How To Prequalify For A Personal Loan

If you need some extra cash fast, a personal loan can provide funding you can use for almost anything within reason. Your borrowing experience, though, can hinge on the conditions of your loan, so you’ll ideally want a preview of your interest rate, repayment term and the loan amount for which you qualify.

This is where prequalification – which we’ll discuss in great detail momentarily – can be extremely helpful.

What Getting Prequalified For A Personal Loan Means

Prequalification offers you a “preview” of the kind of loan you may qualify for if you submit a full loan application. It’s often one of the first steps in the loan approval process, typically occurring as you shop around for a lender.

Prequalification typically gives you an estimate of your interest rate, monthly payments, loan term and loan amount, plus other important details. Getting prequalified also gives a lender an idea of your creditworthiness based on your credit score, repayment history and debt-to-income ratio (DTI). Lenders will run a soft credit check on you, which won’t affect your credit score or act as a full review of your finances.

If you get prequalified with multiple lenders, you can compare your results against other potential loan offers. Once you’ve found the best deal for your needs, you can then proceed to fill out a full loan application with the lender of your choice.

Prequalifying doesn’t guarantee you’ll be granted a loan, or even that you’ll qualify for the exact rate and term highlighted in your prequalification. Your final loan approval will involve a hard inquiry as well as further verification of the financial information you provided. Life events such as changing jobs or taking on debt could also affect your eligibility status.

Personal Loan Preapproval Vs. Prequalification

Prequalification and preapproval are sometimes used interchangeably with personal loans, and aside from certain legal distinctions, these terms carry a somewhat similar meaning. Keep in mind, too, that a preapproval letter is most often associated with getting a mortgage, not a personal loan.

Compared to prequalification, loan preapproval may take a longer, deeper look into your financial situation to determine if you’re eligible for a certain interest rate and a certain loan repayment term. With a personal loan preapproval, a lender may ask you to provide documented proof of your income, debts and other key financial information, and you may also be required to consent to a hard inquiry – which will bring your credit score down a little.

In some cases, getting preapproved for a personal loan makes it highly likely – even likelier than getting prequalified – that you’ll ultimately receive final loan approval. Then again, a personal loan “preapproval” might not carry any more weight or involve anything different than a “prequalification” since the terms can be used interchangeably. Lenders can differ on which term they use to describe their process – or they may use both terms and ascribe different meanings or the same meaning – so be sure when shopping around to determine which terms a lender uses and what they mean by them.

Prequalifying For A Personal Loan: 6 Steps

As part of the personal loan process, getting prequalified tends to involve a few basic steps until formally applying for the loan. Let’s walk through how to get prequalified.

1. Check Your Credit And Finances

Since personal loans are often unsecured (meaning there’s no collateral), your prequalification interest rate and repayment term will primarily depend on your creditworthiness. You’ll want to start any prequalification process by checking your credit report to make sure your credit is in a good place. If possible, see if you can calculate your DTI, too – lenders typically prefer a ratio no higher than 43%.

If you need to improve your credit score, it’s better to know early rather than after you get too far into the application process. You may not qualify for a good interest rate – or qualify for a loan at all – if your credit score is too low.

2. Research Different Lenders

Personal loans are offered through traditional banks, credit unions and online lenders. Rates and terms vary by lender, so it’s important that you conduct adequate research. Consider various factors, such as annual percentage rate (APR), repayment periods, offered loan amounts and anything else that directly affects you – the borrower.

3. Complete A Prequalification Form

To apply for prequalification, you must submit a form with personal details about you, your finances and your employment status. Expect to provide:

• Name
• Date of birth
• Social Security number
• Current address
• Phone number
• Employment status
• Estimated income

You should also plan on offering up information about your credit score and any outstanding debt.

Details specific to the loan you want may also be required. Be prepared to provide your desired loan amount and term, and your reason for borrowing money.

When borrowing through an online lender, the lender’s prequalification forms are usually accessible by clicking on a call-to-action phrase, such as “See my options,” “See my offers,” and “Check your rate,” that links to the form page.

4. Undergo A Soft Credit Check

After receiving your prequalification form, a lender will likely conduct a soft credit check on your finances. This will take a surface-level look at your credit profile, but it won’t affect your credit score or show up on your report like a hard inquiry unless your lender’s definition of “prequalification” is more like that of a traditional “preapproval.” This means you can likely prequalify with multiple lenders without hurting your credit.

When the credit check is complete, your lender will let you know whether you’re prequalified and possibly present you with an offer. This sometimes happens immediately after you submit your initial form.

