard credit check means preapproval gives a stronger indication you’ll ultimately get the loan. However, prequalification is usually the recommended first step, since you can compare multiple lenders without hurting your score.

What to Do if You’re Not Prequalified

If you complete the prequalification process but don’t get approved estimates from any lenders, don’t panic. Here are some tips:

• Ask lenders for details on why you were denied, then work to improve those areas. For example, if you were rejected due to credit, focus on raising your score.

• Review your credit reports and fix any errors negatively impacting your score.

• Apply with a cosigner who has better credit to improve your chances.

• Shop around for lenders that specialize in bad credit borrowers if your score is low. Just beware that their rates and fees are usually less favorable.

• Build your credit history by becoming an authorized user on someone else’s credit card or taking out a secured credit card.

• Pay down existing debts to lower your credit utilization and debt-to-income ratios.

• Increase your income to improve your debt-to-income ratio.

• Wait and reapply in a few months after improving your financial profile.

While getting denied prequalification can be disappointing, use it as motivation to strengthen your credit and financial health. Then you should have better luck landing affordable loan offers down the road.

How to Get the Best Personal Loan Prequalification Terms

If you do get prequalified, there are several strategies you can use to try getting the best possible loan terms:

• Provide accurate information – Giving incorrect details can cause worse prequalified terms.

• Prequalify with at least 3 lenders – Comparing multiple offers helps ensure you get the most competitive rates and fees.

• Ask about discounts – Some lenders offer discounted rates for things like setting up autopay, having an existing account, or being a member of certain groups or associations.

• Apply with a cosigner – Adding a cosigner with better credit can result in a lower interest rate. Just make sure you and the cosigner agree on repayment details.

• Improve your credit – Work on raising your credit score before applying since borrowers with higher scores get better terms.

• Lower your debt-to-income ratio – Lenders may offer better rates if you have less existing monthly debt relative to your income.

• Opt for a shorter term – You’ll pay less interest over time with a shorter repayment term, although your monthly payments will be higher.

Putting in some work upfront to boost your financial profile can really pay off with thousands of dollars in interest savings over the life of your loan.

Alternatives if You Can’t Get a Personal Loan

If you aren’t able to prequalify for a personal loan with reasonable rates and terms, here are some other financing options to consider instead:

• Credit cards – Balance transfer or low-interest credit cards can provide an affordable way to finance expenses over time. Just be cautious of high ongoing interest rates.

• Home equity loan or line of credit – Borrow against the equity in your home if you’re a homeowner, but risk foreclosure if you can’t repay.

• Payday alternative loan – Credit unions offer small loans at lower rates than payday lenders. However, you’ll need membership and these loans still have fees.

• 401(k) or pension loan – You can borrow from your own retirement savings, but it’s risky and limits growth potential.

• Borrow from friends or family – An interest-free loan from loved ones may be possible, but make sure to outline repayment expectations upfront.

• Crowdfunding – Sites like GoFundMe allow you to fundraise for expenses, but success isn’t guaranteed.

• Pay out of pocket – Save up to pay cash or break expenses into multiple credit card payments to avoid financing.

Be cautious of options like payday loans or car title loans. Their ultra-high interest rates make them very expensive over time. Exhaust safer alternatives before resorting to risky forms of credit.

Frequently Asked Questions About Prequalifying for a Personal Loan