A personal loan can be a smart way to pay off high-interest debt, cover emergency costs, or finance a big expense. But before you start applying, you’ll want to understand all your loan-shopping options, starting with prequalification and pre-approval.
Even after years writing about personal finance, personal loans continue to surprise me with how complex they can get. I’ve broken down the key terms, traps, and trade-offs so you don’t have to decode it alone.
Here’s my no-nonsense guide to loan prequalification versus loan pre-approval, and how to know which is right for you today.
What is prequalification?
Prequalification is the quickest, easiest way to see if you’re likely to get approved for a personal loan. You start by giving lenders some basic information — like income, employment status, and how much you want to borrow.
In return, you’ll get a preview of your possible loan terms, like how much you can borrow and what your interest rate may be. Loan prequalification involves a soft credit check, so your score won’t be impacted.
That means prequalification allows you to compare several different lenders with no risk to your credit. That makes it a smart first move if you’re shopping around.
Ready to start now? Compare our favorite loan offers today and get prequalified without hurting your credit.
What’s the difference between prequalification and pre-approval?
Prequalification and pre-approval are similar, and they often get confused — but they aren’t exactly the same. Here’s the difference:
- Prequalification is less detailed, uses basic financial info, and involves a soft credit check.
- Pre-approval is more in-depth, pulls more of your financial info, and involves a hard credit check, which can temporarily lower your credit score by a few points.
Both give you a sense of what you might qualify for, but pre-approval may carry more weight when you’re ready to move forward. In exchange for the ding to your credit, you get a slightly better idea of what your loan terms might be.
It’s important to note that neither one guarantees you’ll be approved — but they can give you a pretty good idea, and help you understand all your options before you commit.
How to get prequalified for a personal loan
Prequalification is super easy and usually takes just a few minutes online. Here’s what to do:
- Know your credit score. Most lenders want to see at least a 670, but some accept lower scores — just be wary of predatory lenders.
- Compare lenders. Check lenders’ websites for their range of fees, repayment terms, credit requirements, and interest rates. This helps you narrow down your options.
- Fill out a short form. You’ll enter income, employment status, and desired loan amount.
- Review your results. You’ll see estimated loan offers based on the info you provided.
Most prequalification offers are good for 30 to 90 days, so you’ll have plenty of time to assess your options.
Start your search the smart way
If you’re considering a personal loan, I recommend starting with prequalification — it lets you explore your options with no impact on your credit, and helps you make an informed decision.
Once you find a lender and offer that fits, you might consider pre-approval to get an even better idea of your terms. Or you can go right to an actual application.
Either way, though, stick with prequalification first so you can move forward with confidence.
Want to start shopping? See our top-rated personal loan offers and find out what you qualify for today.
Great Job newsfeedback@fool.com (Ryan Wilcox) & the Team @ The Motley Fool Source link for sharing this story.
