Why is it Better to Pre-qualify for a Personal Loan
Why is it Better to Pre-qualify for a Personal Loan?
Life happens fast. Sometimes you need additional funds to cover an emergency or a big life event. It happens to everyone. A personal loan can help bridge the situation you are in. When shopping for personal loans online, it’s important to understand that it is better to pre-qualify for a personal loan.
What does it mean to pre-qualify for a personal loan?
To be pre-qualified for a loan means that a potential creditor has taken a look at your information and believes that you are likely to be eligible for a loan. In doing so, they have performed a “soft pull” on your credit. This will not affect your credit score. In fact, you’ve most likely had “soft pulls” on your credit without realizing it.
For instance, when credit card companies send out offers stating that you have pre-qualified for their card, they have already performed to “soft pull” to determine the potential of your eligibility. Many employers also do a “soft” credit check for potential new employees.
It’s important to note that if you are pre-qualified to get personal loan online by a lender, that is not a loan offer. That simply means that after a cursory examination, the lender feels that you will likely qualify for a personal loan through them.
Why it’s Better to Get Prequalified?
When you are thinking about sitting down to shop personal loans online, before applying to multiple potential lenders, know that it is better to pre-qualify for a personal loan. Yes, a personalloan can help you financially by allowing you to consolidate your credit card debts or assist with major purchases but by submitting loan applications, your credit score will be negatively impacted.
This is even before you know what interest rates you will be offered. It’s not worth risking your credit rating to find out that you can’t get an affordable interest rate. It is better to pre-qualify for a personal loan. When you shop personal loans, it is easy to pre-qualify either online or on the phone. This won’t affect your credit score and your can uncover each lender’s best interest rate and what your monthly payments would be. This will help you make the best decision for yourself and your budget.
It is really better to pre-qualify for a personal loan…
It can help you understand which options are best, give you some direction and your credit rating won’t be affected. Just understand that when feel like you have found the best lender, some of the numbers they gave you may change when you apply.
This is simply because the pre-qualification was conducted with a “soft pull” versus the “hard pull” or more in-depth look at your financial history that is required with an actual loan application. The algorithms that lenders use today are constantly improving which reduces the likelihood that the differences between the number will be substantial.
One area to pay attention to is a lender’s use of the terms “pre-approved” and “pre-qualified”. Some lenders use these terms interchangeably when discussing personal loans. Others do not. While applying for a personal loan and getting pre-qualified for a loan will be very similar processes. The loan application while trigger a “hard pull” on your credit score though.
Also, the loan application will require more in-depth information about your financial and employment background. “Hard pulls” on your credit rating also require your consent. With all the information involved in quick personal loan shopping, be certain that you are requesting pre-qualification.
This is one time that it is important that you read and understand all the fine print. When you shop for personal loans, it is better to pre-qualify for a personal loan than commit to the deeper credit search before you are ready.
What you need to pre-qualify for a personal loan
To pre-qualify for a personal loan, you need information about your current financial and employment situation. This includes the name of your current employer, salary level and the length of time that you have been with them. If you have only been with them for a year or two, you may need to provide additional information about previous employers.
They also information on your debts. This includes things like a mortgage, vehicles and other loans. They will also want to know how much your payments are. This self-reported information helps them to assess how likely you are to qualify for a loan.
Steps to Pre-Qualify for a Personal Loan
- Fill out a pre-qualification form – As I mentioned before, read through all the information, to ensure that this is pre-qualification and not the actual loan request application.
- Soft Credit Check from the lender – After submitting the application with the necessary information, the lender will do the soft pull on your credit.
- Lender pre-qualification decisioning – One reason it is better to pre-qualify for a personal loan is that its fast. The lender will quickly let you know their decision.
- Borrower either accept or decline the pre-qualified offer – The offer will show their best interest rate and the monthly payment amount. With this information, you can make the best decision on which lender to choose.
The Difference Between Hard and Soft Credit Inquiries
It is better to pre-qualify for a person loan as this allows you shop a variety of lenders without affecting your credit score. The opposite of the “soft pull” of pre-qualifying is a “hard pull” is done when there is a loan application or request for credit. This will affect your credit score. It can be around a 5-point drop.
If you are looking at several lenders, it is better to pre-qualify for a personal loan. One reason these two ways of assessing your credit affect it so differently is that when you go through the pre-qualification process, the lender is looking at self-reported information. During a hard pull or hard inquiry for a loan application, they will actually verify income, background, employment history, etc. There are ways to get a personal loan with out a hard inquiry, but you need to be careful of these types of small dollar lenders.
How can I increase my chances of approval for a Personal Loan?
When you want to get personal loan online, there are a number of things that you can do to increase your chances for personal loan approval. Also, doing these things just makes good sense. They will result in your credit score improving and you will be able to get better interest rates when you need financing for a major life event such as a big move, a wedding or to do debt consolidation.
