How Do You Get Prequalified for a Loan?

Before borrowing money from a lender, you must qualify for a loan, which involves a review of your finances, credit, and other factors to determine eligibility. But did you know you can prequalify for a personal loan without hurting credit reports and scores?

The Purpose of Prequalifying for a Loan

Prequalification is the process when a lender reviews your financial details to assess whether you meet the requirements for loan approval.

It is typically a fast and less detailed process than loan preapproval and simply an estimate provided by a creditor or lender to a potential borrower. It’s a way to see how much of a loan you’ll qualify for without impacting your credit. However, personal loan prequalification is not a guarantee that you will be approved for and actually get a loan.

Prequalification is a less comprehensive process than personal loan preapproval. In contrast, preapproval requires sharing more detailed financial and personal information. Also, preapproved personal loans are stronger indicators that your loan application will be approved rather than just prequalification. Both of these processes are important because they help you understand your borrowing capabilities and plan for your financial future. 

Benefits of Prequalifying

If you prequalify for a personal loan, there are many benefits. For example, if you get prequalified for a personal loan, you will know your eligibility without affecting your credit score.

Prequalifying provides an estimate of the loan terms and enables you to compare different loan options. You may also increase your chances of formal loan approval if you prequalify for a loan.

Steps to Prequalify for a Personal Loan

The first step in the lending process is personal loan prequalification, which provides a preview of the type of loan you may be able to get.

So, how do you get prequalified for a loan? Here are the steps to follow as you get started.

1. Filling Out the Prequalification Form

A personal loan prequalification form typically begins with personal details such as your name, date of birth, and social security number. You will also provide your contact information, including your address and phone number.

Next, you’ll provide your financial details, such as your annual income and employment status. As part of the process of getting prequalified for a loan, you’ll also specify your desired loan amount and intended purpose of using the funds.

2. Undergoing a Soft Credit Check

A soft credit check is required to prequalify for a loan. However, this check should not affect your credit score.

Lenders only use this check to assess your creditworthiness, and it does not show up on credit reports. When you eventually submit your complete loan application, this soft credit check won’t affect your chances of approval.

3. Receiving Pre-Qualification Results

After submitting your personal loan prequalification form, you’ll quickly see your potential loan terms. A prequalified loan offer will show the loan amount you would qualify for, the interest costs, the annual percentage rate (APR), and an estimate of your future monthly payments.

But keep in mind that these figures are not set in stone and can change by the time you submit your formal loan application and are later approved to receive funding.

Comparing Prequalified Offers from Different Lenders

Another benefit of prequalifying for a loan is that you can compare offers from different lenders to choose the best option without affecting your credit. Several key factors to look for while comparing offers include the APR, interest rate, and any fees.

You’ll also want to compare the monthly payment amounts to ensure you can afford them. Meanwhile, comparing the repayment terms will indicate the impact on the total interest paid. Also, pay attention to any special perks specific lenders may offer you, such as hardship assistance, flexible payment dates, and credit-building recommendations.

Next Steps for Formally Applying for a Personal Loan

After you get prequalified for a personal loan and compare your options, it’s time to choose the best offer and submit your formal loan application. Once you accept a prequalified loan offer, you’ll receive an invitation to provide documentation, such as pay stubs and tax returns, to support and verify your formal application.

Please refer to our personal loan documents checklist to ensure that you have everything you need for supporting materials. For example, you can provide a few different types of documents to show your photo identification, proof of income, and proof of address to your lender.

At this point, the lender will perform a hard credit check, which can result in a minor, temporary hit on your credit score. The purpose of a hard credit check is to thoroughly examine your credit file to determine how much risk you may present as a borrower. Lenders review your cash flow, credit score, debt-to-income ratio, and other factors to make a final loan decision.

Advice if Not Approved

If you receive an adverse action notice detailing the reasons for denying a loan, you’re not alone. Don’t panic.

Many people receive letters from lenders and agencies describing why they were denied funds and how to get a free copy of their credit report. This information is beneficial for figuring out how to build your credit score and be successful at obtaining a loan the next time you apply.

If the written correspondence does not explain why you were not approved, you can contact a lender directly and inquire about why. Any insights you can get from the lender can empower you to improve your financial situation and reapply for a loan later. Check your credit report and score to see if any errors might have factored into a lender’s decision to deny your personal loan prequalification.

To boost your approval odds when you don’t prequalify for a personal loan, you can work to improve your credit score by making payments on time. If you need a loan quickly, consider a joint or co-signed loan with someone who has strong credit. However, you must discuss with that person that they would be responsible for any missed payments.

It’s also worth looking into secured personal loans, which require collateral, such as a savings account or vehicle, to guarantee a loan. These loans are typically easier to get because the lender can take the collateral you put down if you fail to pay it back.

Tips for Prequalifying with Bad Credit

If your credit score is under 630, it might be more challenging to get prequalified for personal loans. But at Tower Loan, we regularly lend money to people with bad credit to help them reach their financial goals.

Talk with us about pledging collateral to obtain a secured personal loan and choosing a loan amount that you can reasonably pay back in monthly installments. You can also look into credit unions for a loan since they may offer lower rates and flexible terms for people with bad credit if you become their member.

There are also many other lenders to contact to try to prequalify for a loan with another company. Online lenders look at various factors to make loan decisions, not just credit score, but you may have to pay a higher interest rate if your credit score is very low.

Contact Us to Get Prequalified for Personal Loan

There are very few downsides to looking into how to get prequalified for a loan and significant benefits to assess your borrowing capabilities without risk. Among the advantages of personal loan prequalification are determining your likelihood of loan approval, being able to compare offers from several lenders, and understanding whether monthly payments will fit within your budget.

We encourage you to contact us for assistance with prequalifying for a personal loan and to discuss your questions about the loan process in detail. We help people like you find quick solutions to their problems and get much-needed financial breaks with an easy online application process and flexible funding that you can use for essentially any purpose.

We have offices in six states and over 240 cities, so stop by the branch nearest you to learn how to get prequalified for a loan. You may also call your local office with questions or explore our blog to learn valuable tips and find financial resources about personal loans and other financial education topics.