Before you apply for a personal loan, see if you prequalify. Many lenders make it easy for you to check online. Prequalifying lets you compare offers from multiple lenders, see your estimated interest rate, and give you an idea of your terms all without any commitment or damage to your credit score. It’s a great way to explore personal loan offers and see what you can get.

Being prequalified doesn’t guarantee you’ll be approved for the loan. You have to formally apply and most likely undergo a hard credit check. Still, it’s a good first step to take when you’re in the market for a personal loan.

Here’s how you can prequalify, tips to boost your approval odds, and what to do if your credit score is on the low end.

Why Prequalifying for a Personal Loan is Important

Prequalifying for a personal loan is akin to laying the groundwork before building a house. It gives you a clearer picture of what loan terms you might receive, such as the interest rate and loan amount. It lets you compare potential APRs across multiple lenders so that you can find the best terms, and lowest interest rate, and save money all without affecting your credit score.

5 Steps to Prequalify for a Personal Loan

1. Fill out the Prequalification Form

Start by filling out a prequalification form with a lender. Before you fill out the form, consider how much you need to borrow and make sure the monthly payments will fit into your budget. The lender will most likely want to know:


The desired amount and reason for the loan.


Annual income and details about your employment.


Contact information like your phone number and address.


Personal details including your date of birth and Social Security Number.


If you have other assets like savings or retirement accounts.

2. Undergo a Soft Credit Check

Lenders will conduct a soft credit check to determine your creditworthiness. This is a basic review of your credit history that doesn’t affect your credit score and won’t show up on your credit report, unlike a hard credit pull.

3. Find Out If You Prequalify

After the soft credit check, the lender will inform you if you prequalify for a loan. You usually find out in a matter of minutes.

This is not a guarantee of approval, but a signal that you meet the basic criteria. You will typically see the amount you prequalify for, a potential APR, the total interest cost, and an estimate of your monthly payments.

The lender can always change the offer when you formally apply. To reduce the chances of that happening, give as much detailed information as possible on your prequalification form.

4. Compare Loan Offers

If you prequalify, you’ll receive tentative offers. It’s crucial to compare these offers based on interest rates, monthly payments, repayment terms, additional fees, and other loan features. Look and see if any offers have perks like flexible payment dates, hardship assistance, or no prepayment penalties.

Do your analysis and find the one that works best for you. Make sure you’re comfortable with the estimated monthly payments before you proceed.

5. Apply for the Best Loan Offers

Once you’ve compared offers, apply for the best one that suits your needs.

This step will involve a hard credit check – which can cause your credit score to dip – and additional documentation. You’ll likely have to provide bank statements, pay stubs, and recent tax returns. The lender will use all this documentation to verify the information you submitted during prequalification.

If approved, you could receive your money in as little as one business day. Other lenders take up to a week to send the funds.

What to Do If You’re Not Approved

If you don’t prequalify, don’t despair. The lender should send you an adverse action notice or letter that will explain why you were denied, state your credit score, and how to get a free copy of your credit report.

Review the letter and start addressing your problem areas. You may need to improve your credit score, pay down debt, or increase your income. It could be as easy as staying at your job for a few more months to show stability.

Tips to Boost Your Prequalification Odds

Improve Your Credit Score: Pay bills on time, reduce debt, keep your credit utilization below 30%, and correct any errors on your credit report.

Lower Your Debt-to-Income Ratio: This ratio is crucial in lending decisions as it helps gauge your ability to afford new debt. Most lenders want a ratio of 35% or less. Pay down existing debts as much as possible.

Increase Your Income: More income can improve your loan eligibility.

Consider a Co-Signer: A co-signer with good credit can significantly increase your chances of being approved, and you can usually get lower rates too. Note that your co-signer will now be on the hook for any missed payments.

Research Lenders: Find lenders for your credit profile. There are plenty of online lenders and credit unions who specialize in loans for bad credit. Don’t bother to apply if your score is below the lender’s minimum.

Secured Personal Loan: If you’re unable to prequalify for an unsecured personal loan, try for a secured one since they’re easier to get approved for. You will have to put up collateral like your car or savings account to guarantee the loan and you may lose it if you fail to make payments.

Use a loan marketplace: Online loan marketplaces make it easy to prequalify for multiple offers at once with lenders who match your financial profile. Take advantage of them and save yourself time.

What to Know About Prequalifying with Bad Credit

Even with bad credit, prequalifying for a personal loan is possible.

Look for lenders who specialize in bad credit loans. Credit Unions tend to offer flexible terms for members with low credit scores. Some online lenders will consider other parts of your financial life like your education, employment, and housing situation, not just your credit score.

Be prepared to pay higher interest rates if your score is on the low end.

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Final Thoughts

Prequalifying for a personal loan is an excellent first step in the borrowing process. It provides insight into what loan terms you might expect, helps you plan financially, and protects your credit score. By following these steps and tips, you can navigate the prequalification process with confidence, even with less-than-perfect credit, and find the best loan for you.