When looking to borrow, the ability to pre-qualify for a personal loan can be very beneficial as it allows you to evaluate offers from many lenders without commitment or negative influence on your credit score.
A lender assesses your basic financial information to establish your eligibility without harming your credit when you apply for loan prequalification. A lender can often estimate your APR, loan amount, and monthly payment without performing a thorough credit check.
Keep reading to find out how to become prequalified for a personal loan so you can find low interest rates and terms.
What exactly does it mean to be prequalified for a personal loan?
When you apply for a personal loan prequalification, you typically fill out a quick online form with some basic information.
A soft credit check is often done as part of the pre-qualification process to pre-screen you before submitting a formal loan application. When you allow a creditor, lender, or company to look at your credit report, it’s called an informal inquiry. A soft credit check has no effect on your credit score since it is not tied to a loan application.
If a lender thinks you’re a good candidate for a loan, they’ll provide you with an outline of the personal loan interest rate, terms, and amount you can expect to receive if your formal application is approved.
Pre-qualification, on the other hand, does not guarantee you a loan; lenders will verify your information before final approval.
Complete the pre-qualification form
Many lenders allow you to prequalify on their website by completing an online form which may include:
- Personal data such as your name, date of birth and social security number;
- Details such as your address and telephone number are required;
- Details of your job, including your annual salary;
- Other information about your financial accounts, for example whether you have savings, retirement or investment accounts;
- Your preferred loan amount, loan purpose and loan repayment term.
Since interest rates and terms differ from lender to lender, we suggest that you pre-qualify for many personal loans to evaluate offers.
These offers will contain your possible loan terms, such as the amount you are eligible for and the interest rate, but these numbers may change when you formally apply and a lender has a thorough understanding of your financial situation.
Examine your credit score and, if necessary, try to improve it
Personal loans are often unsecured, meaning they don’t need collateral. This implies that personal lenders rely heavily on your financial history to assess your borrower’s eligibility. Because it takes into account your payment history, credit utilization rate, credit applications, and other financial information, your credit score is a strong signal to lenders.
If you have a bad credit history, it can be difficult to get even a $3,000 loan, but possible. Consider trying to improve your credit score before applying for a personal loan to maximize your chances of prequalifying.
To improve your credit score, consider the following suggestions:
- You need to pay your bills quickly. Late payments can persist for up to seven years on your credit report and contribute to 35% of your credit score.
- Paying off your debts can help reduce your use of credit. Your credit usage is the amount of credit you’ve used divided by the amount of credit you have.
- Examine your credit report. AnnualCreditReport.com allows you to get a free copy of your credit report from all three credit reporting agencies.
Review your pre-qualified offers
After completing a loan prequalification form, you should normally get quick results. Here’s how you can compare the offers you receive:
- Examine interest rates and costs. To compare the costs of your loan alternatives, compare the annual percentage rates (APR) and upfront fees.
- Think about loan terms. In general, the shorter the term of your loan, the less interest you will pay over time. Longer loan periods may provide a cheaper monthly payment, but you’ll pay more interest in total. Before you borrow, you need to decide which is more important: lower monthly payments or long-term savings.
- Review the funding schedule. If you need money right away, a lender that offers same-day or next-day loans should be high on your list.
- Look for the advantages of the borrower. Borrower incentives can include an interest rate reduction if you sign up for autopay or payment relief alternatives if you lose your job and run into financial hardship. If you are comparing two identical loan choices, these loan qualities could be the deciding factor.
Make a formal request for your money
You should see potential loan terms within minutes of submitting your pre-qualification form. If you are satisfied with the amount, interest rate and repayment term, you are ready to apply for a personal loan.
This often involves submitting financial documents such as recent bank statements and tax returns, which the lender will use to verify the information you provided during pre-qualification. The lender will perform a rigorous credit check once you complete the application.
If your loan is approved, some lenders can fund it the next business day, by transferring the funds to your preferred bank or savings account. Most lenders can finance within a week.
Can you get a personal loan even if you have bad credit?
Yes, some lenders provide loans to customers with less than perfect credit. You can get the best loan options for your credit profile by shopping around.
According to Fed statistics, the average The APR for a two-year bank loan is 9.09%. Big banks favor applicants with strong or exceptional credit (690 FICO or higher), and some banks reward current customers with bonuses or rate reductions.
It is crucial to note, however, that consumer loans with poor credit can have higher interest rates, which makes them more expensive. Working on your credit first can help you qualify for a cheaper interest rate if you have the freedom to wait.
If you are not accepted
You should receive notification or an adverse action letter if your application is denied. This will contain information about the credit bureau that produced the report, why you were denied, your current credit score and contributing variables, and how you can get a free copy of your report.
This information can be helpful in determining how to quickly improve your credit score and increase your chances of getting a personal loan in the future.