How to Prequalify for a Personal Loan

If you’re currently looking to get a personal loan, you might be wondering how to prequalify for one. Prequalifying for a personal loan means that you’ll have a better chance of being approved for the loan and getting a lower interest rate. In this article, we will discuss what exactly means to prequalify for a personal loan and how you can do it.

When you are in a process of taking out a personal loan, the first step is to prequalify with a lender. This whole process will give you an idea of what kind of loan you can qualify for, and help you compare offers from different lenders.

In order to do the prequalification process, you’ll need to provide some basic information about your financial situation. This will include information like your income, current debts if you have any, and credit score. After receiving this information and looking over them, your lender will use it to give you an estimate of what you can borrow and what interest rate you can qualify for.

Prequalifying for a personal loan can be an easy way to get an idea of what you can afford so that you can make sure you’re not borrowing more than you can handle to repay later.

What Exactly Does It Mean to be Prequalified for a Personal Loan?

Let’s first answer a question what does prequalified for a personal loan mean? To put it simply, it represents that you have met the initial requirements for taking out a loan. In order to get prequalified, the lender will take a look at your credit score and spending history, as well as your current income and existing debt to decide if giving you a loan is a good idea for them. If the lender thinks that you are creditworthy and your loan is not a big risk, it’s likely you will be approved. Don’t get discouraged because you can still prequalify for a personal loan with bad credit it will just take a bit of effort to find a lender.

If you are prequalified, that doesn’t mean you are approved for a loan but means you have a good chance of being. Many people get confused by this because they think getting prequalified is the same as being approved.

How Does the Prequalification Procedure Work?

The pre-qualification procedure for a personal loan is quite simple. First, you’ll need to provide some basic information about your finances and credit history. This information is the most valuable to your lender so take some time and prepare everything you can to show that giving you a loan is a good decision.

If you’re looking to prequalify, here’s what you’ll need to do:

• Gather the necessary financial information. Don’t forget documents that prove your income or the ones that give information about your debts and assets.
  
• Fill out a short form with this information. You can also do this online on the website of your chosen lender. They usually have a section on their site dedicated to loan forms, so you can just find the one you need and fill it out.
  
• After a short amount of time, you should receive a decision on whether or not you’ve been prequalified for a loan.
  
• If you’ve been prequalified, you can then continue with the next step of this process, which is applying for the loan itself.
  

This whole prequalification process is really easy and doesn’t take much time. It’s designed as a great way for you to get an idea of whether or not you can be approved for a loan before you actually submit your application.

Why Does Prequalifying for a Personal Loan Matter?

Now that we answered how to prequalify for a personal loan, you are probably wondering why to do so and not just apply. Many people think that going through a whole prequalification process is a waste of time and see no point in it if you are still unsure, you’ll get approved. Well, here is a thing with prequalifying for a personal loan- it actually greatly works in your favor. By doing so, you’ll have an idea of how much money you are eligible to borrow and at what interest rate you’ll have on your term. With this information, you can now narrow down your options and avoid wasting time applying for loans that you won’t get approved for or are not offering enough funds.

Many lenders are giving this process as an option, so you can just go ahead and prequalify for a couple of them. By doing this you will not ruin your credit score but only get multiple loan options to choose from when applying.

Overall, this is a smart move that can save you time down the road.

Prequalified vs. Preapproved: What’s the Difference?

These two processes are not the same and it’s essential to know the difference before you apply for any loan in general. With prequalifying for a personal loan, you’re getting an estimate of what you may be able to borrow based on the information you gave to your lender about your financial situation.

Preapproval is different and more thorough. To get pre-approved means you completed a loan application and provided all the documentation required in order to do so. Once the lender looked over your application and approved it, you will receive an offer from a lender stating how much they are willing to lend.

Steps to Get Prequalified for a Personal Loan

Prequalifying for a personal loan is a process that involves a few steps. Here we will give you a quick guide through them:

1. Fill out the pre-qualification form – As we talked about already, you first need to fill out a form that includes giving your personal information as well as some documents required in order for a lender to see you have a stable income and no previous debt. In this form, you will also need to state your desired loan amount and the repayment term. Be sure to put in if you have savings, retirement, or investment accounts as this can be positive for a lender to know before giving you their offer.
   
2. Undergo a soft credit check – Once you filled out a form from step one, the lender will look over it and perform a soft credit check to determine your creditworthiness. We advise you to prequalify with multiple lenders to find the best and cheapest loan option.If you continue with a loan application after getting prequalified, the lender will once again check your financial history but more thoroughly this time and do a hard credit check.
   
3. Find out if you’re approved – Within just a few hours or even sooner you should get a call or an e-mail telling you if you got approved. If you made it past this prequalification process the next step for you is to submit an actual loan application.
   
4. Formally apply to get your money – Once your prequalification is approved you should be able to see potential loan terms. If you’re happy with the amount, rate, and repayment term, you’re ready to formally submit your application. For your actual loan application, you will need to provide more documents such as bank statements and recent tax returns. The lender will use this to verify the information you gave on your prequalification.

What to Do After You Have Prequalified for a Personal Loan?

After you submitted your prequalification for a personal loan, there are some steps you should take:

• Review the terms of your loan offer. Make sure you understand everything from the repayment schedule, interest rate, and any other fees or penalties associated with the loan.
  
• Compare offers from multiple lenders. If you decided to prequalify with multiple lenders, now is a good time to compare different offers you got to ensure you are choosing the best one.
  
• Read the fine print. Like with signing any document, be sure you read all of the fine print carefully and understood what it means.
  
• Don’t be afraid to ask questions. If you feel something is left unsaid or there is something you don’t understand, always ask your lender. They should be able to answer all of your questions and put your mind at ease.
  
• Make your payments on time. This one of course applies after taking out the money. First, be sure you can afford the payments. Once you have signed for the loan, you should pay your monthly installments on time and in full, so you avoid fees and penalties for late payments as your credit score can suffer.

Final Thoughts

Prequalifying for a personal loan can be a great way to get started on the right foot in your loan application journey. By going the extra mile and doing this step you can put yourself in a much better position with knowing what to expect from the whole loan process. While we cannot tell you what to do, we explained to you how to get prequalified for a personal loan and why it can be so beneficial to do so. The decision is ultimately up to you, so read this article once again in order to make the best decision for yourself.