Ready to apply for a personal loan? A good first step before submitting an official application is to get prequalified.
Prequalification allows you to shop around for loans without affecting your credit score. By filling out a form, you can get a sense of the loans for which you’re eligible and a better idea of whether or not you’ll be approved. But prequalification doesn’t guarantee approval. You’ll still have to officially apply for the loan even if you’ve prequalified, and there’s a chance your application will be rejected.
Interested in prequalifying for a loan? This article will explain how the process works, when to expect an answer from the lender, and what to consider before getting preapproved.
Prequalifying for a personal loan in 3 steps
The prequalification process for a personal loan isn’t difficult, but it’s a good idea to familiarize yourself with the steps before you get started.
Step 1: Fill out a prequalification form
The first step in prequalifying for a loan is to fill out a form. Most lenders offer a prequalification form on their websites, which makes it very easy. You’ll typically need to provide the following information:
- Personal details: Name, date of birth, Social Security number.
- Contact details: Phone number, email address, physical address.
- Employment details: Annual income, employment status, employer name.
- Assets and income: You may be asked about other income streams and the value of assets you own, such as retirement and savings accounts.
- Expenses: Many lenders want to know how much you spend each month on housing.
- Loan details: The desired loan amount and term, and the purpose of the loan.
Step 2: Wait for the lender to run a soft credit check
Once you’ve submitted the prequalification form, the lender will run a soft credit check. This allows the lender to determine your creditworthiness without seeing any specifics and affecting your credit score. Only more in-depth hard credit checks impact your credit score.
Since the lender will only run a soft credit check, you can prequalify with multiple lenders at once without it hurting your credit score. This allows you to shop around for the loan with the best terms and rates.
Step 3: Check to see if you’ve been prequalified
After the lender has completed the soft credit check, you’ll be able to see if you’ve been prequalified for the loan. Usually, the lender will notify you once they’ve reached a decision.
What to do after a loan prequalification
If your prequalification request was approved, the lender will invite you to fill out an official application. If you’ve been prequalified for multiple loans, this is the time to compare the details between them to determine which will work best for you.
When you fill out an official application, the lender will run a hard credit check. Since a hard check will have a slightly negative effect on your credit score, it’s inadvisable to apply for more than one loan at a time.
Considerations before prequalifying for a loan
Before you start prequalifying for loans, there are a few things you’ll want to keep in mind. Here are the main considerations to take into account before you get the ball rolling.
Prequalification is not the same as preapproval
You might assume that prequalification and preapproval describe the same process. They don’t. Prequalification is a process where the lender performs a soft credit check to determine whether a borrower could potentially qualify for a loan. Preapproval takes things a step further and can give you a better idea of whether you’ll be approved for a loan. This process is more likely to involve a hard credit check, which can affect your credit score slightly.
Some lenders may use these two terms interchangeably. If you’re not sure, it’s best to ask the lender whether they’ll be performing a soft or a hard credit check to determine your eligibility for a loan.
Prequalification doesn’t guarantee loan approval
Prequalifying for a loan doesn’t mean you’ll definitely be approved for it when you fill out an official application. The prequalification process gives lenders a glimpse at your finances However, they’re unable to see the full picture without running a hard credit check. You’ll still need to go through the application process and wait to see if you are officially approved for the loan.
You’ll need a good credit score for prequalification
Before prequalifying for a loan, it’s smart to know your credit score. If you have a score that falls within the “good” or “excellent” range, you’ll likely get prequalified for a loan fairly easily. But if your credit score falls in the “fair” or “poor” category, your prequalification request may be denied.
Using a credit-monitoring service such as Experian’s CreditWorks or FICO’s myFICO can help you keep tabs on your credit score and know when it reaches a level that’ll make it easier to prequalify for a loan.
Research lenders before starting the prequalification process
Not all lenders offer prequalification—and, even if they do, the available rates and terms may not be what you’re looking for. That’s why it’s important to do your research before you get started. Here are some examples of lenders that offer prequalification for their loans.
Auto (lease-purchase and refinance)
If you’re shopping for a loan, getting prequalified is a great tool to determine which ones you could potentially be eligible for. But you’ll still need to go through the application process. There’s no guarantee the application will be approved, even if you are prequalified.
Frequently asked questions (FAQs)
Does a prequalification guarantee a loan?
No. Even if you prequalify for a loan, you still need to fill out an official application and undergo a hard credit check. While prequalification makes it likely you’ll be approved for the loan, it doesn’t guarantee it, as the lender might find something in your full credit report that disqualifies you.
What banks offer prequalification?
Most major banks offer prequalification for personal loans. Check the bank’s website to see if there’s an online loan prequalification form available.
How long does the prequalification process take?
Not long. Usually, you’ll receive a decision from the bank within minutes letting you know whether or not you prequalify for a loan.
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