5 Tips to Get Preapproved for a Personal Loan
You need money, whether it’s to pay off some holiday shopping debt, repair a cranky carburetor or help with your child’s college expenses. A personal loan could be the solution. But before a lender provides you the funds, you must first get preapproved.
- Find and compare personal loan lenders
- Fill out a lender’s pre-application form
- Know your credit score in advance
- Take steps to avoid being rejected
- Have additional documents ready
How to get preapproved for a personal loan
Let’s break down how to get a preapproved loan.
1. Find and compare personal loan lenders
Before you start filling out the application, find and compare various lenders.
“Check the reputation of the lender you are interested in,” said Tony Kelly, director of financial planning for King Financial Network in Manalapan, N.J.
To find a lender, you can use LendingTree’s personal loan tool, which can match consumers with lender prospects. After entering your personal information — estimated credit score, employment status, pretax income and any co-borrower information, among other things — you could be provided with a potential list of lender matches and loan options.
Every lender is going to serve up something different to you. Pay attention to APR, loan terms and fees to make sure you’re in a good position to pay off the loan.
2. Fill out a lender’s pre-application form
Once you choose a lender, it’s time to fill out its preapproval application.
First, gather your necessary financial paperwork. This includes recent:
- Paycheck stubs
- Bank statements
- Recent tax returns, especially if you are self-employed
- Statements from other sources of income, such as alimony or rental properties
“The company lending you money is less concerned about what your assets are and more concerned about your future income because that’s going to determine whether or not you have the money to pay back the loan,” Kelly said.
3. Know your credit score in advance
When you apply for preapproval, the lender will peek at your credit report. But doing so doesn’t affect your credit score, according to Kelly.
“However, knowing your credit score ahead of time would help you to know if you’re going to get preapproved,” Kelly said. You can check your credit score for free through My LendingTree.
4. Take steps to avoid being rejected
If all goes well, you will be offered a loan at a specific rate.
“It’s going to vary depending on how aggressive the lender is, as well as how trustworthy of a borrower they think you are,” Kelly explained.
But what if you think you could get rejected? You need to take a step back and consider some options: You can pay off some debt before you apply or you could find a cosigner if your credit isn’t great. You also have steps you should follow if you are turned down.
“If you are rejected for a personal loan, you may want to [reach] out to family and friends for a possible loan,” said Dominique Broadway, personal finance expert and founder of Finances Demystified. “But more importantly, you want to understand why you were denied. After being denied, you are entitled to your full credit report, score and the reason for denial from the creditor in a mailed or emailed letter. Review this information and see what you can correct before you prepare to apply again.”
5. Have additional documents ready
If the lender preapproves you, it may ask you for extra information. For example, a self-employed applicant may have to show tax returns. In another instance, you may have to verify your employment or place of residence. Have these ready in advance to speed up the process.
Also, make sure you don’t exaggerate your income, Broadway said.
“This is not the time to start exaggerating about how much money you make,” Broadway said. Even fudging the truth a little bit can ruin your chances for approval.
If you do sign on the dotted line, pay back the loan on time and use the money for what it was intended.
“If you really wanted to pay off bills or have an emergency, use it for that,” Broadway said. “Don’t be tempted to take that much-needed trip to Hawaii or you’ll be right back where you were, needing more money.”
FAQs: Personal loan preapproval
Here are some common questions about getting preapproved for a personal loan.
I received a letter stating I was preapproved for a personal loan but I hadn’t even applied. This is great news, right?
Maybe, Broadway said. She said companies will do a soft pull of your credit report to see if you might be qualified for their loans before they send out a solicitation. “A soft pull shows an overview of your credit: debt-to-income ratio, the amount of loans you have and if you are making your payments on time,” she said. “However, the lender will still have you go through a full check.”
My credit score is really low, so should I even bother applying?
Loans for consumers with lower credit scores will be offered at a higher interest rate, which means you’ll be paying back more during the life of the loan, Kelly said. “If you know your credit score is lower than it should be or has some dings on it, see what you can do to repair it before you apply for the loan,” Kelly said. “It would make sense to pay off some of those things that are hurting your credit score if you’re trying to get a bigger loan.”
Before accepting a personal loan with a higher interest rate, Kelly suggests comparing it to other means of borrowing, such as from your credit card or 401(k).
I know I won’t get approved on my own, but I could really use the cash. What should I do?
Find a cosigner. “If you know someone in your family that trusts you and for whatever reason they have a better credit score, ask them ahead of time if they will cosign a loan for you,” Kelly said. “The bank or lender will take into consideration your credit score and the credit score of the cosigner.”