How to Pre-Qualify for a Personal Loan - NerdWallet (2024)

Pre-qualifying for a personal loan is a first step in the loan approval process. It gives lenders an idea of your creditworthiness and it gives you a preview of the loan you might receive.

Getting pre-qualified, however, doesn't guarantee you a loan. Lenders will verify your information before final approval.

Not all lenders offer pre-qualification, but many banks, credit unions and online lenders do. The feature can be a big help when you’re shopping for a personal loan.

Here are the steps to pre-qualify for a personal loan, plus tips to boost your approval odds.

5 steps to pre-qualify for a personal loan

1. Fill out the pre-qualification form

Many lenders let you pre-qualify for a personal loan on their website by filling out a form. You’ll be asked to provide the following:

Because rates and terms vary, NerdWallet recommends pre-qualifying with multiple lenders to compare offers.

2. Undergo a soft credit check

Pre-qualifying for a personal loan should not affect your credit score.

Once you submit the pre-qualification form, the lender will do a soft credit check to determine your creditworthiness. A soft check doesn’t show up on the credit reports that a lender would see when you formally apply, so it won’t hurt your chances of getting approved.

If you get an offer through pre-qualification, the lender will invite you to submit a full application.

3. Find out if you’ve pre-qualified for a loan

Once you submit your pre-qualification form, you should see potential loan terms within minutes.

Pre-qualified offers will usually include the amount you qualify for, the annual percentage rate, total interest costs and your estimated monthly payments.

Technically, the lender can change the offer after you submit a formal application. Reduce your chances of a changed offer by providing detailed, accurate information during pre-qualification.

4. Compare pre-qualified offers

Once you’ve pre-qualified with a few lenders, compare rates, monthly payments, repayment terms and other loan features to choose the loan that works best for you.

APR: The loan’s annual percentage rate reflects the interest rate plus any fees, like an origination fee. It allows you to make an apples-to-apples cost comparison across personal loans and other financing options.

Monthly payments: Make sure you can comfortably afford the estimated monthly payment. Because most lenders report on-time payments to the three major credit bureaus, on-time payments can help build your credit, while missed payments hurt it.

Repayment terms: A shorter repayment period usually means you’ll pay less in interest over the life of the loan, but your monthly payments will be higher than if you opt for a longer repayment period.

Consumer-friendly features: Additional perks like flexible payment dates, hardship assistance and personalized credit-building recommendations can help you decide between similar loan offers.

5. Formally apply to get your money

This step usually involves uploading financial documents like bank statements, pay stubs and recent tax returns, which the lender uses to verify the information you submitted during pre-qualification. After you finish the application, the lender will perform a hard credit check, which will cause your credit score to temporarily dip and stay on your credit reports for up to two years.

Lenders review your cash flow, credit score and debt-to-income ratio when assessing an application. Your debt-to-income ratio and cash flow indicate how much monthly income you have available for loan payments.

If you're approved, some lenders can fund the loan as soon as the next business day, depositing the money into a checking or savings account of your choice. Most lenders can fund within one week.

What to do if you’re not approved

If your application is denied, you should receive an adverse action notice or letter. This will include information about the credit agency that provided the report, why you were denied, your current score and factors contributing to it and how you can get a free copy of your report.

This information can be valuable in finding ways to quickly build your credit score and strengthen your odds of getting approved for a personal loan.

How to boost your personal loan approval odds

If you don’t get an offer through pre-qualification, the lender may ask whether you want to apply for a co-signed, joint or secured loan.

Joint and co-signed loans allow you to add someone with stronger credit to your application, increasing your chances of approval or getting a lower rate. A co-applicant, however, is on the hook for any missed payments.

A secured personal loan requires you to pledge collateral like your car or savings account to guarantee the loan. It’s usually easier to get approved for a secured loan, but you could lose the collateral if you fail to make payments.

What to know about pre-qualifying with bad credit

A low credit score may not keep you from qualifying for a personal loan. Bad-credit borrowers (with a credit score below 630) can gauge their likelihood of approval by checking their rates at credit unions and online lenders.

Credit unions tend to offer lower rates and flexible terms for members with low credit scores. You must become a member in order to apply for a personal loan from a credit union.

Online lenders may also consider other parts of your financial picture, like your education and employment, to qualify you for a personal loan. Borrowers with low credit scores typically get the highest interest rates, though.