How to Get Preapproved for a Personal Loan in 5 Simple Steps

Getting preapproved for a personal loan can help ensure you qualify for the funds you need. Preapproval provides an early tentative approval that makes it highly likely you’ll get a loan.

I’ll explain below what preapproval is, how it differs from prequalification, and walk through the step-by-step process to get personally preapproved. I’ve also included tips on finding the best loan offers.

What Does It Mean to Get Preapproved for a Personal Loan?

With preapproval, a lender takes a deep look at your finances and provides a near-final loan decision. They verify details through documents to decide if you qualify for a certain loan amount, interest rate and repayment term.

Getting preapproved requires permitting a hard credit inquiry, which can temporarily lower your credit score But you’ll have a much stronger sense you’ll be approved for a loan in the end

Preapproval and prequalification sound alike but have some differences

• Prequalification gives tentative eligibility for a loan through a soft credit check. It’s a preliminary first step when shopping for a lender.

• Preapproval typically involves providing financial documents for verification and consenting to a hard credit inquiry This leads to a near-certain loan approval

5 Steps to Getting Preapproved for a Personal Loan

Follow these key steps to get preapproved for a personal loan:

1. Check your credit score

Your credit score plays a big role in the loan terms you can qualify for. Before applying, check your credit reports and FICO score through Experian, Equifax or TransUnion.

• Ideal FICO scores for the best rates are above 720.
• Scores of 670 – 719 qualify for reasonable rates.
• Scores below 650 make approval difficult.

If your score is low, take time to improve it before applying. Pay down debts, dispute errors on your reports and limit new credit applications.

2. Calculate your debt-to-income ratio

Lenders want your DTI below 36% for the best approval odds. To find your DTI:

• Add up your monthly debts like credit cards, auto loans and student loans.

• Divide this number by your pretax monthly income.

If your DTI exceeds 36%, paying down debts can help lower the number.

3. Gather required documents

To verify your financials, lenders typically require documents like:

• Tax returns or W-2s proving your income
• Paystubs covering the last 30 days
• Bank statements showing regular direct deposits
• Photo ID like a driver’s license
• Proof of address like a utility bill

Having these ready speeds up the preapproval process.

4. Formally apply and consent to a hard inquiry

Complete a loan application with your desired lender, providing the needed documents. This grants the lender permission to do a hard pull on your credit.

Hard inquiries can lower your scores by a few points but don’t significantly damage your creditworthiness. And you typically only need one hard inquiry to get preapproved with multiple lenders.

5. Get your official preapproval letter

Within a few days, you’ll receive a preapproval letter if you qualify. It states your verified eligibility for a certain loan amount, interest rate and repayment terms.

This isn’t a loan guarantee, but does make final approval highly likely as long as your finances stay the same. You can now confidently apply for a formal loan!

Tips for Finding the Best Preapproval Offer

Here are tips to land the best loan deal through preapproval:

• Compare multiple lenders. Even if preapproved with one lender, apply with several others to find the lowest rate and best terms.

• Ask about discounts. Many lenders offer interest rate reductions for autopay, loyalty programs, or large loan amounts.

• Mind the fees. Look for lenders charging low or no origination fees on loans. High fees can drive up your overall costs.

• Review timelines. Online lenders can often fund loans within 1-3 days of final approval. But traditional banks can take longer, up to a week or more.

• Watch for prepayment penalties. Avoid lenders charging you extra to pay off a loan early. These penalties lock you into making all payments.

• Consider perks. Some lenders provide unemployment protection, allowing you to pause payments if losing your job. Ask about available borrower perks.

What Happens if You Don’t Get Preapproved?

If preapproval is denied, first find out why by contacting the lender. Common reasons include:

• Low credit score
• High debt-to-income ratio
• Insufficient income
• Limited credit history

You can then take steps like:

• Attempting preapproval with other lenders
• Working to improve your credit or lower debts
• Waiting a few months to reapply after improving your financial profile

Bringing on a creditworthy cosigner may also help your chances. But not all lenders allow cosigners, like Rocket Loans.

The Benefits of Getting Preapproved

While not a loan guarantee, preapproval offers major advantages:

• Verifies you qualify for a near-certain loan approval
• Locks in a specific interest rate and loan amount
• Saves you time compared to starting from scratch later
• Allows confidently shopping for a major purchase like a car
• Provides peace of mind that financing is taken care of

Just be sure your financial circumstances don’t change before taking out the actual loan.

Final Thoughts

Preapproval takes your loan eligibility a big step forward from just prequalification. By submitting documents upfront for verification, you get a reliable advanced approval that makes final loan confirmation highly likely.

This gives you confidence in shopping for a large purchase or tackling big financial goals with your incoming loan money. Just be sure to compare multiple lender options to get the best preapproval terms for your situation.