- Prequalifying for a personal loan can be surprisingly easy, and most lenders allow you to check your loan offers without affecting your credit score.
- There are two types of credit checks that lenders can perform: hard credit checks and soft credit checks. Soft credit checks do not affect your credit score, whereas hard credit checks do.
- There are options for borrowers who don’t qualify, such as improving your credit score, looking for lenders specializing in loans to borrowers without perfect credit histories, or calling the lender to explain your situation.
There are many personal lenders in the market, and they all have different lending standards and underwriting methods, so prequalifying for personal loans can seem intimidating. However, the actual process for prequalifying for a loan can be surprisingly easy.
Nearly all personal lenders and lending marketplaces, including Upstart, allow you to easily check your loan offers without affecting your credit score. Most lenders that allow you to do this will specify on the prequalification page, and if you don’t see something to the effect of “checking your interest rates won’t affect your credit score,” don’t assume that it won’t.
Soft credit checks: What you need to know
When you prequalify for a personal loan, or any loan for that matter, the lender can do one of two types of credit checks. A hard credit check is when the lender formally pulls your credit report and reports it to the credit bureaus as an official inquiry, which can hurt your credit score. Hard credit inquiries remain on your credit report for two years and can have an adverse impact on your score—especially if you have several of them show up at once.
The simple explanation of a soft credit check is that a lender looks at your credit report and score but doesn’t report it to the credit bureaus as a credit-seeking inquiry. If you ever received mailers with “pre-approved” offers for credit cards, those likely used the same type of credit pull to check your qualifications.
How to prequalify for a personal loan
The exact process for personal loan prequalification varies from lender to lender. However, most follow the same six general steps.
- Fill out the prequalification form. You’ll fill out a short form on the lender’s website that consists of your identifying information. You can expect to provide your name, Social Security number, date of birth, employment and income details, and the amount of money you want to borrow. Some lenders might want more information about your assets, but not all do at this stage of the process.
- Submit the form. As mentioned earlier, most lenders will allow you to check your loan offers without a hard credit pull. As long as this is noted on the prequalification form (it almost always is), you can click the “submit” button without fear of an adverse impact on your credit score.
- Review your loan offers. At this point, one of two things will happen. Either the lender will notify you that you don’t qualify for a loan with them, or you’ll see your loan offers on the screen. In many cases, you’ll have several interest rate and loan term combinations to choose from. Generally, the shorter the term, the lower the rate, all other factors being equal, but that isn’t always the case.
- Select your loan offer. It is generally in your best interest to choose the shortest repayment term that has payments you can comfortably afford. However, every financial situation is different, and you might have a specific priority, such as keeping your payments as low as possible. So, after comparing all of your interest rates, loan terms, and monthly payments, you can select the offer that best meets your needs.
- Apply for a personal loan. In the vast majority of cases, if you receive loan offers through a prequalification, you can finalize an application and receive the loan. However, it’s important that prequalification doesn’t guarantee final loan approval. Once you select an offer to apply for, the lender will want to verify the information you provided, especially in regard to income. It’s also worth noting that when you formally apply for a personal loan, the lender will run a hard credit check, which will reflect on your credit report.
- Get your money. Assuming your formal loan application proceeds without any major issues and the loan is approved, you’re done. The money will then be deposited to your bank account, sometimes as soon as the next business day. Some personal lenders might allow you to have the loan proceeds sent to your existing creditors if you’re obtaining the loan for debt consolidation.
What if you don’t qualify?
Don’t be discouraged if you fill out the prequalification form and a lender doesn’t qualify you for any loan offers. There are many different reasons why this might happen. However, most reasons for denial fall into one or more of three categories:
- Your credit score or credit history had a red flag.
- Your income or employment history wasn’t sufficient.
- Your other debts are too high.
Let’s take these one at a time. If your credit is the problem, a good first step would be to try to prequalify with personal lenders and lending marketplaces that specialize in loans to borrowers without perfect credit histories, like Upstart. If you still can’t prequalify, it could be a smart idea to work on improving your credit score. Building excellent credit takes time, but you might be surprised at how much of a difference you can make in a few months.
If your income or employment history wasn’t sufficient to justify the loan, there may not be much you can do. It can be tough to meaningfully increase your income quickly, and if you’ve only been at your job for a short time, you can’t change that fact. However, Upstart’s AI model factors in over 1,000 data points when making loan decisions, so a limited employment history might not necessarily exclude you.
Finally, you may have trouble prequalifying if your other debts are consuming too much of your income to justify another monthly payment. And this may sound like a difficult problem to overcome. After all, many people need personal loans because they have other debts they want to consolidate. One smart move if you can’t prequalify online is to call the lender and explain your situation—specifically which of your monthly payment obligations will be eliminated if you obtain a personal loan.
In any of these cases, an option is to re-apply with a co-signer. By adding a creditworthy person to your application, you can boost your chances of approval.
The bottom line on personal loan prequalification
Prequalifying for a personal loan is a far easier process than it was years ago when you had to physically walk into a bank and apply. Most online lenders make the personal loan qualification process quick and relatively painless, and offer a series of easy-to-navigate steps from the application to the loan’s funding.