How to Prequalify for a Personal Loan Without Hurting Your Credit
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When shopping around for a personal loan, it’s important to compare offers from multiple lenders to get your lowest possible APR on a loan. You can do this by seeing if you prequalify for a personal loan.
Prequalification is when a lender analyzes your basic financial information to determine your loan eligibility without affecting your credit. A lender may be able to estimate your APR, loan amount and monthly payment, all without a hard credit check. Keep reading to learn more about how to get prequalified for a personal loan.
What does it mean to prequalify for a personal loan?
Many lenders let you check potential loan terms, such as estimated APR and loan amount, without affecting your credit score. This is sometimes referred to as prequalifying for a loan. Personal loan prequalification only requires a soft credit inquiry and allows you to check loan eligibility before applying.
Prequalifying for a personal loan doesn’t guarantee that you’ll be approved when you put in a formal application. During the formal application process, the lender will conduct a hard credit inquiry, which may reveal financial information that could change your eligibility or the terms you qualify for.
What you need to prequalify for a personal loan
What you need to provide for personal loan prequalification will depend on the lender, but you should prepare any paperwork with personal information about your debt, income and assets.
Lenders will likely want to know your:
- Desired loan amount and loan purpose
- Monthly net income and asset information
- Contact information, including your home address and phone number
- Identifying information, such as your date of birth and last four digits of your Social Security number
7 lenders that let you prequalify with a soft credit check
Not all lenders let you prequalify for a personal loan, but many will. Here’s a sample list of lenders that let you check your estimated personal loan terms, such as APR and loan amount, without affecting your credit score:
|Lenders that let you check your possible loan terms without affecting your credit score|
|Lender||Loan amount||Loan length||APR|
|Avant||$2,000 to $35,000||24 to 60 months||9.95% to 35.99%|
|Discover Bank||$2,500 to $35,000||36 to 84 months||6.99% to 24.99%|
|LendingPoint||$2,000 to $25,000||24 to 60 months||9.99% to 35.99%|
|OneMain Financial||$1,500 to $20,000||24 to 60 months||18.00% to 35.99%|
|Payoff||$5,000 to $40,000||24 and 60 months||5.99% to 24.99%|
|SoFi||$5,000 to $100,000||24 to 84 months||5.99% to 20.69%|
|Upgrade||$1,000 to $35,000||36 or 60 months||6.94% to 35.97%|
Why it’s important to prequalify for a personal loan
Prequalifying for a personal loan lets you compare potential APRs across multiple lenders without affecting your credit score. This can help you identify the personal loan lender that can offer you the lowest possible APR for your situation — which can save you money over the life of the loan.
See how shopping around for a lower APR affects the cost of borrowing in the table below:
|Cost savings between two personal loans with different APRs|
|Loan length||5 years||5 years|
|Amount paid in interest||$5,792.68||$8,863.83|
|Total cost of loan||$25,792.68||$28,863.83|
|*APRs used are for demonstrative purposes only|
3 tips for prequalifying for a personal loan
- Check your credit score, and work to improve it if necessary
- Calculate your debt-to-income ratio
- Research lenders for your credit band
1. Check your credit score, and work to improve it if necessary
Personal loans are typically unsecured, meaning they don’t require collateral. This means that personal loan lenders rely heavily on your financial history to determine your eligibility as a borrower. Your credit score is a reliable indicator for lenders, since it factors in your payment history, credit utilization ratio, credit inquiries and other financial information.
It can be hard to qualify for a personal loan if you have a bad credit score. To increase your chances of prequalifying for a personal loan, consider working on your credit score before you apply.
2. Calculate your debt-to-income ratio
Another factor that personal loan lenders consider when issuing loans is a candidate’s debt-to-income ratio. That’s because your debt-to-income ratio gauges your ability to afford new debt. Personal loan lenders like to see a debt-to-income ratio of 35% or less.
Here’s how to calculate your debt-to-income ratio:
If your debt-to-income ratio is 36% or higher, consider paying down some of your debt before applying for a personal loan, or seeking an opportunity to increase your income.
3. Research lenders for your credit band
Not every lender will be a good fit for you, so search around for lenders that work with borrows who have similar credit profiles to your own. Some lenders lend to borrowers with borrowers with fair or bad credit, but keep in mind that your loan terms may not be so favorable. With a high APR, it would be more costly to borrow a personal loan. Bad credit borrowers could also consider borrowing from a credit union, which may offer better terms than a traditional bank.
Other lenders specialize in borrowers with good or excellent credit. By shopping around for a loan offer with the lowest possible APR for their financial situation, good-credit borrowers may be able to save money on interest over the life of a loan.
Personal loan prequalification FAQ
What does “prequalify for a personal loan” mean?
Prequalifying for a personal loan means that a lender thinks you’re a good candidate to formally apply for a personal loan. When you prequalify for a personal loan, a lender might provide you with loan offers, including estimated APR, monthly payment and loan amounts.
Does prequalifying guarantee a loan?
No. Being prequalified for a personal loan simply lets you see if you’re a good candidate for a personal loan without putting in a formal application. However, once you formally apply for a loan, you may no longer qualify due to information that was revealed during the hard credit check.
Can you prequalify through multiple lenders?
Yes. Since prequalification requires only a soft credit check, you can see if you’re a good candidate for a personal loan through multiple lenders. If you have multiple personal loan offers, then you can choose the loan offer that works best for your financial situation.
Can I prequalify for a personal loan without a hard credit check?
Yes. Many personal loan lenders let you check your eligibility with a soft credit inquiry, which will not affect your credit score.
How much will I get approved for?
That depends on a few factors, including the loan amounts offered by the lender. Check the lender website to see potential terms, such as minimum and maximum loan amount. The offered loan amount will also depend on your eligibility as a borrower, including your income.
What is an adverse action notice?
The Fair Credit Reporting Act requires a lender to explain why you were denied credit. Lenders can send you this information in the form of an adverse action letter. You may have been denied credit because of your credit score, debt-to-income ratio or credit utilization ratio, for example.