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Pre-qualifying for a personal loan is a first step in the loan approval process. It gives lenders an idea of your creditworthiness and it gives you a preview of the loan you might receive.
Getting pre-qualified, however, doesnt guarantee you a loan. Lenders will verify your information before final approval.
Not all lenders offer pre-qualification, but many banks, credit unions and online lenders do. The feature can be a big help when you’re shopping for a personal loan.
Here are the steps to pre-qualify for a personal loan, plus tips to boost your approval odds.
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 pre-qualify with multiple lenders first. Pre-qualifying lets you check your chances of approval and compare loan offers, all without hurting your credit score.
In this comprehensive guide, we’ll explain exactly how to pre-qualify for a personal loan so you can set yourself up for success.
What Is Personal Loan Pre-Qualification?
Pre-qualification is the process of submitting a personal loan inquiry to estimate your likelihood of approval
When you pre-qualify, the lender will do a “soft” credit check that doesn’t affect your credit score. This soft check allows them to review your credit history and provide an early decision on whether they may lend to you.
Pre-qualification is different from a loan pre-approval, where the lender does a “hard” credit check and fully verifies your financial information.
The main benefits of pre-qualifying for a personal loan are:
- Getting an idea of loan offers available to you
- Comparing estimated rates and terms from multiple lenders
- Checking if you may qualify without hurting your credit
So pre-qualification lets you shop around with no risk! Now let’s look at how to actually do it
Step 1: Check Your Credit Score
Before pre-qualifying, it’s wise to check your credit score so you know where you stand.
Most online lenders prefer credit scores of at least 660-680 for personal loans. The higher your score, the better your chances of being approved and securing the lowest interest rates.
You can easily check your credit score for free through sites like Credit Karma. If your score is low take time to boost it before applying for a loan. Paying down balances and correcting errors on your credit reports are two effective ways to improve your score quickly.
Step 2: Calculate Your Debt-to-Income Ratio
Lenders also look at your debt-to-income (DTI) ratio when considering a personal loan application. Your DTI compares your monthly debt payments to your gross monthly income.
To calculate your DTI:
Total Monthly Debt Payments / Gross Monthly Income = DTI
For example:
- Total monthly debt payments: $1,000
- Gross monthly income: $4,000
- $1,000 / $4,000 = 25% DTI
Most lenders look for a DTI of 35% or less for approval. If your ratio exceeds this, paying down some debts can improve your chances.
Step 3: Research Lenders
With your credit score and DTI in mind, research lenders that may work for your financial situation.
Online lenders like LendingTree, Lightstream, and SoFi offer pre-qualification with soft credit checks. Banks and credit unions can also pre-qualify you.
Focus on lenders that specialize in your credit score range and meet your borrowing needs. Comparing multiple offers side-by-side will help you find the best loan for your needs.
Step 4: Submit Pre-Qualification Forms
Now it’s time to submit pre-qualification forms with your top lender picks. The application process is simple and fast.
You’ll need to provide basic personal information like:
- Name, birthdate, Social Security Number
- Income, employment details
- Contact information, mailing address
- Loan purpose and amount you need
Giving accurate details will get you the most precise pre-qualified offer.
Step 5: Review Your Pre-Qualified Rates
Within minutes of submitting your information, you’ll get a response on whether you pre-qualify along with estimated terms.
Key factors to compare between lenders are:
- Interest rates – Lower rates save you money over the loan’s term.
- Fees – Origination or admin fees can raise the cost.
- Loan amounts – Make sure it fits your borrowing needs.
- Loan terms – Longer terms have lower monthly payments but higher overall costs.
Review the terms thoroughly and make sure they fit your budget before proceeding.
Step 6: Compare Offers and Apply
With pre-qualified offers from multiple lenders in hand, you can now easily compare them side-by-side.
Look for the lender providing the lowest rates and fees, flexible terms, and overall best pricing.
When you’ve selected your top choice, you can move ahead with a formal application. This final step will involve another credit check, document submission, and signing your loan agreement.
What If You Don’t Pre-Qualify?
If you don’t pre-qualify for a loan, don’t panic. Here are some tips:
- Ask why – Find out the reason for the denial so you can work to improve it.
- Check for errors – Verify your credit reports for mistakes negatively impacting your score.
- Add a cosigner – Applying with a cosigner with good credit can boost your chances.
- Improve your credit – Paying down debts and lowering utilization can help your case.
With a bit of work, you can get back on track to qualify for affordable loan rates.
Benefits of Pre-Qualifying for a Personal Loan
Pre-qualifying for a personal loan has many advantages:
-
Shop rates without hurting your credit – Compare offers from multiple lenders to find the best rates for your situation. Soft credit checks protect your score.
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Verify you may qualify – See if lenders are likely to approve you based on your credit profile before formally applying.
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Get estimates on costs – Learn how much you may pay in interest and fees over the loan’s term.
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Find the lender that fits you – Determine which lenders cater to borrowers with your credit score and financial profile.
-
Speed up the application – Pre-qualification makes the full application process faster.
Taking the time to pre-qualify saves you time and money while taking out a personal loan. So be sure to take advantage of this process.
Frequently Asked Questions
How does pre-qualifying affect my credit score?
Pre-qualifying only involves a soft credit check that does not affect your score. Only a full application triggers a hard inquiry which could cause a small temporary drop.
What credit score do I need to pre-qualify?
Most lenders like to see credit scores of at least 660-680 for personal loans. But each lender sets their own requirements, so your exact approval chances depend on their criteria. Checking with multiple lenders maximizes your odds.
Can I pre-qualify the same day I want to apply?
Absolutely! The pre-qualification process is extremely fast, with responses in minutes. If you pre-qualify with favorable terms, you could potentially apply and access funds the same day.
Is a pre-qualification guaranteed?
No, a pre-qualified offer is not guaranteed. While it’s a strong indicator you may be approved, the lender could change terms or decline your full application. Pre-qualification simply provides an estimate without obligation.
When would terms change between pre-qual and full application?
If the information you provided pre-qualification differs from your formal application, the lender could adjust rate and term estimates. Providing accurate details upfront minimizes this risk.
Get Pre-Qualified for a Personal Loan Today!
Now you have all the steps to pre-qualify and find the best personal loan rates for your needs. Don’t apply blindly – take time to pre-qualify with multiple top lenders first. Comparing personalized offers will ensure you get the most affordable financing.
What to do if you’re not approved
If your application is denied, you should receive an adverse action notice or letter. This will include information about the credit agency that provided the report, why you were denied, your current score and factors contributing to it and how you can get a free copy of your report.
This information can be valuable in finding ways to quickly build your credit score and strengthen your odds of getting approved for a personal loan.
5 steps to pre-qualify for a personal loan
Many lenders let you pre-qualify for a personal loan on their website by filling out a form. You’ll be asked to provide the following:
- Personal details, like your name, date of birth and Social Security number.
- Contact details such as your address and phone number.
- Your annual income and details about your employment.
- Other financial information, such as whether you have savings, retirement or investment accounts.
- Your desired loan amount and loan purpose.
Because rates and terms vary, NerdWallet recommends pre-qualifying with multiple lenders to compare offers.
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