Prequalify for a personal loan to weigh all options

We’ve all faced an unexpected circumstance or an emergency that required some extra funds. If you find yourself needing to cover some expenses you hadn’t counted on or even a planned home improvement project, a personal loan can provide funding you can use for almost anything.

Your borrowing experience, however, hinges on the terms of your loan, which is why prequalification is one of the most important steps when considering a personal loan.

What getting prequalified for a personal loan means

Prequalification offers you a “preview” of the kind of loan you may qualify for if you submit a complete loan application. Lenders will run a soft credit check on you, which won’t affect your credit score or allow the lender to conduct a deep review of your finances. It’s often one of the first steps in the loan approval process, typically occurring as you shop around for a lender.

Prequalification typically provides an estimate of the cost of these common features of a personal loan, along with other important details.

• The interest rate and fees: Your interest rate will determine how much you’ll spend on the loan over time, so you’ll want to see if you qualify for a good rate. Many loans also require upfront costs, such as origination fees, which you’ll want to compare across lenders to get the best deal possible.
• Monthly payment and contract details: Carefully review the monthly payment expectations, as well as the entire loan contract. If something doesn’t add up or seem right, be sure to ask questions before signing. Even if there is only a minor typo or mistake of any kind, be sure to request an updated contract before signing.
• Loan-term length: A longer loan term results in lower monthly payments but higher interest owed over time. A shorter term will save you interest, but it will be more expensive on a monthly basis, so decide which option best suits your situation.
• Lending time frame: Personal loans are often available 1 – 7 business days after applying, but the wait can sometimes be longer. Delivery times vary among lenders, so consider your desired time frame for accessing the money. Rocket Loans℠ can provide same-day funding under certain conditions.
• Features and benefits: Some lenders may offer rate discounts, relief options, and other perks to borrowers. Consider any benefits a lender can offer you when choosing a loan provider.

Keep in mind that prequalifying doesn’t guarantee you’ll be granted a loan or even that you’ll qualify for the exact rate and term highlighted in your prequalification. Your final loan approval will involve a hard inquiry as well as further verification of the financial information you provided. You can get prequalified with multiple lenders to compare terms.

Personal loan prequalification vs. preapproval

Prequalification and preapproval may be used interchangeably for personal loans, which can be confusing for borrowers new to this process. Keep in mind, too, that a preapproval letter is most often associated with getting a mortgage, not a personal loan.

While loan prequalification involves only a soft check on your credit, loan preapproval may take a deeper look into your financial situation to determine if you’re eligible for a specific interest rate and a particular loan repayment term. With a personal loan preapproval, a lender may ask you to provide documented proof of your income, debts, and other key financial information. You may also be required to consent to a hard inquiry, which will temporarily lower your credit score.

Lenders may differ in the terms they use to describe their process, so be sure to determine which terms a lender uses and what they mean by them.

Prequalifying for a personal loan: 6 steps

As part of the personal loan process, getting prequalified involves a few basic steps, which are similar to qualifying for other types of loans. Let’s walk through how to get prequalified.

1. Check your credit and finances

Since personal loans are often unsecured (meaning there’s no collateral), your prequalification interest rate and repayment term will hinge on how creditworthy lenders believe you are. To begin the prequalification process, start by checking your credit report. The minimum credit score range that lenders typically accept for personal loan approval is around 580, but your options may be limited with that score. With a score of at least 670, you will likely have more choices and better terms. You can access a free credit report by visiting AnnualCreditReport.com. The individual credit bureaus – Experian^®, Equifax^®, and TransUnion^® – also may offer a free credit report.

If possible, calculate your debt-to-income ratio (DTI) as well – lenders typically prefer a ratio of no higher than 43%.

If you need to improve your credit score, it’s better to know early rather than after you get too far into the application process. You may not qualify for a good interest rate – or qualify for a loan at all – if your credit score is too low.

2. Research different lenders

Personal loans are offered through traditional banks, credit unions, and online lenders. Rates and terms vary by lender, so it’s essential to conduct thorough research. Consider various factors, such as the annual percentage rate (APR), repayment periods, offered loan amounts, and any other aspects that directly affect you – the borrower.

3. Complete a prequalification form

To apply for prequalification, you must submit a form that includes personal details about yourself, your financial situation, and your employment status. Expect to provide:

• Name
• Date of birth
• Social Security number
• Current address
• Phone number
• Employment status
• Estimated income

You should also plan to provide information about your credit score and any outstanding debt. Details specific to the loan you are interested in may also be required. Be prepared to provide your desired loan amount, term, and reason for borrowing money. Some lenders may have specific income requirements.

4. Undergo a soft credit check

After receiving your prequalification form, a lender will likely conduct a soft credit check on your finances. This will take a surface-level look at your credit profile, but it won’t affect your FICO^® Score or show up on your report. However, remember that some lenders use prequalification when they actually mean preapproval. In this case, they may conduct a hard inquiry.

When the credit check is complete, your lender will let you know whether you’re prequalified and possibly present you with an offer. This sometimes happens immediately after you submit your initial form. If the lender finds any negative remarks on your report, you can take steps to repair your credit.

5. Review your prequalified offer

Once you have an offer in hand, review it to ensure it aligns with your expectations and that the repayment terms fit within your budget.

6. Compare offers from other lenders

If possible, get prequalified with multiple lenders. Since soft credit checks won’t hurt your credit, why not collect as many tentative offers as you can to compare deals? Once you’ve reviewed your offers, choose the lender that appears best for your situation and submit a complete application along with the appropriate loan documents.

What happens if you can’t get prequalified?

If your application for personal loan prequalification is denied, it doesn’t mean that getting approved for a loan is out of the question. Consider taking one or all the following actions:

• Reach out to the lender. It wouldn’t hurt to ask the lender why your prequalification was denied, and any answers they provide could help you try again soon. Common reasons for denial include a low credit score, a high DTI ratio, insufficient income, or a combination of these factors.
• Work to improve your credit. Recheck your credit report and look for areas of improvement or even errors that may misrepresent your credit history. Paying down credit card debt is a significant first step toward improving your credit profile.
• Apply with other lenders. Try to prequalify with different lenders if you haven’t already, and see if one or more of these lenders will accept your application. If you’re denied again, you’ll probably need to consider other options.
• Submit an application with a co-signer. Applying with a co-signer could give your application a boost. Rocket Loans doesn’t currently offer co-signing options for personal loans, however.

Final thoughts on getting prequalified for a personal loan

Personal loans can be a convenient way to address the need for emergency funds, home improvement projects, or debt consolidation. Still, it’s important to understand your personal loan eligibility early in the game. While not a guarantee of final loan approval or a specific loan amount, the estimate a lender provides can provide insight into where you stand as an applicant and whether you’re likely to qualify for the sum of money you want. Additionally, you can use your prequalification to compare lender options and land the best deal possible.

Want to see your potential interest rate and loan options? Get the personal loan process started with Rocket Loans today.