Applying for a personal loan can be a lengthy process and quite frustrating if you have to spend a lot of time on the application process and are then turned down.
There’s a quicker way to get an answer, however, and it involves some simple steps to ensure you have pre-qualified before the loan application process begins. Pre-qualification also lets you compare a number of loan offers, and helps you keep a check on your credit rating. Lenders will still need to verify your financial details before your personal loan is finalized.
These are the four stages your pre-qualifying application will go through:
1. With Monevo, you can search our panel of lenders online, with no charge charge – and it won’t affect your credit rating. Simply complete the online form with basic information such as your occupation, income and how much you would like to borrow.
2. The lender assesses your credit history and score using a basic, preliminary credit check and uses this to estimate your risk level as a borrower.
3. Following these two simple steps the lender may offer a pre-qualified loan offer. If you are successful, you’ll receive more information about the terms and conditions that will apply.
4. Finally, you can accept the pre-qualified offer or decline it. On acceptance, you will need to verify any details requested by the lender during the formal loan approval process.
What information do I receive during the pre-qualification process?
Monevo is a credit broker, not a lender, so we are able to offer you a good choice of banks and financial institutions completely free of charge. We recommend you select more than one option in the beginning, as rates and terms vary between different lenders and you will be keen to get the best and most affordable offer possible. If you are able to pre-qualify for several different personal loans you have more choice.
Any pre-qualifying loan offer you receive will be personalised to fit with your financial profile. You will receive preliminary information detailing the amount you can borrow and the interest rate payable. Always bear in mind that these terms and conditions may vary when the lender receives your full financial details.
Does pre-qualification impact my credit score?
Credit scores are usually only impacted when a lender is making a ‘hard inquiry’ into your financial history and commitments. This may happen, for example, during the formal loan approval process. It is very unlikely to happen as a result of the ‘soft inquiry’ for a pre qualifying loan. This inquiry should not show up on your credit report as lenders recognise that it’s desirable to make a comparison before opting for a specific financing option.
Once you decide to proceed with a loan application, you will find that the lender acts to verify your financial history and performs a hard credit check. Such inquiries usually appear on your credit report for up to 12 months and may temporarily reduce your score by a few points.
How can I boost my chances of approval?
Your credit score reflects your financial history and is affected by your ability to repay debts in full, to manage your affairs well and to pay bills on time. As long as you are seen to be managing your finances well, your credit score should stay strong. The lender will want to see that you are capable of repaying whatever loan amount you wish to borrow. For instance, if you can manage to repay credit card balances in full each month, you’ll make a positive impression.
What’s the difference between pre-qualification and preapproval?
Many banks, mortgage lenders, credit card companies and other financial institutions don’t differentiate between preapproval and pre-qualification. Applications for larger borrowings, such as for a mortgage, are often referred to as ‘preapproved’, however, effectively there is no difference between the two terms.
What happens after pre-qualification?
Most lenders will issue notice of pre-qualification within a few minutes of your pre-qualification application being made if you are applying online. Once this happens, a lender will help you to go through the formal process to make a loan application. They will inform you of the documentation they need in order to verify your financial status. Often, this will include recent tax returns and bank statements.
I got an adverse action. What does that mean?
If you find you have not pre-qualified for a personal loan from any of the lenders you selected, you will need to rethink other ways to raise funds. You can also address your credit score if you think this has been a problem, and work to improve it by whatever means are available to you.
A notification of adverse action is simply what happens if you have been turned down for a loan. Often, this is due to a low income level or a poor credit rating. Usually a lender will contact you in writing or by telephone to let you know. They will tell you which credit agency they have received information from and help you to obtain a free copy of your credit report. Once again, you have the option of looking elsewhere for funds or working to improve your credit score before making any further loan application.
How Do Credit Scores Work?
Everyone is entitled to check their credit history free of charge. It’s a good idea to do this before applying for a loan as it will give you a guide as to what a lender will see when they check your finances. As well as helping you qualify, a good credit score can also help you obtain a lower interest rate on your personal loan. Credit score ranges fall into the following groups:
720 and above: Excellent credit
660 to 719: Good credit
600 to 659: Average or fair credit
Less than 600: Bad credit
If you find your credit score is lower than you (or a lender) would like, it’s best to try to build it up before you begin the application process. The factors that affect your credit score the most are making payments on time and the amount of credit you utilize, for example on a credit card, relative to your overall limits.
What should I look out for?
To improve your credit rating try to avoid the following:
Missed payments — The fact that you have skipped a payment at all looks bad on your credit report. Details of late or missed payments remain on credit reports for up to seven years from the original date.
Charge-off — If a creditor decides they won't be able to recover the money you owe, they may write your account off as a loss, and may continue to report the past due amount and balance owed. Should the creditor sell on your debt you may find a collection agency will try to make you pay.
Settled accounts — if a creditor agrees to accept less than the total amount you owe, your debt is considered settled. However, such settled accounts are still considered to be negative information in terms of your credit reports.
Other actions – such as bankruptcy, repossession, foreclosure and voluntary surrender all have negative impacts on your credit report.