If you need money, you may be considering getting a personal loan. Interest rates and loan terms vary from different lenders. For this reason, most borrowers shop around to get the right loan deal that will fit their needs. Some even undergo a prequalification process so they could know their chances of getting a personal loan.
What Does It Mean to Prequalify for a Personal Loan?
A lender runs a soft inquiry on your credit status if you choose to prequalify for a personal loan. During this process, you will know if you have a chance to get approved or not. Furthermore, prequalifying for a personal loan will help you understand the loan terms and interest rates that you may get if the lender will approve your application.
Prequalification vs. Preapproval
You might have come across these two terms (prequalification and preapproval) during your loan or credit card application. According to Experian, several lenders use these terms interchangeably, while others will assign different definitions to each. Basically, both terms indicate a process where you receive a tentative acceptance from the lender, so it gives you a glimpse of what to expect on your personal loan application.
Most of the time, prequalification is less meticulous and requires fewer upfront information rather than preapproval. In both cases, you still need to complete the loan application so that the lender can make a hard inquiry on your credit. Furthermore, prequalification and preapproval will not guarantee a loan approval from the borrower.
Why Should You Get Prequalified?
There are several advantages to getting prequalified. As mentioned earlier, the prequalification process does not guarantee your loan approval. However, it helps you understand whether you are an eligible loan applicant. If you are not, it helps you to know what you can do to improve your chances. Furthermore, getting prequalified will also help you find the right loan that best fits your current financial situation.
Steps to Take in Prequalifying for a Personal Loan
The prequalification stage is a quick process. Some even do it online. Here are common steps that you can take in prequalifying for a personal loan:
- Choose one or more lenders. You can apply online with a credit union, bank, or an online lender’s website, such as www.creditninja.com/dojo/installment-loans. Moreover, you can also choose to apply online or in person.
- Provide basic personal information to the lender. This may include your name, income, address, employment details, and the amount you want to borrow.
- Wait for the lender to review the provided information. After this step, the lender will then run a soft inquiry on your credit. Once that has been taken care of, the lender will show you their assessment.
What to do After You Get Prequalified
Getting prequalified for a personal loan means you’re one step closer to the loan you want. Before giving you a final approval of your loan application, lenders will verify the information that you have given to them first.
The prequalification stage varies from one lender to another. Some lenders will give you a detailed look at what to expect if you get approved. This includes the estimated amount you are qualified to borrow, length of the loan, monthly payments, interest rates, and other fees.
Always remember that the details the lender may provide after prequalification are just estimates. They are still subject to change. Once you have completed your formal loan application, that’s when the lender sets the loan terms.
What If You Can’t Get Prequalified For A Personal Loan?
If you are in dire need of funding, getting denied in a loan prequalification can be disappointing. However, there are several things you can do when that happens:
Ask Some Questions
Feel free to ask the lender why you failed the prequalification process, and ask them for the ways in which you can improve your chances. Gather that information and apply it for the next time you want to prequalify for a personal loan.
Review Your Credit Scores And Reports
Your credit status may have some errors in it. If so, do your best to solve this kind of problem. However, if you were denied because you have a low credit score, then you should work on further boosting it.
Consider Other Financing Options
There are other financing options you could try aside from a personal loan. Suppose you need funding for major home improvements. You could consider getting a home equity loan.
Consider A Cosigner
A cosigner might help you improve your chances of getting the best loan deal there is. If so, consider asking your family or friends. A cosigner is someone who is co-responsible for the loan, and they will be obligated to repay the loan if you fail to do so.
Getting prequalified for a personal loan is worth the effort because it allows you to compare lenders and loan terms. This is also a great step for finding the convenient loan deal that best suits your current status.