How To Pre-Qualify for a Personal Loan
11 MIN READ
Published July 25, 2023 | Updated April 30, 2024
Expert Verified
Getting pre-qualified for personal loans can be as easy as filling out a few simple steps, and in most cases, it doesn’t impact your credit score. For borrowers who don’t qualify after prequalification, there are several options, such as approaching lenders specializing in borrowers with bad credit and improving credit scores.
How To Pre-Qualify for a Personal Loan
To pre-qualify for an unsecured personal loan, you’ll need to research potential lenders, gather the right documents, and fill out an online form.
1. Research Potential Lenders
Search for lenders that will be a good fit for your credit profile and your needs. Some lenders provide competitive interest rates to borrowers with excellent credit. Others specialize in personal loans with bad credit. You may not get favorable loan terms, but if you’re in need of funds, it might be a good fit for you.
Shop around to find lenders that offer the lowest possible interest rate for your financial situation so you can save money in interest charges over the loan term.
2. Gather Necessary Documents
Before you fill out the form, you’ll also need to gather the necessary documents to submit along with your application form. In most cases, you’ll need paperwork such as:
- Identification proof
- Social Security Number
- Address proof
- Pay stubs and tax returns
3. Fill Out Pre-Qualification Forms
Most lenders will have a short form for pre-qualification that you’ll need to fill out. You’ll need to fill out your name, date of birth, income, employment details, address, contact information, and Social Security Number. You’ll also need to specify the amount you want to borrow. Double-check the form to ensure all information is accurate before you submit it.
Once you’ve followed these three steps, you’ll receive a pre-qualification document from the lender. You can review the terms and the interest rate and compare those with those of other lenders. Once you pick a lender and make the final decision to pursue the loan, you can fill out a formal loan application. If approved, you’ll usually receive the loan funds in your account as soon as the next business day.
What Are Pre-Qualified Personal Loans?
Pre-qualified personal loans allow you to check your potential terms, such as loan amount and estimated APR, without impacting your credit score. Getting pre-qualified is a good starting point in your approval process, so you’ll know exactly how much you can borrow and how much you’ll need to pay in interest charges. Prequalification requires a soft credit check, which allows lenders to check your eligibility before you apply.
Definition of Pre-Qualified Personal Loans
Pre-qualification is a way to assess your chances of getting approved for a personal loan and the interest rate you’re likely to receive before you apply. You’ll need to provide your personal information to the lender so they can preview your eligibility. This can be done through a soft pull, which doesn’t affect your credit. Getting prequalified doesn’t guarantee that you’ll get the loan. You’ll need to submit a loan application if you decide to go ahead with a lender.
Eligibility Requirements for Pre-Qualified Personal Loans
Each lender will have different eligibility requirements to get pre-qualified personal loans. But in most cases will need information such as:
- Identification information
- Contact information
- Income and asset information
- Loan purpose
- Desired loan amount
You’ll need to get the relevant documents ready when you submit a request for pre-qualification.
Why You Should Pre-Qualify for a Personal Loan
When you get pre-qualified for a personal loan, it allows you to get a better understanding of how much you can borrow, potential APRs, and loan terms. Here are a few more benefits of getting pre-qualified.
Know Your Budget
Getting pre-qualified allows you to compare loan offers from multiple lenders. You can compare interest rates and loan offers without hurting your credit. This will allow you to find a lender that offers the lowest possible interest rate. Over time, this saving in interest charges can add up. Prequalification will also give you a better idea about the maximum amount you can borrow and how much you’ll need to pay each month in installments, allowing you to plan your budget better.
Save Time and Money
Pre-qualifying for a personal loan can help you save money in the long run by helping you choose the most cost-effective loan product. Choosing a personal loan with the most competitive rates and fees can keep your total loan cost down. Prequalification is also quick and convenient since most lenders offer fast online prequalification and application processes, allowing you to save a considerable amount of time.
Can You Pre-Qualify If You Have Bad Credit?
Getting a loan with bad credit can be challenging, but several lenders specialize in borrowers with lower credit scores. There are several things you can do to improve your chances of getting approved for a personal loan, even with bad credit.
Teresa Dodson, founder of Greenbacks Consulting, suggests checking your credit before you apply for a loan. “Pull your credit report first so you know what type of loans you can apply for and more than likely get approved for, Dodson advises. You should be in the driver's seat and know what your credit situation is."
Find Lenders Who Offer Pre-Qualified Personal Loans for Bad Credit
Not all lenders may be a good fit for you, so you’ll have to research and find lenders that offer personal loans with bad credit. These lenders have a history of working with borrowers with similar credit profiles, but the interest rates they offer may not be favorable. With a higher APR, borrowing funds may be more expensive. Credit unions often offer better terms when compared to traditional banks.
