How to Prequalify for a Personal Loan
You have probably heard of the term prequalification before in relation to loans, credit cards and mortgages. It refers to the first stage in the approval process and it’s a key process when you provide lenders with a better understanding of your credit history. Prequalifying for a personal loan allows you the ability to check your prospective loan term agreements without affecting your credit score. In order to see if you prequalify for a personal loan you will need to provide a lender with basic information about your finances and the desired loan amount. When you have been prequalified for a personal loan, you are more likely to be approved, but further checks will be carried out to verify your financial stability. Make sure not to assume that a product is yours just because you prequalify for a loan, as more extensive checks will be needed before the final decision is made by the lender.
How does prequalification work?
After selecting a lender, you will be asked to complete a loan application sharing details about what you earn and your current level of debt. As part of their review of your application, the lender will conduct a soft credit check to learn more about your financial behavior and credit rating. In many cases, this stage in the process is fully automated. The lender will then choose to accept or deny your application. If they decide that you do prequalify, then they will provide you with information on the loan that you could receive, including how much you will be lent, what the interest rate will be and the length of the loan. It is then up to you to decide whether you would like to accept their offer or not. If you are satisfied with the terms and are happy to continue, then the formal application will probably involve further checks.
What to consider before accepting a loan offer
Just like any other financial product, the terms, rates and charges connected to personal loans vary greatly between providers. To be sure of getting the best deal, Monevo recommends that you go through the prequalification procedure with a number of companies, and then compare the deals. However, bear in mind that once the initial prequalification stage is complete, the offer may change once the lender has delved deeper into your credit report.
Will a prequalification check be visible on my credit report?
As preliminary checks are considered as soft queries, they should not be visible on your credit report or affect your score. However you can see any soft checks that you have made, but because lenders cannot, it is perfectly fine to prequalify with as many lenders as you wish to seek out the most beneficial deal. It is only when you choose to move to a formal application that a hard check will happen and will be visible on your credit score, though a lender must ask for your permission first.
Increasing your chance of approval
The key factor in prequalification success is your credit score. A good report confirms that you are a low risk and encourages lenders to be more generous. To achieve or maintain a strong score, pay off your credit card on time each month, ensure that your balance stays low, and clear any regular bills when they are due.
What happens if I do not prequalify?
This can be a stressful outcome, but if you are turned down for a personal loan, then there are ways of finding out why and steps to take to improve your eligibility. Monevo suggests that you begin by obtaining your full credit report from TransUnion, Experian or Equifax to establish why you were refused. Once you are aware of any issues, you can begin working towards a better credit score. You can also check to see if there is an option to apply using a co-applicant or co-signer who has a higher credit score on the loan as well.
To learn more see: How to Increase Your Credit Score by 100 Points Today.