A personal loan could be helpful if you need urgent money for a significant expense that you have already saved in the bank. Personal loans are installment loans that are usually unsecured and can be used for various things, from consolidating high-interest debt to paying for home repairs.
Getting a personal loan with a low-interest rate and reasonable repayment terms is only sometimes possible. Your loan terms usually depend primarily on factors such as your credit score, monthly income, credit history, etc.
When you prequalify for a personal loan, you can get a gist of what you could qualify for, which can help you make intelligent financial decisions. Prequalifying a personal loan is the first step in the loan approval process. It gives lenders an idea of your creditworthiness and a preview of what you might receive.
Getting prequalified, however, doesn’t always guarantee a loan. Lenders will verify your information before they make the final decision.
Process of pre-qualifying for a personal loan
1. Fill out the pre-qualify application
Many online loans direct lenders will let you prequalify for a personal loan on their website by filling out a loan form. You’ll have to provide basic information such as:
· Personal details; your name, Social Security number, and date of birth.
· Contact details such as your phone number and address.
· Your annual income and employment details.
· Financial Information, such as if you have savings or investment accounts.
· Your desired loan amount and why you need the loan.
Because the interest rates and terms vary, it is recommended to prequalify for multiple personal loans from different lenders so you can compare offers among lenders.
Prequalification will include the following:
- Your potential loan terms.
- The amount you qualify for.
- The interest rate you will be charged.
These numbers might change after you formally apply and a lender gains more insight into your financial situation.
2. Soft credit check
Prequalifying for a personal loan does not affect your credit score. Once you submit the prequalification form, the lender performs a soft credit check to verify your creditworthiness. A soft credit check doesn’t appear on your credit reports, so prequalifying with multiple lenders won’t hurt your credit score.
The lender will ask you to submit a complete application if you get an offer through the prequalification process. Once you submit it, the lender will authenticate your financial history with a hard credit check, which will appear on your credit report for up to two years and temporarily dock a few points off your score.
While assessing your application, lenders review your monthly income, credit score, and debt-to-income ratio. Your debt-to-income ratio and spending habits indicate how much monthly payment you have available for loan repayments. Your credit score suggests how well you’ve managed your debts. Hence, building a good credit history is the best way to increase your chances of prequalifying for a loan.
Make sure you pay your bills on time, keep your loan balances low, and aim to deliver your credit card balances in full each month to build your credit profile.
4. Formally apply for the sum
Once you submit the prequalification form, you should see potential terms within minutes. If you’re agreeable with the amount, interest rate, and repayment terms, you can formally apply for the personal loan.
This step usually involves submitting financial documents like bank statements and recent tax returns, which the lender will use to verify the information you uploaded during the pre-qualification stage. Once you have submitted all documents, the lender will do a hard credit check.
If your application is approved, some lenders can transfer the loan amount as soon as the next business day, depositing the money into your savings account. Most lenders can provide you with the loan money within one week.
Pre-qualifying for personal loans can take some stress off your shoulders since they allow you to have multiple options to choose from. The process is quick and can be done conveniently at home. We hope this helps you understand how the pre-qualification process works & how you can find the best loan terms.