Improve Your Credit Score
Another way to pre-qualify for a personal loan with bad credit is by improving your credit score. Try to improve your credit score before you prequalify to get better terms and interest rates. Here are a few tips to help you get started:
- Pay all your bills on time. Late payments can have a huge impact on your credit score.
- Pay off credit card debt and any other debt you may have to bring down your credit utilization.
- Get a free copy of your credit report from the three credit bureaus and review them regularly. You can dispute can errors you find to improve your credit score.
- If you don’t have a credit history, consider applying for a secured credit card. This may require collateral, but if you pay off your balance every month, it can be a good way to build your credit.
- Keep your old accounts open and work on paying them off as soon as possible. Address old delinquencies once and for all.
Alternatives To Pre-Qualified Personal Loans
If your pre-qualification for a personal loan isn’t approved due to low credit scores or other reasons, you can explore other available alternatives.
Secured Loans
Consider applying for a secured personal loan if you have a car, home, or anything else of value that the lender is likely to accept as collateral. While secured personal loans are not very common, there are certain lenders that offer this option. Having collateral improves your chances of getting approved for a loan because it offers lenders security in case you default on the loan. You can also apply with a co-signer to improve your chances of getting approved.
Credit Cards
Another option is to use your existing credit cards if you have a balance available. Credit cards typically have a higher interest rate compared to personal loans, but they can be handy when you have an emergency and no other sources for borrowing funds. Just be sure that you have a plan for getting out of credit card debt as soon as possible if you go with this option.
Will Pre-Qualifying for a Personal Loan Affect Your Credit Score?
Pre-qualifying for a personal loan will usually not impact your credit. But it gives you an opportunity to shop around and find the best possible loan for your needs.
Soft Pull Vs. Hard Pull
When you pre-qualify for a loan, the lender can do two types of credit checks- a soft pull or a hard pull. A soft pull is when a lender just reviews your credit score but doesn’t report it as a credit-seeking inquiry to the credit bureaus.
A hard inquiry is when a lender pulls your credit report formally and reports it as an official credit inquiry. This can cause a dip in your credit score, especially if you have several hard credit checks on your credit report within a short period of time. For pre-qualification, most lenders will only make a soft inquiry.
Managing Credit Utilization
Credit utilization measures your available balance compared to your credit limit. A lower credit utilization rate can improve your credit scores. Paying down credit card debt can help you lower your credit utilization rate. Pre-qualification gives you an idea of the maximum amount of money you can borrow, but you don’t have to borrow the full amount.
Take a look at your budget and your current credit utilization to decide how much money you can comfortably borrow. If you feel you have too much existing debt, consider debt relief options before deciding to take on any new debt.
What To Watch for When Comparing Lenders
Finding a financial institution offering the best personal loans will depend on a number of factors, such as your credit score, how much you want to borrow, and how much you can comfortably pay as an installment each month. When comparing lenders, keep these factors in mind.
Interest Rates and Fees
Compare the interest rates and fees offered by different lenders when you pre-qualify for a loan. The APR you’ll qualify for will depend on your debt-to-income ratio, credit score, annual income, and several other factors. Compare quotes from at least three lenders to find the lowest interest rates and the best repayment terms.
Lenders may also charge other fees, such as origination fees, late fees, and prepayment penalties. Review the terms offered by each lender to compare fees. Some lenders may also offer no-fee loans, which would be your best option.
Eligibility Requirements
Compare the eligibility requirements of multiple lenders to ensure that you’ll be approved if you apply for a loan. Different lenders work with different borrower profiles, so you’ll need to find lenders that work with borrowers that are similar to your credit profile. You’ll find the eligibility requirements on the lender’s website, along with the minimum credit scores required to apply for a personal loan.
Customer Reviews
Read customer reviews for each lender you shortlist to find a trustworthy loan company. Other than the reviews on the company’s website, you can also read reviews of the company on TrustPilot, Yelp, Google, and Better Business Bureau. Check to see if the company has a good customer support team to ensure they’ll be able to respond to your questions and concerns when needed.
Know if You’re Eligible for a Loan
Personal loan pre-qualification will allow you to know if you are eligible for a loan, how much you can borrow, and the terms that you are likely to receive. Check your credit score before you pre-qualify so you can start improving them to get better personal loan offers.
The pre-qualification process is the first step in borrowing a personal loan. Once you have reviewed and compared your loan options and found a lender with the best terms and rates, you’ll need to submit a loan application to move forward. You’ll need to provide them with documents such as pay stubs and tax returns so the lender can verify your personal and financial information.
If you’re not sure you’ll be able to afford the monthly payments, you may first want to pay off your existing debts. TurboDebt can help you find the best strategy to pay off your debts. Our team will offer you a personalized debt relief option based on your individual needs. Get in touch with us for a free consultation today.