How to Prequalify for a Personal Loan

How to Prequalify for a Personal Loan

About 19.1 million people currently have an unsecured personal loan in the United States. Prequalification for a personal loan is the first step in the process of getting loan approval. This step is essential because it gives the lenders an insight of your creditworthiness and a picture of how much loan you qualify for. We hope that you find this How to Prequalify for a Personal Loan post useful. 

Affordable personal loans are a great source of capital to finance things that need immediate payments. Most people take personal unsecured loans for various reasons: consolidating high-interest debt, medical bills, etc. For smaller purchases, travel expenditures, and monthly expenses, people typically use credit cards instead.

How to Prequalify for a Personal Loan

Prequalification Process

The prequalification process is essential as it helps you find out the terms and if you are likely to be approved for a loan or not. The process will also help you know whether you can afford to repay the monthly payments. In case you have a low credit score, you can go through the prequalification process later when the score improves to receive better loan offers. 

When searching for personal lenders, look for lenders who offer reasonable rates, low fees, and a lengthy period for repayment. Look for a lending service that seems to care about helping the people it lends money to, instead of a cold, faceless financial institution.  A search such as Chicago installment loans will yield a multitude of results, so be sure to do plenty of research before settling on a lender you can trust. You can usually find information about the company's community involvement on their website.

Flexible repayment options are significant. Ensure you are comfortable with the repayment period, and terms, e.g., longer loan terms, should attract smaller monthly loan payments.

Different lenders have different requirements; hence you should approach a lender that meets your financial needs and have friendly terms. Compare the other lenders before deciding. Sometimes, you might qualify for a loan with one lender and not make it with another lender. The prequalification process starts when the lender pre-screens you before completing an application. 

Though the pre-qualifying steps for a personal loan vary from lender to lender, below are the general steps.

Filling out the prequalification form

You will be required to share information such as name, address, income, occupation, and debt. Some lenders require that you answer just a few questions from their website. The lender will then review the information provided. 

Assessment of credit score and credit history

Personal loans usually don't have collateral. Since it is unsecured, the lenders must ascertain your ability to pay it back.

The lender performs this through a soft credit check to ascertain the level of risk you may have. Lenders will also investigate your repayment history and outstanding debts. Having a steady job or income source can help you prove to the lenders that you can repay the loan. 

When you have a good credit score, you will pre-qualify for a loan with lower interest rates. Knowing your credit score can also be done through your bank, credit union, or credit card issuer.

The prequalification outcome

The lender can either grant or deny you a loan. Information regarding the rates and loan amount are sent to you in case you pre-qualify. If the lender rejects your request, you will receive a notice explaining the actions taken with a list of information sources such as credit scores.

Accept or decline the offer

Before you accept the offer, you should carefully review the offer in terms of repayment, interest rates, among others, to ensure you are comfortable with them. Confirm the kind of fees needed to be paid, e.g., original fee or prequalification penalty fees. 

When you accept the offer, you can then go ahead and formally apply with additional information for the lender to verify.

Upon application of your loan, the lender will run a full credit check, with more inquiry on your credit report before you can receive your loan. You will also be required to sign a credit agreement indicating your obligations and expectations from the lender.

Once you receive the loan, it is vital to manage the loan payment by having a sound financial discipline. Make certain to repay the monthly payments. Doing this will help you avoid any penalties that may arise. 

Finally: Apply for the Personal Loan

Before applying for a personal loan, you should consider various factors, such as the financial need, so that you only borrow the necessary amount. You can also opt to get financial advice from a professional as well.