Prequalifying is a great option to enhance the odds of personal loan approval. It can also help you get the best rates on a personal loan, and this process will not potentially hurt your credit score.
What Does Prequalifying For a Personal Loan Mean?
If you get prequalified for a personal loan, you receive a basic estimate of the lender’s loan rates and fees. With the financial information you provided during the prequalification process, the lender can provide you with a ballpark idea of how much you can borrow if you get approved. You can also get a glimpse of other potential loan terms.
It is vital to note that the quotes provided during the prequalification process are not yet final. The numbers provided to you are only starting points. The lender will still need to evaluate your documents when you finally decide to submit a loan application and will then provide you the final terms once you get approved.
Personal Loan Requirements You Should Consider Before Prequalifying
The following are the common requirements you need to take care of before you prequalify:
Check Your Credit Score
Personal loans tend to be unsecured, which means no collateral is needed to qualify for the loan. So, most likely, lenders would look at other factors as a requirement for approval, such as your creditworthiness.
You can typically check on your credit score for free through your credit card issuer, credit union, bank, or other online sites. You can also review your credit score for free once a year through the major credit bureaus such as Equifax, TransUnion, and Experian.
If you can, try to remove any derogatory marks on your credit report. It is to improve your score before deciding to apply for any type of loan. Try to clear any missed or late payments as soon as possible.
Having a good or excellent credit standing can help you prequalify a personal loan with favorable terms and low interest rates. But, if you have bad credit, it would be best to work on ways to improve it. This way, you will have a greater chance of getting the personal loan that best fits your current financial situation.
Be Sure You Can Afford
You choose to borrow money because you can’t afford to pay something upfront. But note that you will need to put aside money to start making monthly payments on a personal loan. You will also need to make sure that you can afford to insert a personal loan repayment bill on your budget comfortably.
Loan repayment can vary; most of the time, it largely depends on the type of loan. Repaying personal loans would also differ with various lenders.
Lenders will most likely review your employment status and income. It is one of their ways to make sure you can afford the loan, besides checking your credit score. Hence, a steady job and a consistent income are typically advantageous.
Shop Around and Do Research
Lenders tend to have different requirements. That is why you might qualify for one and not the other. Comparing different lenders is a good way to avoid settling for the first one you see.
The first lender you find might not be the right one for you. Evaluating each lender’s requirements and options is vital in getting a personal loan that fits your current financial needs.
In finding the best personal lenders, consider the following aspects:
- Low Or No Fees. Fees can add up to your total loan costs. It means you will end up paying more than the loan amount itself. It will help if you look for lenders who offer no prepayment penalties and low origination fees.
- Flexible Repayment Options. It will help if you find a lender that provides a flexible repayment option to avoid any trouble repaying the loan.
- Reasonable Loan Rates. Lenders most likely offer you different loan rates. Find one you are comfortable with to avoid any financial problems in the future. However, it will help if you make sure other factors are also in lines, such as the repayment flexibility and fees.
- Discounts. You can keep your eyes on the discounts as well. For example, several lenders tend to give discounts to borrowers who choose automatic payments for their monthly loan repayments.
To Sum It All Up
If you want to get an idea of what a lender might offer you on a personal loan, prequalifying is an excellent way to go. You can easily prequalify for a personal loan with different lenders and see which one offers you the best one that is right for you. Moreover, one of the best things prequalification can offer is that it won’t hurt your credit score.
Aidan has been writing about personal finance for over 6 years. Prior to this, he worked as a Corporate Finance Analyst where he specialized in Due Diligence, Company Valuations and more. He is a CFA charterholder.
