How to Obtain a Personal Loan Prequalification

How to prequalify for a personal loan

When you apply for prequalification for a personal loan, the lender requests your income and performs a basic credit check to see if you qualify without going over documentation. Lenders often use a soft credit check with no credit score impact, and you don’t have to provide proof of income, like pay stubs.

Lenders mostly rely on the information you self-report to prequalify you for a personal loan. Therefore, it’s essential to provide accurate information. The more accurate you are, the more accurate the offers you receive will be.

Here’s a step-by-step guide to getting prequalified for a personal loan and what to do once you are.

1. Research personal loan companies

The first step to getting prequalified for a personal loan is to search for personal loan companies. You can start with banks, credit unions, online lenders, peer-to-peer platforms and even lending marketplaces that let you compare multiple offers at once.

As you review your options, look at each lender’s APR range, loan amounts, repayment terms, fees (like origination or late fees) and funding speed. It also helps to read customer reviews or consult friends and family members for advice.

2. Provide your information

Once you’ve identified a reputable lender, apply online and provide the lender with some basic personal information and details about your income and credit. The lender will use this information to evaluate if you meet its basic loan requirements.

Information the lender may request includes:

• Full legal name
• Home and mailing address
• Date of birth
• Social Security number
• Employer name and start date
• Estimated credit score
• Gross monthly income
• Details about your current outstanding debt
• Desired loan amount and repayment term
• Reason you need the funds

3. Undergo a soft credit check

When you’ve submitted the required information, most lenders do a soft credit check, which has no impact on your credit score. You should confirm the type of credit check lenders will perform before proceeding.

“Find out whether lenders pull your credit report hard or soft when providing you a quote while you shop around for a new loan,” said Levon L. Galstyan, a certified public accountant with Oak View Law Group in Auburn, California.

“Get estimates from lenders who show you your rates using only a soft pull because a hard credit pull will lower your score, at least temporarily.”

4. Evaluate your options

After you prequalify for a personal loan, the lender provides details about offers, including the loan amount, rate and term you might receive. Carefully review the offers and check for any associated fees. Compare your offer with other prequalification offers you’ve received, and choose the one that’s best for you.

Prequalification estimates aren’t guaranteed. Your final offer may change after the lender reviews your full application.

5. Accept your loan offer

Once you’ve decided on a personal loan, you’ll accept the offer and provide the lender with any other required documentation, such as proof of income (e.g., pay stubs, tax returns). After final approval, you’ll sign the loan documents and get access to your loan funds.

How is prequalification different from preapproval?

A prequalification generally means you meet a lender’s basic loan requirements based on a quick review of your credit and self-reported income. A preapproval, on the other hand, usually means your lender has preliminarily approved you for a loan.

Preapproval involves a more in-depth review of your creditworthiness, including a hard credit check to evaluate your credit score and history. The lender will also verify your income using documents you submit (e.g., pay stubs, bank statements, tax returns) and calculate your debt-to-income (DTI) ratio.

Once you get preapproval, you are closer to obtaining a loan. The next steps are to select the terms you want and provide further documentation (if necessary) to obtain final approval. The lender will then provide a loan agreement for you to review and sign before you receive funding.

» MORE: 9 ways to improve your credit score

Why should I get prequalified for a personal loan?

The main reasons you should get prequalified for a personal loan are:

• To find out if you qualify without any effect on your credit score: Most lenders use a soft credit check to evaluate your credit score and history in the prequalification stage. This means you can find out if you potentially qualify for a loan without it affecting your credit.
• To improve your credit to get a better offer: If you don’t qualify for the loan or the terms you want, you can use the information you learned to improve your chances. Once you’ve made the adjustments (e.g., paying down debts, establishing a better payment history), you can apply again to receive a better offer.
• To give yourself time to evaluate your budget: After prequalifying, you can review your budget and see if you can handle the payments the lender offers. For example, you might decide to set the payment amount aside in a bank account for a couple of months to ensure you can comfortably afford it.
• To evaluate several personal loan options: Since the prequalification stage usually relies on a soft credit check, you can submit your information to multiple lenders with no credit score impact. You can then evaluate the offers you receive to choose the best one.

The prequalification process usually only takes a few minutes. By setting aside a little bit of time to evaluate your options, you’ll be better prepared to choose the best personal loan for your situation.

» MORE: Low-income loans: personal loans for a tight budget