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When you get prequalified for a personal loan, you will learn the amount you may be able to get approved for if you submit an official application. The prequalification process uses a soft credit pull, which means it doesn’t impact your credit score.
A prequalification isn’t a promise to lend. But since you can prequalify for a personal loan without hurting credit, you can get prequalified at multiple lenders to compare prospective offers — which can be a very useful step if you’re shopping around for a loan.
Key Points
• Prequalification estimates your potential loan amount using a soft credit check that does not impact your credit score.
• The prequalified amount is an estimate, not a loan guarantee or formal approval.
• Prequalification doesn’t hurt your credit, allowing you to compare prospective offers from multiple lenders.
• The five prequalification steps are checking credit, deciding the amount to borrow, researching lenders, completing the form, and reviewing offers.
• The formal application requires verifying financial details and a hard credit check that can affect your credit score.
What Does It Mean to Prequalify for a Personal Loan?
Prequalifying for a credit loan allows lenders to preview your eligibility, often based on financial information you provide as well as a soft credit pull.
Because key factors like your income aren’t verified, but only self-reported, during a prequalification, the amount you prequalify for is only an estimate. It isn’t a guarantee that you’ll get officially approved for that (or any) amount when you formally apply for a personal loan.
Prequalification vs. Preapproval vs. Formal Application
The prequalification process can often be done in just a few minutes: All you need to do is fill out the form on the lender’s website, providing your name, contact information, and self-reported data about your financial standing.
Preapproval, in the world of personal loans, usually means that a lender has specifically selected you and sent you an offer to apply for a loan. You might receive a flyer with a specific offer amount in your physical mailbox or email. Being preapproved means you’re more likely to get fully approved than a prequalification. However, it’s important to understand that some lenders do use the terms preapproval and prequalification interchangeably when it comes to personal loans.
(This is different than in the world of mortgages, where preapproval involves a more in-depth assessment including a hard credit check and gives you 90 days to shop around for homes with the preapproved amount in mind.)
Finally, the formal application is the documentation you submit to get officially approved for a loan — and funded. A formal application requires verification of income and other financial details, as well as a hard credit check (that can affect your credit score). If you are approved after submitting your application and you accept the offer, you can receive the funds.
How to Prequalify for a Personal Loan in 5 Steps
Prequalifying for a personal loan can be done in just a few minutes. Here are five simple steps.
Step 1: Check Your Credit Score
You may already have access to your credit score through a credit card, bank account, or other financial account. You can also visit the websites of the three major credit bureaus, Experian®, Equifax® and Transunion®, to check your credit score for free without affecting your score. “Your credit score is based on factors such as how often you pay your bills on time, how many loans and credit cards you have, what your debt is relative to your credit limits, and the average age of your accounts. It also considers negative financial events, such as judgments, collections, and bankruptcies,” says Brian Walsh, CFP® and Head of Advice & Planning at SoFi.
While the lender will also check your credit score, knowing it ahead of time can help you set your expectations around whether or not you may qualify — and if you do qualify what kind of personal loan interest rates you might be eligible for. The minimum credit score needed for a personal loan varies somewhat from lender to lender, but you’ll have the most borrowing options if your score is at least 610, and the higher your score, the better your interest rate offer will likely be.
Step 2: Determine How Much You Need to Borrow
When you’re taking out a personal loan, you can use the amount you borrow for pretty much any legal purpose (with some exceptions, such as business expenses or college tuition). You’ll want to determine up front how much money you want to borrow for the costs you face.
Although a personal loan can be used in money-savvy ways, like credit card debt consolidation or as a home improvement loan, it’s still new debt, and you’ll still pay interest on it. It’s usually a good idea to avoid taking out any more than you absolutely need to borrow to cover the expenses you’re borrowing toward.
Step 3: Research and Compare Lenders
This is where the prequalification comes in handy! Because you can prequalify for personal loans without hurting credit (unlike a formal application, which does modestly ding your score), you can get prequalified at multiple lenders to shop around for the best deal.
Just make sure you’re only getting prequalified when you shop around, not putting in formal applications at multiple institutions. Multiple hard credit inquiries in a row can have a significantly negative impact on your credit score.
Step 4: Fill Out a Prequalification Form
Each lender you’ve identified will likely have a quick prequalification form available on their website. The form will ask for basic information like your full name and contact details as well as information about your employment, income, and other financial details.
Step 5: Review and Compare Your Offers
Once you get prequalified for a personal loan with multiple lenders, you can assess your offers and see which might best fit your needs.
Along with looking for the lowest interest rate, also be on the lookout for personal loan lenders that don’t assess any additional origination, application or processing fees, as well as loans that don’t charge a prepayment penalty if you’re able to pay the loan off ahead of time.
What to Do If You Don’t Prequalify
If you don’t prequalify for a personal loan, the first thing you’ll want to do is review the denial notice. Lenders are legally required to inform prospective borrowers of why they were denied a loan or line of credit. Understanding why you don’t qualify can help you understand the best next steps to take in order to qualify next time.
It’s also a good idea to review your full credit report to ensure there are no errors or instances of fraudulent information on it. Your credit report and score help lenders assess your riskiness as a borrower, so it’s critical that only your true information is reflected there.
If your credit report is valid and you’ve been denied due to a credit score the lender deems too low, there are actions you can take to improve your score.
Paying all existing loans and lines of credit on time each month is one of the best ways to improve your score, since such a large amount of your credit score depends on on-time payments.
Additionally, paying down existing debt can help improve your score — and also put you in a financially better position to take on a new loan.
The Takeaway
Prequalifying for a personal loan can help you get an estimate of how much you might get approved for from several different lenders, without affecting your credit score. This allows you to make an educated decision about the lender and offer that’s right for you.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.
FAQ
Does prequalifying for a personal loan hurt your credit?
No. Prequalification, unlike preapproval or a formal application, requires only a soft credit inquiry, which doesn’t affect your credit score. However, a prequalification is not a promise of an offer, and you can still get denied when you submit your formal application.
How long does personal loan prequalification last?
The length of time that a personal loan prequalification lasts can vary significantly amongst lenders. Your prequalification may last just a few days or up to a month or more. To know for sure, check with the lender you’re getting prequalified with ahead of time.
Can you prequalify for a personal loan with bad credit?
Some lenders will allow applicants with poor credit to prequalify for a personal loan. Personal loans tend to have more stringent eligibility requirements than other types of loans, however, because they typically aren’t secured by collateral (and are thus riskier for lenders). Requirements vary by lender.
What information do you need to prequalify for a personal loan?
During the prequalification process, you’ll be asked for contact information and to report your income. Although it’s just an estimate, it can be useful to look at your tax returns to understand your annual income at a glance.
What’s the difference between prequalifying and applying for a personal loan?
Prequalification is an informal estimate of how much you might qualify for from a lender if you were to submit a formal application. It requires relatively little information and only a short amount of time. Applying for a personal loan is a formal process of seeking funding from the lender, and will require verification of all given financial details as well as a hard credit inquiry.
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