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Key takeaways
- Prequalification lets you view your predicted loan rates and approval odds without impacting your credit score.
- Review each lender’s minimum acceptance criteria and loan terms prior to filling out the application to increase your chances of prequalifying.
- Prequalify with multiple lenders to ensure you get the most competitive interest rate for your credit situation and financial history.
Prequalifying for a personal loan is a great way to get personalized loan information without affecting your credit score. Most lenders offer prequalification. You can fill out multiple lenders’ prequalification forms if you want to compare multiple potential personal loan rates and terms.
There are a few steps you can take to increase your chances of prequalifying and subsequently getting approved. Increase your credit score, make sure you meet the lender’s minimum eligibility criteria and have all of the proper information on hand.
4 steps to prequalify for a personal loan
Take the following steps when prequalifying for a personal loan for a smooth and successful application process.
1. Check your credit score
Check your credit score before applying to know which lenders are most likely to approve you. Applicants with credit scores of 740 or higher are more likely to get the best rates and terms, but those with lower credit scores still have options, as there are lenders that cater to borrowers with bad credit and fair credit.
If your credit score seems to be the primary reason you aren’t getting preapproved, there are steps you can take to improve your score if you don’t immediately need the funds.
2. Determine your budget
In addition to your credit score, lenders will consider your income, available credit and current debt obligations — also called your debt-to-income (DTI) ratio to determine your maximum and minimum loan amounts.
To help determine your budget, you can calculate your DTI by comparing your monthly debt payments to your gross monthly income. Before applying, make sure you meet the lender’s DTI requirement (if listed) and that another monthly payment can fit comfortably into your budget.
3. Research lenders
Research lenders for your specific credit range. There are lenders that cater their products to borrowers with specific scores, from those with poor credit to those with excellent credit.
You can go directly to the lender’s website and go through the prequalification process quickly or use a loan marketplace, which shops your info around with multiple leners. By doing this extra legwork, you’ll know which lenders are most likely to approve you before formally applying.
4. Fill out a prequalification form
You must provide the lender with your financial information to receive a loan offer. Prequalification forms differ by lender but consistently require a few pieces of information.
- Income.
- Current outstanding debt.
- Desired loan amount.
- Desired loan term.
- Credit score range.
- Reason for borrowing.
Once you receive your prequalified offers, review the interest rates and fees, loan terms, funding timeframe and borrower perks before committing to the loan and its terms.
Advantages of prequalifying for a personal loan
Getting prequalified makes sense for a few key reasons. You get a more concrete idea of the loan terms you potentially qualify for, and you won’t ding your credit score, as there is no hard credit check.
Most importantly, you’ll know what to expect if you formally apply for a loan, in terms of rates and if the lender sees you as a good fit. You can save effort and preserve your credit score by looking elsewhere if you don’t prequalify or the loan terms don’t work for you.
Are prequalification and preapproval the same thing?
Prequalification and preapproval are often used interchangeably, but they are not the same.
Prequalification is a preliminary stage of getting a loan — including a home loan, auto loan or personal loan — in which a lender gathers basic financial information from the borrower and runs a soft credit check. You’ll receive an estimated loan amount and annual percentage rate. However, this is not a final offer; the terms may change if you formally apply, depending on what the lender finds in your financial and credit history.
Preapproval is a more formal step in which the lender confirms the borrower’s financial information and credit history. It requires a hard credit check, which will temporarily drop your credit score by up to 10 points. A preapproved offer is a formal offer — it shows you the exact terms you’ll receive if you accept the loan.
In short, prequalification relies on a few data points the borrower provides to the lender, while preapproval involves a formal loan application.
How to improve your odds of personal loan prequalification
Here are a few steps you can take to help increase your chances of prequalifying for a personal loan:
- Review your credit report. Before inquiring with a lender, review your credit reports and dispute errors that could be dragging your score down.
- Improve your credit score. Pay all your bills on time, keep credit card balances low and avoid applying for new credit.
Consider a co-signer or joint applicant. If you have a lower credit score, a co-signer or joint applicant with a higher credit score may help you prequalify for a personal loan.
The bottom line
Prequalifying for a personal loan is a great way to get personalized loan information without undergoing a hard credit check and formally applying. To make the process more seamless, prequalify with multiple lenders to get an idea of what a competitive offer looks like for your credit situation.
Frequently asked questions
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Before prequalifying for a personal loan, you should gather some financial information, check your credit score, calculate your debt-to-income ratio and research lenders that are compatible with your credit level. Be sure to have a copy of your recent pay stub and tax returns handy. The lender will also request your contact information, Social Security number and your current employer’s name, phone number and email address.
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It is possible to prequalify for a personal loan without hurting your credit. Prequalification involves providing the lender with information about your income and employment and undergoing a soft credit check, which will not show up on credit reports and will not affect your credit score. Look for wording such as “view rate without impacting your credit,” “no credit check” or “no hard inquiry required.”
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If your initial attempts to prequalify for a personal loan fail, try one or more of these strategies:
- Apply with a different lender type: Online lenders and credit unions may have more flexible qualification requirements.
- Try a loan marketplace: A loan marketplace shares your information with multiple partner lenders — sometimes dozens at once.
- Request a smaller loan amount: Asking for less money may make you seem like less of a risk to lenders.
- Pay down existing debt first: You may need to reduce your current debt load for lenders to trust your ability to repay a new loan.
- Explore alternatives:If these strategies fail and you urgently need cash, check out personal loan alternatives, like using a credit card or tapping your retirement savings.
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