How To Get Prequalified For A Personal Loan
Hanna Kielar6-minute read
January 21, 2023
If you need some extra cash fast, a personal loan can provide funding you can use for almost anything within reason. Your borrowing experience, though, can hinge on the terms of your loan, so you’d ideally want a preview of your rate, terms and the loan amount for which you qualify. And that’s where prequalification can be extremely helpful.
Let’s explore the numerous benefits of getting prequalified for a personal loan.
What Does It Mean To Get Prequalified For A Personal Loan?
Prequalification offers you a “preview” of the kind of loan you may qualify for if you submit a full loan application. It’s often the first step in the loan approval process, typically occurring as you shop around for a lender.
Prequalification typically gives you an estimate of your interest rate, monthly payments, loan term and loan amount, plus other important details. Getting prequalified also gives a lender an idea of your creditworthiness based on your credit score, repayment history and debt-to-income ratio (DTI). Lenders will run a soft credit check on you, which won’t affect your credit score or act as a full review of your finances.
If you get prequalified with multiple lenders, you can compare your results against other potential offers. Once you’ve found the best deal for you, you can then proceed to fill out a full loan application with the lender of your choice.
Prequalifying doesn’t guarantee you’ll be granted a loan, or even that you’ll qualify for the exact rate and terms highlighted in your prequalification. Applying for a loan involves a hard inquiry, which could reveal previously unseen financial details that affect your eligibility status.
Difference Between Prequalification And Preapproval
Prequalification and preapproval are sometimes used interchangeably with personal loans, and aside from certain legal distinctions, these terms carry a somewhat similar meaning. However, a preapproval letter is most often associated with getting a mortgage.
Lenders can vary on which term they use to describe their process, so be sure when shopping around to determine which term a lender uses and what they mean by it.
How To Prequalify For A Personal Loan
As part of the personal loan process, getting prequalified involves basically the same steps – regardless of the lender – up until formally applying for the loan. See how to get prequalified below.
1. Check Your Credit And Finances
Since personal loans are often unsecured (meaning there’s no collateral), your prequalification rate and terms will primarily depend on your creditworthiness. You’ll want to start any prequalification process by checking your credit report to make sure your credit is in a good place. If possible, see if you can calculate your DTI, too – lenders typically prefer a ratio no higher than 40%.
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 – with a score below 640.
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 important that you conduct adequate research. Consider various factors like annual percentage rate (APR), repayment periods, offered loan amounts and anything else that directly affects you, the borrower.
3. Complete A Prequalification Form
To apply for prequalification, you must submit a form containing personal details about you, your finances, employment and more. Expect to provide the following:
- Date of birth
- Social Security number
- Current address
- Phone number
- Employment status
- Estimated income
You should also expect to provide information on your current credit score range and any outstanding debt.
Details specific to the loan you want may also be required. Expect to state your desired loan amount and term, and the reason for borrowing.
When borrowing through an online lender, the lender’s prequalification forms are usually accessible by clicking on a call-to-action phrase like “See my options,” “See my offers,” and “Check your rate,” that links to the form page.
4. Undergo A Soft Credit Check
After receiving your prequalification form, a lender will likely conduct a soft credit check on your finances. This won’t affect your credit score or show up on your report like a hard inquiry, so you can prequalify with multiple lenders without hurting your credit.
When the credit check is complete, your lender will let you know whether you’re prequalified and possibly present you with an offer. This typically happens immediately after you submit your initial form.
5. Review Your Prequalified Offer
Once you have an offer in hand, look it over to see if it’s to your liking. Make sure to especially review:
- The rate and fees: Your interest rate will determine how much you’ll really be spending on the loan over time, so you’ll want to see if you qualify for a good rate. Many loans also require upfront costs like origination fees, so lean toward a lender with the lowest fees.
- Loan-term length: A longer loan term can mean lower monthly payments but more interest owed. Shorter terms can save you in interest but will be more expensive monthly, so decide which option best suits your situation.
- Lending timeframe: Personal loans are often available 1 – 7 business days after applying, but the wait can sometimes be longer. Delivery time can vary between lenders, so consider your desired timeframe for access to the money. Rocket Loans℠ can provide same-day funding under certain conditions.*
- Features and benefits: Some lenders may offer rate discounts, relief options or other perks to borrowers. Consider any benefits a lender can offer you when choosing a loan provider.
6. Compare Offers From Other Lenders
If at all 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 full application along with the appropriate loan documents.
Personal Loan Qualifications
Personal loan requirements can differ between lenders, but here are the four main factors considered when approving or prequalifying a loan.
Your credit score will be the most important factor in qualifying or prequalifying for a personal loan. The minimum credit score range often accepted for personal loans is 610 to 640, but this range doesn’t promise a favorable rate. For a good interest rate and more favorable terms, you’ll likely need a score higher than the minimum.
Some lenders have a minimum income requirement for borrowers to ensure that borrowers can repay their loan amount. Required salaries can range from $20,000 to $45,000, but many lenders won’t disclose income requirements. They will, however, require proof of income through bank statements, tax returns, signed employer letters and possibly other types of documentation.
It’s worth noting that you can apply for a personal loan while self-employed.
Your payment history makes up 35% of your FICO® Score, so lenders will pay special attention to any missed payments, which can stay on your credit report for up to 7 years. If you have some negative activity on your report, wait until those marks are gone or try to repair your credit before applying for a loan.
As mentioned, lenders prefer borrowers with a DTI of no higher than 40% – but a DTI of 36% or lower is preferred. Any higher and a lender may be concerned about whether a borrower could make their monthly payments with their leftover income.
If you’re aiming to lower your DTI, consider cutting back on your credit card spending, which can add to your outstanding debt.
Why Get Prequalified For A Loan?
Getting prequalified for a personal loan can benefit you in multiple ways. For instance, you’ll get an idea of your chances of being approved if you apply for a loan, and you’ll learn your potential rate and terms – all without hurting your credit.
A prequalification offer or letter can also help you compare prequalification results between lenders and find the best option for you, and it gives you some time to review your finances and determine whether you can comfortably make your monthly payments in full and on time.
While not 100% accurate, a prequalification estimate offers a glimpse of what you can expect from the loan you want to borrow. If you don’t get the prequalification offers you wanted, and you don’t need the money right away, you can always improve your credit and try again another time.
Knowing your personal loan eligibility early in the game can benefit you in many ways. While not a guarantee of a certain loan amount, the estimate a lender provides can give you an idea of where you stand as an applicant, and whether you’re likely to qualify for the sum of money that you desire – or qualify at all. Additionally, you can use your prequalification to compare lender options and land the best deal possible.
Want to see your rates and loan options? Get the personal loan process started with Rocket Loans today.
*Same- day funding is available for clients completing the loan process and signing the Promissory Note by 1:00 p.m. ET on a business day. Also note, the ACH credit will be submitted to your bank the same business day. This may result in same day funding, but results may vary, and your bank may have rules that limit our ability to credit your account. We are not responsible for delays that may occur due to an incorrect routing number, an incorrect account number or errors of your financial institution.
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