How to Pre-Qualify for a Personal Loan
Whether you're looking to finance a large purchase or simply consolidate all of your credit card debts into a single payment, a personal loan can be a big help. That's why pre-qualifying for a personal loan can be a small yet significant step to take in the loan application process. "When you prequalify for a loan, a lender typically provides general terms on how much you can borrow and at what rate and terms, using information that you provide," says Rosalyn Glenn, a financial advisor at Prudential. "Pre-qualification is important because it gives you information to help make an informed decision and helps you determine which loan is in your best interest."
Interested in learning more about how to pre-qualify for a personal loan? From what you'll need to apply to tips for improving your chances of getting an offer, financial advisors share their insight ahead.
What You'll Need to Apply
Before you can apply for a pre-qualification offer, Annie Millerbernd, personal loans expert at NerdWallet, says you'll need to have some basic information handy. "You will at least need to provide your name, address, and income," she says. "Some lenders may also ask about citizenship, whether you rent or own, work part-time or full-time and possibly what education level you have." While you won't necessarily need to know the number off the top of your head, Ashaunda Davis, a financial advisor at Northwestern Mutual, says you should be prepared for a lender to check your credit score as you go through the pre-qualification process. "This process is typically a soft credit inquiry, which means your credit won't be negatively impacted," she explains. "These details will provide a potential lender with your record of borrowing funds and paying them back."
How to Apply to Pre-Qualify for a Personal Loan
Thanks to modern technology, Glenn says you can pre-qualify for a loan in a matter of minutes if you apply online. "Lenders ask for basic information and then provide basic requirements in order for you to move forward with a more involved loan application," she explains. Once you submit your information, Millerbernd says it can take anywhere from a few seconds to a few minutes to see what personal loan offers you're eligible to apply for. "You can either accept an offer and formally apply for the loan, or use the information provided to compare offers with another lender," she explains.
How to Boost Your Chance of Pre-Qualifying for a Personal Loan
According to Davis, maintaining or improving your current credit score is a smart move to make when you're looking into getting a loan. "Keep in mind that your credit score is made up of several factors, including payment history, amounts owed, length of credit history and credit mix, among others," she says. Davis also recommends paying down some of your debts before applying for a personal loan pre-qualification offer. "Reducing debt first can help to minimize your debt-to-income ratio, or the comparison of how much money you make each month to how much you already owe on debt, another factor lenders will be taking into consideration," she explains.
What to Do After You Pre-Qualify for a Personal Loan
You've pre-qualified for a personal loan, but Millerbernd says that you may not get the same offer—or any offer for that matter—when you formally apply. "A lender doesn't do a deep dive into your financial or credit history when you pre-qualify, so there's still a chance they'll see something on your formal application that changes their mind," she explains. "For example, if you said you make a certain income when you pre-qualified but can't prove it with tax forms or pay stubs when you apply, you may not get the offer you first saw." It's also important to note that there's a difference between pre-qualifying for a personal loan, and being pre-approved for one. "Pre-qualification provides an estimate on what you could potentially borrow, while pre-approvals often provide more details on the amount you're actually eligible for," Davis explains.
What to Do If You Don't Pre-Qualify for a Personal Loan
If you don't get an offer when you pre-qualify, Millerbernd says that's often a lender's way of saying they may not approve your loan application. "It could also be a matter of asking for less money," she explains. "Lenders don't want your new loan to overextend your finances, so if you didn't get any offers when you asked to borrow a large amount, try asking for less." If that doesn't work, Millerbernd suggests submitting an application for a co-signed or secured loan instead. "However, a lender that lets you add a co-signer or use collateral (like your car) may not ask you to include that information when you pre-qualify, so you can't always tell how much it'll help your application," she warns.