Pre-qualifying for a personal loan is a preliminary step in the loan approval process. It gives lenders a preview of your creditworthiness, and it gives you a preview of the loan you might ultimately receive. Getting pre-qualified, however, does not guarantee you a loan; lenders will verify your information before final approval.
The pre-qualification process generally involves the following steps:
- You fill out a pre-qualification form, sharing such information as your income, occupation and existing debt.
- The lender performs a soft credit check, assessing your credit score and history. This gives the lender a sense of how risky a borrower you may be.
- The lender either denies or grants your pre-qualification. If you pre-qualify, you’ll receive information about the loan you may receive, including the rate and loan amount.
- You can either accept or decline the pre-qualified offer. If you accept, you can formally apply for a personal loan, which may require additional information and verification.
Pre-qualification isn’t specific to personal loans. It’s also common when applying for other financing products like mortgages and credit cards.
Does pre-qualification impact my credit score?
If you’re pre-qualifying for a loan, it shouldn’t impact your credit score. Lenders do a soft credit check to determine your creditworthiness, but that inquiry will not show up on your credit report. This means you can pre-qualify with multiple lenders to find the best and cheapest loan option.
If you continue with a loan application, the lender will verify your financial history and perform a hard credit check, which will appear on your credit report for up to two years and temporarily shave points off your score.
What’s the difference between pre-qualification and preapproval?
With regard to personal loans, there’s very little difference between pre-qualification and preapproval, and some lenders may use the terms interchangeably.
Preapproval is more often associated with larger loans like mortgages. You may also receive preapproved loan or credit card offers from your bank or other issuer.
What happens after pre-qualification?
When applying for a loan online, you can often get pre-qualified within minutes. You’ll then be guided through the official application process, which involves submitting financial documents like bank statements and recent tax returns that the lender uses to verify the information you submitted during pre-qualification.
I got an adverse action. What does that mean?
Adverse action sounds scary, but it’s just a notification that you’ve been denied a loan due to information on your credit report or because your income was too low. Typically, these are only sent if you’ve actually been denied, not if you fail to pre-qualify.
The lender will deliver the adverse action in person, by phone or in writing, and it will include information about the credit agency that provided the report, why you were denied, your current score and factors contributing to it, and information about how you can get a free copy of your report.
If you do not pre-qualify, you cannot advance your application. At this point you can consider other ways to find fast cash, or try to improve your chances of approval by building your credit score.