It’s one thing to decide you want to apply for a personal loan. It’s another thing altogether to get a letter in the mail congratulating you on getting pre-approved or pre-qualified for a personal loan before you have even applied for one. But it happens all the time—and if you’ve gotten that letter recently, you might be wondering what it means, and if the loan offer is legitimate.
If you want to qualify for any kind of personal loan, now or in the future, then you’ll want to make sure you understand the loan application process. That way, by the time you’re ready to apply for a personal loan, you have some assurance that you’ll get approved quickly.
Personal loans can be used for any number of expenses. Borrowers take out personal loans to help pay for emergency medical costs, fund home improvements, or even pay off high-interest credit card debt. The process of getting approved for a personal loan is similar to applying for any other loan; Lenders generally look at your overall financial picture, including your employment and credit history.
Personal loans are unsecured loans, meaning you don’t need to put up collateral to obtain the loan. (Other loans might require you to put your house up as collateral, but a personal loan would never ask that of you.) Personal loans are usually paid off over a set period of time—often a few years. If you have a good credit history and cash flow, you can likely qualify for a personal loan with a competitive interest rate.
However, some of the jargon can get a little confusing; For example, some lenders say ‘pre-qualified’ and others use the phrase ‘pre-approved’ for a loan. They may not have any distinction, but you’ll want to make sure you know what kind of loan offer you’re getting, what the steps are in the process, and if you’re a good candidate for a personal loan. That’s where this guide can help.
What does being pre-qualified for a loan mean?
Pre-qualification is sometimes considered the first step in the loan approval process, but you could also view it as a less comprehensive version of a pre-approval. Pre-qualification simply means that you fit the general description of a customer typically fit for a loan.
Based on your general profile, the lender can give you an idea of the size of loan you could qualify for. While pre-qualification can be done fairly quickly, it does not include a full analysis of your credit report or verification of the financial information you provide. And because of that, it is not a guarantee that your loan will actually be approved.
What does loan pre-approval mean?
Pre-approval is a more in depth stage of the loan approval process. A lender will have accessed some part of your financial history to assess you as a potential customer. Being pre-approved means that, based off of what the lender has access to, you would most likely be approved for a loan.
Pre-approval allows the lender to show you the size of the loan you’d qualify for, and the interest rate and loan terms they’d be willing to offer you. It’s a step closer to final approval of your loan application. However, this doesn’t automatically translate to being fully approved. A hard credit pull for example could pull in information previously unseen by the lender that was not considered at the pre-approval stage.
How do I know if I’m a qualified candidate for a personal loan?
Ultimately, a personal loan application considers your existing debt and your ability to repay the loan. Your current employment will factor in to how well-suited you are to repay the loan, as will your credit score. In most cases, this means you need a good credit score to qualify for an unsecured personal loan at a low interest rate. Lenders will also consider the ratio of your income to existing debt, and what kind of monthly payments you can afford in the repayment period.
If you wouldn’t otherwise qualify because of a poor credit score, you could also consider asking a close friend or family member to co-sign your personal loan. Adding a co-signer with a good credit score to your application could help you get you a lower interest rate on your loan.
Would you prequalify for a SoFi personal loan?
Some non-traditional lenders, like SoFi, also look at other parts of a financial package when considering a candidate’s personal loan application.
SoFi takes a comprehensive overview and looking at additional factors such as your earning potential and cash flow after expenses. This means even if you have a shorter credit history (because you just graduated college, for example) you could still qualify for a personal loan based on your education and career.
To find out if you’d qualify for a SoFi personal loan, you can first go through the online pre-qualification process. This requires you to create an account, and input your basic personal information, education, and employment history. It only takes a few minutes, after which SoFi will immediately show you which loan options you’d pre-qualify for.
After selecting a preliminary personal loan option, you’ll have to finalize your application by uploading documentation to verify your personal information; this could include pay stubs and bank statements. Once you’re approved, the loan is typically dispersed within a week.