Personal Loan Prequalification: The Basics
When you are looking to take out a personal loan, prequalification can be an essential part of the process. Prequalifying means that a lender has determined that you have sufficient income and credit score to qualify for a personal loan, but they haven’t yet run your credit report or made any loans available to you. In this article, we will talk more about how does prequalification for a personal loan works and everything you need to know before you do it.
Personal loan prequalification is a process you go through with your bank or credit union to determine whether or not you qualify for a personal loan.
When it comes to getting approved for a personal loan, having a solid credit score is one of the most important factors. A good way to know if you will be eligible is by getting prequalified, and if so, how much money can you expect to receive.
A personal loan prequalification letter (also referred to as “loan prequal”) is basically an informal letter from one financial institution, stating what type of financing options may be available based on information provided by someone who wants credit at their bank but hasn’t applied yet.
These letters are usually sent out when someone has applied online but hasn’t yet been approved or even begun filling out paperwork. This is because they want an idea of how much they could receive before committing themselves completely.
Personal Loan Prequalification: What Does It Mean?
So, what exactly is prequalification for a personal loan? Prequalification is the first step in obtaining a loan. The lender uses it to assess your creditworthiness and determine your chances of being approved for the loan.
It’s not really a pre-approval, but it helps you figure out if you are likely to be approved for one and how much money you are able to get. When you apply for a personal loan, lenders will look at several factors:
- Your income level
- Your employment status
- The amount of debt you already have
The first two are easily quantifiable. They are easy to verify (assuming your employer cooperates). That leaves one more factor, which is the amount of debt that you already have.
If this number is too high (for example, if you owe more than $50k), then chances are good that any lender will say no.
And even if they don’t reject you outright, they might ask for additional documents or require higher interest rates and fees in order to compensate themselves for taking on more risk by approving this particular application.
In other words, prequalification for a personal loan, or any other type of loan, means that the lender will do a check on you to see if you are eligible to receive the money or not.
Why Is It Important to Get Prequalified for a Personal Loan?
The pre-qualification process is useful for a number of reasons. It can help you get a better idea of what kind of loan you qualify for, allowing you to compare different loan options and find one that works best for your needs.
Also, once you are prequalified, it’s easier to apply for the actual loan because all the paperwork has already been completed.
Finally, if there is any reason why an institution might not be able to approve your application (perhaps they don’t offer loans in your state), getting prequalified will allow them to know before they start working on it.
This is a great way of saving both parties time and energy as well as preventing some unpleasant surprises along the way.
Prequalify vs. Pre-approved: What’s the Difference?
Prequalification is a preliminary process that allows you to get an idea of what type of financing you’ll qualify for and how much you can borrow.
Typically, this process will require information about your financial situation and credit history. If you have already been prequalified by one lender, it’s likely that another lender will also prequalify you if they are offering similar loans.
However, there are some important differences between prequalification vs being pre-approved:
Prequalification is not binding; it only represents the lender’s initial assessment of whether or not you meet their minimum criteria for acceptance into their program. It does not guarantee approval for any specific loan product or the amount requested by the borrower.
On the other hand, a pre-approval decision means that based on all available information (including your credit report) at this time, the lender has determined that they can reasonably expect to extend credit according to underwriting criteria without regard to other factors such as income level or employment status.
While both types of decisions are based on information provided by applicants, only when an applicant has been fully approved do they have a binding commitment from us regarding certain key terms like interest rate ranges and term lengths.
How to Prequalify for a Personal Loan
Personal loan prequalification is the first step to getting approved. There are many ways you can do this. One thing you can do is to go directly to the website of the lender and to fulfill the form online.
Another way how you can do this is by going directly to the lender, for example, a bank, and there they will give you a form for prequalification. You will also need to look for terms such as “check your rate” or “check your loan options”.
Once you find these terms, you will start the process of filling out the form. When you are done with the form, it will be automatically sent to the lender for review. From there, it takes a couple of days to get the response back.
If you are looking to do personal loan prequalification, know that you have two options to choose from: secured and unsecured.
What Happens After You Get Prequalified for a Personal Loan?
Once you have received your prequalification letter, it’s time to get the application process started. Here are some things you can expect:
- You will receive an email notification from your loan provider with instructions on how to apply for a personal loan.
- Your lender may send you a link through which you can complete the application online.
- If you don’t have access to a computer or internet connection at home, your lender may have an office where they can help walk through the process with you in person.
When all the documents have been submitted and approved by both parties, the money will then be deposited into an account of your choosing, which is usually within 24 hours.
How to Prequalify for a Personal Loan Without Hurting
If you are looking to borrow money, you should know that there are a few different ways to go about getting approved. You can apply directly with one lender or shop around to see what your best options are.
There are also some lenders that offer prequalification services, which allow you to estimate the amount of money you will be able to get and what kind of terms and conditions might work out best for your situation.
In case this sounds like something worth exploring, then it might be time for you to look into the personal loan prequalification calculator tool so that you can find out if this is an option available where you live.
Another thing you should know is that once you do the prequalification, it’s not going to hurt your credit score. A lot of people think that once they undergo a prequalification process, they will hurt their credit score in case the lender rejects them.
The only way how you can actually hurt your credit score is by getting the loan and then being unable to repay it back.
What to Do If You Don’t Prequalify for a Personal Loan?
If you don’t prequalify for a personal loan, it doesn’t mean you can’t get one. There are plenty of other options to explore, and even if it means turning to your credit card or home equity line of credit, it’s better than not having any resources at all.
In case you have too much debt or low credit scores, consider using a personal loan calculator to find out what kind of loan will work best for your unique financial situation. You may find that a balance transfer on your existing credit cards is the best route forward or that getting another secured loan would suit you better than an unsecured one.
In addition to comparing different types of loans in terms of interest rates and fees, remember that there are other factors besides these two things that go into determining whether or not a particular lender will approve any given person’s application.
These options include income verification requirements, minimum income requirements, and more that can affect whether or not the lender will give their stamp of approval when they review their client’s information against what he has listed on his application form.
Bottom line
If you want to prequalify for a personal loan, we recommend that you set up an appointment with a lender as soon as possible. This way, they can help guide you through the process and answer any questions you may have about the prequalification process.
This is a very helpful tool that can give you an insight into what you can expect to get money-wise if you decide to take out a loan. In case you already decided you want to go with a personal loan, we do recommend doing the prequalification process, although you can get it without one also.
