When you’re applying for a personal loan, it can be helpful to know your chances of approval ahead of time. After all, the last thing you want is to apply for a loan only to have your application denied.
That’s where prequalification comes in. While it’s not a guarantee, being prequalified for a loan can tell you whether you meet the eligibility requirements and what loan amount and interest rate may be available to you.
If you’re planning to apply for a personal loan in the near future, it’s important to understand what it means to be prequalified and whether it’s worth doing before completing your loan application. Keep reading to learn more.
What Does Prequalified Mean?
When you’ve been prequalified for a loan, you’ve met the basic requirements to qualify and are likely to be approved if you apply.
You can be prequalified for any type of loan or credit, including personal loans.
Prequalification is generally the first step in the loan application process.
Many people see prequalification when they’re just starting their loan search as a way of narrowing down their options.
During the prequalification process, a lender will look at the information you provide to determine whether you meet the loan eligibility requirements.
Factors the lender looks at most closely include your monthly income and credit history.
When you apply for prequalification, a lender does only a basic review of your credit, usually resulting in a soft inquiry on your credit history. The good news is this won’t affect your credit score. However, it also may not uncover everything in your credit.
Because of this, prequalification isn’t necessarily a guarantee that you’ll get the loan. It’s possible that a lender will prequalify you for the loan but then find information during the full approval process that causes it to change its mind.
How Can You Get Prequalified?
Getting prequalified for a personal loan is a fairly simple process that takes just a few steps. Here’s how to get started:
Complete the prequalification form
You’ll have to provide personal information, your Social Security number, and details about your employment and income. The lender will also likely ask for the amount you want to borrow and the purpose you wish to borrow it.
Go through a soft credit check
A prequalification generally doesn’t require a hard inquiry on your credit report. Instead, the lender will do a soft credit check to see if you’re likely to qualify.
Find out whether you’re prequalified
The process is usually quick, and you may find out immediately whether you’ve been prequalified for the loan. If you don’t find out immediately, you can expect to hear from the lender after a short time.
Complete the full application
Remember, being prequalified isn’t the same as being approved for the loan.
If you’ve been prequalified and want to take out a loan, you’ll have to complete the full application and go through a more in-depth approval process that includes a hard inquiry in your credit report.
What’s the Difference Between Prequalified and Preapproved?
When researching loans, you’re likely to see the words prequalified and preapproved thrown around often and may even see them used interchangeably. While the two are quite similar, there are also some important differences.
Both prequalification and preapproval involve a lender going through a preliminary verification process to determine whether you’re likely to qualify for a personal loan.
Preapproval is generally a more in-depth review than prequalification. Unlike the prequalification process, the preapproval process generally does require a hard inquiry in your credit report. It may also require the lender to contact your employer to verify your income.
Because it requires a more thorough review, preapproval is a more accurate indicator of whether you’ll ultimately be approved.
However, as with prequalification, preapproval isn’t a guarantee of approval. If you’ve been preapproved for a loan, you’ll still have to complete the full application and run the risk of it being denied.
Getting Prequalified With Bad Credit
It is still possible to get prequalified for a personal loan when you have bad credit. In fact, prequalification might be even more important in that case.
When you apply for a personal loan, it results in a hard inquiry on your credit report, which can drop your credit score slightly.
If you have below-average credit, you may have more difficulty finding personal loans you’ll qualify for. Getting prequalified can help to reduce your chances of unnecessarily applying for a loan you don’t qualify for.
The good news is there are plenty of lenders that offer personal loans to borrowers with bad credit. Many lenders specialize in these types of personal loans.
Keep in mind, however, that taking out a personal loan with poor credit is likely to result in a higher interest rate or less favorable loan terms.
What Happens When You Get Prequalified?
Once you’ve been prequalified for your loan, it’s time for you to decide whether to move forward with the full application.
Often, borrowers seek prequalification from multiple lenders while shopping for loans. In that case, now is the time to compare offers to see which is the best. Consider characteristics like the interest rate available to you, the amount you can borrow, loan fees you may be subject to, and other repayment terms.
Once you’ve chosen the lender to move forward with, you can prepare to complete the full application. Gather supporting documents such as proof of identification, proof of address, proof of income, and any other forms the lender requests.
Remember, the final application requires a more thorough vetting process than prequalification. As a result, it may take the lender a bit longer to make a decision.
While some very creditworthy borrowers may get a decision right away, others may have to wait up to a week. The good news is that once you’re approved, many lenders distribute the funds as soon as the next business day.
Personal Loan Prequalification FAQs
Does getting prequalified impact my credit score?
Getting prequalified shouldn’t impact your credit score. The prequalification process includes a soft inquiry on your credit history, meaning it doesn’t appear on your credit report and shouldn’t affect your credit score.
Why get prequalified for a personal loan?
Getting prequalified for a personal loan lets you know whether you’ll ultimately be approved for the loan. While a prequalification isn’t a guarantee, it may help you avoid applying for a loan you don’t qualify for.
Can a prequalified personal loan be denied?
Prequalification isn’t necessarily a guarantee of final approval. The credit check done during the prequalification process is only a basic review of your creditworthiness. Additionally, prequalification may not include an in-depth review of your income. The approval process, on the other hand, often includes employment and income verification.
Because the prequalification doesn’t go as in-depth as the final approval process, it’s possible to be prequalified but then have your application denied.
What credit score is needed for prequalification?
The credit score needed for prequalification depends on the lender and loan you’re attempting to get prequalified for. Some personal loans are available to borrowers with credit scores in the 500s or 600s, while others require credit scores in the 700s. Some lenders share the credit score you need to qualify for the loan. In other cases, you may need to complete the prequalification form to determine if your credit score is sufficient.
How long does prequalification last?
Unlike preapproval on a mortgage, prequalification on a personal loan doesn’t necessarily expire. Instead, you can take it to mean that you’ll likely be approved for the loan unless something changes with your credit report or income.
Is it better to be preapproved or prequalified for a loan?
Preapproval requires a more thorough review of your finances, meaning it’s a better indicator of whether you’ll qualify for the loan. But that doesn’t necessarily mean it’s better in all situations. If you’re in the early stages of shopping for a loan and are comparing many lenders, prequalification might make more sense.
What happens after applying for personal loan prequalification?
After you’ve applied for a personal loan prequalification, you should find out quickly whether you’ve been prequalified. If you have, you can decide whether you complete the full application. If you haven’t been prequalified, you can shop for a personal loan with eligibility requirements better suited to your financial situation.