1. Find Out What Your Credit Score Is
The first step will be the check your credit score. This is a soft pull so it won’t affect your credit rating. Getting the latest information will tell you where you stand financially. If your need for a personal loan isn’t an emergency or immediate need, you will have some time to improve your credit score.
Most lenders are looking for clients with a minimum credit score of 660 to be eligible for personal loans, but there are sub-prime lenders available too. A couple of things can improve your rating. Pay bills on time. This cannot be stressed enough.
Also, if it’s possible, pay them completely off. It’s also important that prior to applying for a personal loan, that you don’t open any new credit lines. Doing so would require a hard pull on your credit history. Which we know will cause a resulting drop in your credit rating. It’s also advisable that you don’t close any credit cards either. This is important even if you don’t use them often because lenders will see a longer credit history.
2. Lower Your Debts
Almost everyone has debt but carrying an excessive amount of debt will lower the potential of getting a personal loan.
So for your situation to be better to pre-qualify for a personal loan, start paying of the existing debts you have. It will not only improve your changes for getting a personal loan offer but it will also improve your credit score. There are many online tools to budget personal expenses that will help you with your monthly plan to cut costs and pay off debts.
Regardless of how plan to go about tackling debt, just working on it will be motivating for you. Experts differ on how to approach repaying debt. Some suggest that it’s better to pay off the biggest one first. Other argue that you need to get rid of the smaller debts first. Other strategies can include making more frequent payments or looking at balance transfers.
It doesn’t matter which strategies you use as long as they work with your lifestyle and reduce your debt. It would be unfortunate to discover that you actually increased your debt load by using a balance transfer that had a higher interest rate. You may actually decide that it is best to completely remove temptation once and for all and put your credit cards away for a while. While this step might not work for everyone, it can prevent you from splurging on an item that ultimately adds to your debt.
3. Request Only the Money That Is Needed
When you are shop personal loans online, there is a reason that you are requesting the loan. No matter what the reason for the financial need is, you need to put a number on it. That will be the amount you will apply for a personal loan for. If you requested a larger amount, the lender will view this as a riskier loan request.
Additionally, your monthly payments will also be larger and harder to pay off. So, don’t put yourself in a financial hole. Request only what you need. When you are deciding what you can afford in repayments, be sure to consider your whole budget including other debts such as car payments and your mortgage.
5. Use a Co-Signer
Sometimes, you’ll have a financial need that just won’t wait for your credit score to improve and for your debt to go down. That’s when you need to consider using a co-signer. Their great credit can be helpful in tight situations. Lenders want personal loans to be as risk free as possible. They view a co-signer with a higher credit score and more income as a lower risk situation so this will improve your odds of securing a personal loan. Just make sure that the co-signer understands any risks they are assuming if there is a problem.
Where do I find a lender to Get Pre-Qualified for a Personal Loan?
There are number of ways to go about finding a lender when you need financial help. You may choose to look for a personal loan. These are usually not backed with collateral. It is always better to pre-qualify for a personal loan before committing so that you can shop several lenders online. Remember, this will give you potential rates and payment schedules without affecting your credit score.
There are also options available that do require collateral. It really depends on your situation and the amount of funds you need. You can also consider credit cards or payday loans but realize that financial charges will be much higher.
A personal loan can help you through situations that arise in life. In shopping online for a person loan it’s better to pre-qualify for a personal loan, as you can see. At Loanry, we can help you find the right lender for you!
As a marketplace of lender information, we are not lenders but we can help you quickly find the companies that can help with a personal loan, mortgage or a variety of other loan options. It’s easy, online and open 24/7. That’s how educated consumers shop for personal loans.
Conclusion – Why is it Better to Pre-qualify for a Personal Loan
While working hard to lower your debt and taking ownership of your credit score may sound difficult. The more your consciously avoid costly pitfalls and educate yourself, the better you will be financially.
Understanding how credit works, such as soft versus hard pulls, give you the tools to improve your chance for loan approval. Always remember to shop around and that it is better to pre-qualify for a personal loan.
Celeste S has been crafting financial related content for search engine optimization projects since 2009. Overall, her writing includes blog posts, web content, press releases and marketing material across a wide spectrum. Her broad career experience allows her to craft articles that are approachable yet informative. She has written hundreds of articles for the nonprofit, finance, emergency management and government. She creates non-profit oriented blog posts for companies such as CharityChannel, Volunteer Center of North Texas and Texas Nonprofits. Celeste is a regular author on Loanry.com
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Ethan founded OfferEDGE in Dec 2013 with the mission to unify the financial quadrants through a system that allows businesses to be seen when consumers use a Single Sign On across Lending, Credit, Money and Real Estate. Taub invents the offers and IP, while overseeing all aspects of the company. He also has orchestrated the company’s earned media across the brands Loanry®, Cashry®, Debtry®, Budgetry®, Billry®, Taxry® and more. This includes over 500 publications that have been featured across the web.