Steps to prequalify for a personal loan

Prequalifying for a personal loan is a great way to get personalized loan information without affecting your credit score. Most lenders offer prequalification, but it will require a lift on your part. To prequalify you’ll need to fill out multiple prequalification forms to get an idea of what a competitive offer looks like for your financial situation.

There are a few steps you can take to increase your chances of prequalifying — and subsequently get approved — like increasing your credit score, making sure you meet the lender’s minimum eligibility criteria and having all of the proper information on hand.

4 steps to prequalify for a personal loan

Take the following steps when prequalifying for a personal loan to ensure a smooth and most successful application process.

1. Check your credit score

Check your credit score before applying to know which lenders are most likely to approve you. Applicants with credit scores of 740 or higher are more likely to get the best rates and terms, but those with lower credit scores still have options, as there are lenders that cater to borrowers with bad and fair credit.

If your credit score seems to be the primary reason you aren’t getting preapproved, there are steps you can take to improve your score if you don’t immediately need the funds.

2. Determine your budget

In addition to your credit score, lenders will consider your income, available credit and current debt obligations — also called your debt-to-income (DTI) ratio to determine your maximum and minimum loan amounts.

To help determine your budget, you can calculate your DTI by comparing your monthly debt payments to your gross monthly income. Before applying, make sure you meet the lender’s DTI requirement (if listed) and that another monthly payment can fit comfortably into your budget.

3. Research lenders

Research lenders for your specific credit range. There are lenders that cater their products to borrowers with specific scores, from those with low credit to those with excellent credit.

You can either go directly to the website of a lender and go through the prequalification process quickly, or use a loan marketplace. By doing this extra legwork, you’ll know which lenders are most likely to approve you before formally applying.

4. Fill out a prequalification form

To receive a loan offer, you must provide the lender with your financial information. Prequalification forms differ by lender, but consistently require a few pieces of information.

• Income.
• Current outstanding debt.
• Desired loan amount.
• Desired loan term.
• Credit score range.
• Reason for borrowing.

Once you receive your prequalified offers, review the interest rates and fees, loan terms, funding timeframe and borrower perks before committing to the loan and its terms.

What information do I need to prequalify for a personal loan?

Before prequalifying for a personal loan, you should gather some financial information, check your credit score, calculate your debt-to-income ratio and research lenders that are compatible with your credit level.

Some information you should have on hand for prequalifying includes:

• Your Social Security number.
• Income information, including pay stubs and tax returns.
• Your contact information.
• Your current employer’s name and contact information.

Can you prequalify for a personal loan without affecting your credit score?

It is possible to prequalify for a personal loan without hurting your credit — look for wording that says “view rate without impacting your credit,” “no credit check” or “no hard inquiry required.”

Prequalification involves providing the lender with information about your income and employment and undergoing a soft credit check, which will not show up on credit reports and will not affect your credit score. The lender can then tell you your estimated APR, monthly payment, loan amounts and if you meet their basic requirements.

With a lower credit score, it may still be possible to prequalify with a cosigner or by improving your credit score first. Providing accurate information and taking the time to back it up with supporting documents can increase your chances of being prequalified.

Are prequalification and preapproval the same thing?

Prequalification and preapproval are often used interchangeably, but preapproval is typically related to the homebuying process. Prequalification is a preliminary stage of borrowing any kind of loan — including a home loan, auto loan or personal loan — in which a lender gathers basic financial information from the borrower to calculate an estimated amount of money they could afford.

Preapproval is a more formal step in which the lender goes through various steps to confirm the borrower’s financial information and credit history. In short, prequalification relies on the data that the borrower provides to the lender, while preapproval involves a formal loan application and further documentation of a borrower’s income, savings and debt as well as a credit check.

How to get approved for a personal loan

If you are looking to get approved for a personal loan, you will need to prepare beforehand to increase your chances of getting the best offers. There are a few steps you can take to boost your odds of getting approved.

Review your credit report

Before applying for a loan, review your credit reports and dispute errors if you find any. List alternative income sources on your credit card application to give the lender a complete picture of your financial situation.

Improve your credit score

Having a good credit history will put you in a strong position for getting approved for a loan. Pay all your bills on time, keep credit card balances low and reduce your spending. Lenders count the most recent balance on your credit cards as if it is owed, even if you pay off the balance in full. Charging less on your credit cards will reflect favorably on your credit.

Check if you prequalify

It is always a good idea to check if you prequalify before applying. You can do this with a soft credit check, which will not affect your credit score. This is a great way to understand your options and terms.

Consider a cosigner or joint applicant

If you have a lower credit score, a cosigner or joint applicant with a higher credit score may help you get approved for a personal loan. The co-signer should be aware that they may need to repay the loan if you are unable to.

Determine if the loan is right for you

Before signing a loan, consider whether the personal loan fits your needs. It may be the right decision for your finances if you’re consolidating debt and the interest rate is lower than what you’re currently paying, or if you aren’t able to save for a bigger purchase. But even if it’s a necessity, make sure you’re getting the best deal before you sign.

The bottom line

Prequalifying for a personal loan is a great way to get personalized loan information without undergoing a hard credit check and formally applying. To optimize the process, prequalify with multiple lenders to get an idea of what a competitive offer looks like for your credit situation.