What does it mean to be prequalified for a personal loan?
A personal loan can help you with debt consolidation or manage an unexpected expense. Learn what prequalified vs preapproved means and the steps you should take. (iStock)
A personal loan is a one-time, lump sum of money you borrow from a bank or online loan lender. You can use the loan funds to manage unexpected medical expenses, home repairs, or repay credit card debt.
When evaluating your loan application, the personal loan lender will primarily look at your credit history and your credit score. But your annual income, employment history, and outstanding debt will also play a role in their decision.
But first, you’ll need to get prequalified for a personal loan. With Credible, you can compare prequalified personal loan rates from multiple lenders without affecting your credit score.
DO YOU NEED A PERSONAL LOAN DURING A CRISIS? QUESTIONS TO ASK YOURSELF
Why it’s important to prequalify for a personal loan
During the prequalification process, your loan lender looks at your personal finance history to determine whether you’re a good candidate for a loan. And you’ll get a preview of the loan amount, loan rate, and repayment terms you can expect to receive.
A common worry among loan applicants, especially ones with bad credit, is that getting prequalified will end up hurting your credit score. But the loan process to get prequalified typically involves a soft credit check.
There are many factors affecting your credit, but a soft credit inquiry won’t cause your score to drop. Once you formally apply and move to the loan approval process, your lender will do a hard inquiry on your credit report, which can cause your score to drop slightly.
Since prequalifying won’t hurt your credit score, you'll want to receive quotes from multiple personal loan lenders. Credible can do the heavy lifting for you by comparing personal loan options and rates all in one spot.
WHAT TO DO BEFORE APPLYING FOR A PERSONAL LOAN
Should I get prequalified or preapproved?
There's a fine distinction between getting prequalified or preapproved, according to the CFPB. However, this really comes down to the personal loan lender you choose. The preapproval process is more rigorous for some financial institutions and a better indicator of whether you’ll qualify for the loan.
The loan process for prequalification is pretty straightforward and quick. After explaining the loan purpose and submitting some basic financial information, your loan lender checks your creditworthiness and determines whether you’ll qualify. The requirements will vary, but most lenders will look at your income, financial history, and credit history. Getting prequalified doesn’t guarantee approval, but it’s a good first step to check your rates and before you formally apply.
In comparison, getting preapproved can be a better indicator of whether you’ll be approved for a personal loan. During the preapproval process, you’ll often need to submit more detailed financial and personal information. Once the documents have been reviewed, you’ll receive a preapproval offer that’s good for several months.
Credible can show you several personal loan lenders and help you check your rates within minutes.
HOW TO GET A $100,000 PERSONAL LOAN
How to prequalify for a personal loan
If you want to apply for a personal loan, it’s a good idea to get prequalified with multiple loan lenders. This allows you to shop around and find the best offer for your personal finance situation.
And fortunately, the process is relatively quick. Here are the steps you’ll take to get prequalified for a personal loan:
- Choose your loan lenders: To get started, you’ll choose several personal loan lenders and either start the application process on their website or over the phone.
- Provide your information: Your lender will want to review some basic financial information, like your desired loan amount, annual income, and employment history.
- Review your offers: Your lender will review your information and do a soft credit check. Once you’ve received offers from multiple loan lenders, you’ll want to evaluate the loan amount, APR, and repayment terms.
If you’re just getting started and aren’t sure how much you’ll qualify for, Credible’s personal loan calculator can help. You can use the loan calculator to estimate how much you’ll receive and find the best personal loan rates.
DO THESE 5 THINGS BEFORE CHOOSING A PERSONAL LOAN LENDER
What happens next?
After you get prequalified and compare your loan options, you’re one step closer to receiving your personal loan. Next, you’ll want to review your offers and find the one that’s the best fit for you.
Once you’ve selected a loan lender, you can complete the formal application process. To finalize your application, you’ll provide any additional documentation that your lender requests. At this point, your loan lender will run a hard credit inquiry.
Prequalifying for a personal loan is a fast and easy way to figure out what your monthly payments will look like. There are many credit scoring methods lenders use, and it can be challenging for beginners to navigate this process.
If you need some guidance, it can help to work with a qualified financial advisor -- and Credible’s experienced loan officers can answer any questions you have.