5. Review Your Prequalified Offer

Once you have an offer in hand, look it over to see if it’s to your liking. Be sure to especially review:

• The interest rate and fees: Your interest rate will determine how much you’ll really be spending on the loan over time, so you’ll want to see if you qualify for a good rate. Many loans also require upfront costs, such as origination fees, so you’ll certainly lean toward a lender with the lowest fees.
• Loan-term length: A longer loan term means lower monthly payments but more interest owed over time. A shorter term will save you in interest but be more expensive monthly, so decide which option best suits your situation.
• Lending time frame: Personal loans are often available 1 – 7 business days after applying, but the wait can sometimes be longer. Delivery time vary among lenders, so consider your desired time frame for accessing the money. Rocket Loans℠ can provide same-day funding under certain conditions.¹
• Features and benefits: Some lenders may offer rate discounts, relief options and other perks to borrowers. Consider any benefits a lender can offer you when choosing a loan provider.

6. Compare Offers From Other Lenders

If at all possible, get prequalified with multiple lenders. Since soft credit checks won’t hurt your credit, why not collect as many tentative offers as you can to compare deals? Once you’ve reviewed your offers, choose the lender that appears best for your situation and submit a full application along with the appropriate loan documents.

Personal Loan Qualifications

Personal loan requirements can differ from one lender to another, but next up we’ll look at the four main personal loan qualifications of the borrower that lenders consider when approving or prequalifying a borrower for a loan.

Credit Score

Your credit score will be the most important factor in qualifying or prequalifying for a personal loan. The minimum credit score range that lenders typically accept for personal loan approval is 610 – 640 – and some lenders go as low as 580 or even, in rare cases, 500 – but no score in these ranges promises a favorable interest rate. For a good interest rate and more favorable repayment term, you’ll likely need a score higher than the minimum.

Income

Some lenders have a minimum income requirement to ensure that borrowers can repay their loan amount. Required salaries can range from $20,000 – $45,000, but many lenders won’t disclose their income requirements. They will, however, require proof of income through bank statements, tax returns, signed employer letters and possibly other types of documentation. You likely won’t need to provide this proof for standard prequalification.

It’s worth noting that you can still apply for a personal loan if you’re self-employed.

Payment History

Your payment history makes up 35% of your FICO^® Score, so lenders will pay special attention to any missed payments, which can stay on your credit report for up to 7 years. If you have some negative activity on your report, wait until those marks are gone or try to repair your credit before applying for a loan.

DTI

As mentioned, lenders prefer borrowers with a DTI of no higher than 43% – but a DTI of 36% or lower is ideal. Any higher and a lender may be concerned about whether a borrower could make their monthly payments with their leftover income.

Why Get Prequalified For A Loan?

Whether you need cash for debt consolidation, home improvements, an auto loan or another big purchase, getting prequalified for a personal loan can benefit you in multiple ways. For instance, you’ll get an idea of your chances of approval if you apply for a loan, and you’ll learn your potential interest rate and repayment term.

It’s wise to compare prequalification results between lenders so you can be assured of finding the best option for you. Prequalification also gives you some time to review your finances and determine whether you can comfortably make your monthly payments.

While not 100% accurate, a prequalification estimate offers a glimpse into what you can expect from the loan you want to borrow.

What Happens If You Can’t Get Prequalified?

If your application for personal loan prequalification is denied, it doesn’t mean that getting approved for a loan is out of the question. Consider taking one or all of the following actions:

• Reach out to the lender. It wouldn’t hurt to ask the lender why your prequalification was denied, and any answers they give could help you try again soon or after some time has passed. Common reasons for denial include having a low credit score, a high DTI, insufficient income or some combination of the three.
• Work to improve your credit. Check your credit report again and look for areas of improvement or even errors that may misrepresent your credit history. Paying down credit card debt is a great first step toward improving your credit profile.
• Apply with other lenders. Try to prequalify with other lenders if you haven’t already, and see if one or more of these lenders will accept your application. If you’re denied again, you’ll probably need to consider other options for the time being.
• Submit an application with a co-signer. Applying with a co-signer could give your application a boost. Rocket Loans doesn’t currently offer co-signing options for personal loans, however.

Final Thoughts

Getting an idea of your personal loan eligibility early in the game can benefit you in many ways. While not a guarantee of final loan approval or a certain loan amount, the estimate a lender provides can provide insight on where you stand as an applicant and whether you’re likely to qualify for the sum of money you want. Additionally, you can use your prequalification to compare lender options and land the best deal possible.

Want to see your potential interest rate and loan options? Get the personal loan process started with Rocket Loans today.

¹Same-day funding is available for clients completing the loan process and signing the Promissory Note by 1:00 p.m. ET on a business day. Also note, the ACH credit will be submitted to your bank the same business day. This may result in same day funding, but results may vary, and your bank may have rules that limit our ability to credit your account. We are not responsible for delays that may occur due to an incorrect routing number, an incorrect account number or errors of your financial institution.