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Pre-qualifying for a personal loan is a first step in the loan approval process. It gives lenders an idea of your creditworthiness, and it gives you a preview of the loan you might receive.
Getting pre-qualified, however, doesn't guarantee you a loan; lenders will verify your information before final approval.
Here are four steps to pre-qualify for a personal loan.
1. Fill out the pre-qualification form
Many lenders let you pre-qualify for a personal loan on their website by filling out a form. You’ll be asked to provide information including:
Personal details, like your name, date of birth and Social Security number.
Contact details such as your address and phone number.
Your annual income and details about your employment.
Other financial information, such as whether you have savings, retirement or investment accounts.
Your desired loan amount and loan purpose.
Because rates and terms vary, NerdWallet recommends pre-qualifying for multiple personal loans to compare offers among lenders.
Pre-qualifying offers will include your potential loan terms, like the amount you qualify for and the interest rate, though those numbers might change after you formally apply and a lender gains detailed insight into your financial picture.
2. Undergo a soft credit check
Pre-qualifying for a personal loan should not affect your credit score.
Once you submit the pre-qualification form, lenders will do a soft credit check to determine your creditworthiness. A soft credit check doesn’t show up on the credit reports that a lender would see when you formally apply, so pre-qualifying with multiple lenders won’t hurt your chances of getting a loan.
If you get an offer through pre-qualification, the lender will invite you to submit a full application. When you do, the lender will verify your financial history with a hard credit check, which will appear on your credit report for up to two years and temporarily shave a few points off your score.
3. Find out if you’re approved
Lenders review your cash flow, credit score and debt-to-income ratio when assessing an application. Your debt-to-income ratio and cash flow indicate how much monthly income you have available for loan payments. Your credit score reflects how well you've managed debt. For that reason, building a strong credit history is the best way to increase your likelihood of pre-qualifying.
Pay your bills on time, keep your balances low and aim to pay your credit card balances in full each month to strengthen your credit profile.
How to get a loan with bad credit
If you’re worried about qualifying because of your credit score, personal loans from credit unions may carry low rates and flexible terms for applicants with lower credit scores.
Online lenders also offer bad-credit personal loans. These lenders may consider other parts of your application, like your education and where you work, to help qualify you. But they typically offer higher rates, so the loan will be more expensive.
» MORE: See your bad-credit loan options
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4. Formally apply to get your money
Once you submit your pre-qualification form, you should see potential loan terms within minutes. If you’re happy with the amount, rate and repayment term, you're ready to formally apply for a personal loan.
This step usually involves uploading financial documents like bank statements and recent tax returns, which the lender uses to verify the information you submitted during pre-qualification. After you finish the application, the lender will perform a hard credit check.
If you're approved, some lenders can fund the loan as soon as the next business day, depositing the money into a checking or savings account of your choice. Most lenders can fund within one week.
If you’re not approved
If your application is denied, you should receive an adverse action notice or letter. This will include information about the credit agency that provided the report, why you were denied, your current score and factors contributing to it and how you can get a free copy of your report.
This information can be valuable in finding ways to quickly build your credit score and strengthen your odds of getting approved for a personal loan.
How to boost approval odds
If you don’t get an offer through pre-qualification, the lender may ask whether you want to apply for a co-signed, joint or secured loan.
Joint and co-signed loans allow you to add someone with stronger credit to your application, increasing your chances of approval or getting a lower rate. A co-applicant, however, is on the hook for any missed payments.
A secured personal loan requires you to pledge collateral like your car or savings account to guarantee the loan. It’s usually easier to get approved for a secured loan, but you could lose the collateral if you fail to make payments.
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