How’s it possible that a lender such as Upstart can approve or deny you for a personal loan within minutes?
Well, your online application might prequalify you for a personal loan — but it won’t guarantee you’ll get the loan.
However, preapproval is an important part of the personal loan application process. Here’s why and how to achieve it.
Why get preapproved for a personal loan?
Prequalifying for a personal loan — also known as preapproval — allows you to check your potential loan terms without harming your credit. By providing basic information about your finances and desired loan, you can receive — and then accept or decline — quotes from lenders.
It’s wise to seek preapproval from multiple lenders. This way, you can compare APRs, amounts, and repayment term lengths to find the best loan for you.
On the other side of the table, lenders get a sneak peek at your creditworthiness. If you have an excellent credit score, for example, the lender might have no problem letting you in through the door. If your score is low, however, it might use your application for preapproval to explain alternative options, such as bringing on a cosigner to qualify.
3 steps to prequalify for a personal loan
Like in the case of private student loans, the terms on personal loans are based primarily on your (or your cosigner’s) credit score and debt-to-income ratio. Many of the vetted personal loan companies in our marketplace, for example, require you to have a credit score of at least 600.
Once you’ve assessed whether your numbers are good enough for a personal loan, take these three steps to prequalify.
1. Figure out your monthly payment
Most preapproval applications will ask about your desired borrowing amount. After all, a lender might not be willing to lend you $30,000 if it determines that you could repay only $20,000.
Before you start shopping around and completing preapproval applications, you should figure out how much you can afford to repay each month.
Later, when lenders start handing you APRs, plug them into our personal loan calculator to ensure your desired monthly payment is affordable. The calculator also can show you how much interest you’ll owe over time.
Say you want to borrow $10,000 and can afford monthly payments of $300, for example. If a lender quotes you an interest rate of 8.00% and a three-year repayment term, you’ll find that your monthly payment would be $313 and you’d pay a total of $1,281 in interest charges.
2. Identify lenders that meet your needs
Aside from knowing what you want out of your loan, you also should consider what you need from your lender. Make a list of your priorities, which could include:
- Disbursement within 48 hours (in case you need the funds quickly)
- No prepayment penalties (in case you pay off the loan early)
- Unemployment protection during repayment (in case you lose your job)
Once your list is complete, find a variety of lenders that meet your needs. Try to have a mix of traditional banks, credit unions, and online companies. You might start your search by consulting our list of best personal loan companies and comparing the features they offer.
3. Complete the preapproval applications
The easy part of the loan process is the application itself. Most lenders will have a single-page form requesting the following from you:
- Personal information, such as your address, Social Security number, and education history
- Specific financial details, such as your income, monthly house payment or rent, and bank account balance
To complete these forms in the two- or three-minute spans that lenders advertise, have your information handy.
Getting approved … or not
After you submit your application, the lender performs a soft credit check to assess your creditworthiness. Unlike the hard credit check that takes place later in the loan application process, this initial review won’t harm your credit score.
Applications that asked you to estimate your credit score might provide you with an immediate approval or denial. Often, you’ll be contacted via email or phone once your initial application has been evaluated.
If you’re approved, the lender might offer specific terms, such as your interest rate and loan amount. The lender also might let you choose from a few repayment options.
If your application is denied, the lender could get in touch to tell you about how to strengthen your application, potentially by applying with a cosigner or co-borrower. You also could receive an adverse action notice, which explains why your loan was denied.
Go from prequalified to qualified
The beauty of trying to prequalify for a personal loan is there are no strings attached. You go through the minor hassle of completing an application, but then you get to review loan terms without putting your credit at risk.
If you decide to not take a personal loan after applying, you don’t have to.
You likely have reached this point because you intend to borrow money. If you’re preapproved and want to move forward with the process, you’ll be asked to provide more information about your financial situation. At that point, you’ll be subject to a hard credit pull, which will be noted on your credit report.
Once your formal application is finished, your lender can present its actual loan offer.
If you failed to prequalify, head back to the drawing board. You might consider ways to improve your credit score or strategies to increase your income. Then you can prequalify — and ultimately, qualify — for the right personal loan for you.
Interested in a personal loan?Here are the top personal loan lenders of 2018!
|Lender||Rates (APR)||Loan Amount|
|1 Includes AutoPay discount. Important Disclosures for SoFi.
2 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
* Important Disclosures for Upgrade Bank.
Upgrade Bank Disclosures
|7.73% – 29.99%||$1,000 - $50,000|
|6.15% – 15.37%1||$5,000 - $100,000|
|6.87% – 35.97%*||$1,000 - $50,000||Visit Upgrade|
|8.00% – 25.00%||$5,000 - $35,000|
|4.99% – 29.99%||$10,000 - $35,000||Visit FreedomPlus|
|5.99% – 18.99%2||$5,000 - $50,000||Visit Citizens|
|15.49% – 34.49%||$2,000 - $25,000||Visit LendingPoint|
|5.99% – 35.89%||$1,000 - $40,000||Visit LendingClub|
|5.49% – 18.24%||$5,000 - $75,000||Visit Earnest|
|9.95% – 35.99%||$2,000 - $35,000||Visit Avant|