A personal loan can be a great way to consolidate credit card debt or finance large purchases with a predicable monthly payment. But with interest rates ranging from single digits all the way up to 30 percent or more, you don’t want to tarnish your credit score applying for multiple loans only to discover you’re not qualified for an affordable rate. Fortunately, more personal loan lenders are making it easy to pre-qualify for a personal loan without affecting your credit score.
When you pre-qualify for a personal loan, a lender can show you your best interest rate and monthly payment amount without needing to do a hard inquiry on your credit report. (The concern, of course, is that too many hard credit pulls will cause your score to drop, making it harder to get approved for credit in the future.)
With an actual interest rate and payment quote, you’ll be able to see whether the loan fits into your budget and make an educated decision before you borrow the funds.
What you need to pre-qualify for a personal loan
When you find a personal loan lender you want to work with (I’ll discuss lenders in-depth below), you’ll need to provide them with some information about your overall financial profile.
They’ll likely ask for any paperwork regarding your debt (car loan, mortgage, student loans, etc.), your income, and any assets you might have. This helps them get to know you financially.
Pre-qualification is fast and easy
Personal loan pre-qualification should always be free-if a lender wants to charge you a fee, run-and you can provide all the information online or over the phone.
As I mentioned before, there’s no hard pull on your credit report, but there is a soft pull. To get the most accurate numbers, lenders will have to know a little about your credit history, just nothing too in-depth.
Soft pulls actually occur more than you probably realize. You know all those annoying credit card offers you get in the mail? The card company likely did a soft pull to see if you even qualify for the card. Sometimes, employers even do a soft credit pull to see of you’ve got a responsible credit history. Another common example of a soft credit inquiry is when you check your own credit score. You can check your own credit score as often as you’d like but it will never appear on your report as a hard inquiry.
Why you want to pre-qualify for a personal loan
Pre-qualifying for a personal loan is the very first step in figuring out what loan options work best for you. It’s an overall picture of where you stand.
However, since there’s not a hard pull on your credit report, the numbers lenders give you are subject to change-although lenders’ algorithms are getting so good, it’s unlikely that the change will be significant.
That leads us to the difference between being pre-approved versus pre-qualifying.
Applying for a loan triggers the hard inquiry
Before you request a personal loan pre-qualification, make sure that you’re beginning a pre-qualification process and not the process of beginning to apply. A lender that offers qualification will always say something like “see your rate without affecting your credit score”.
Although the personal loan application will look very similar to a pre-qualification form, you may have to go into more detail regarding your financial and employment history. Typically, you’ll have to click a consent form before the lender does a hard credit inquiry, but this fact can get lost in the fine print.
Finally, keep in mind that pre-approval and pre-qualification can sometimes mean different things. When you apply for a mortgage, for example, a pre-approval is a more comprehensive step than a pre-qualification and may involved a hard credit pull. When it comes to personal loans, the two terms may be used interchangeably, so always read the fine print.
Where to find personal loans
Getting back to personal loans, now that you know what pre-qualifying is, you probably want to know where to look for lenders. Check out Money Under 30’s list of the best personal loan lenders, or go directly to the sites below:
Guide to Lenders
Guide to Lenders let’s you pre-qualify for a personal loan from dozens of different lenders. You answer a few questions about your income, your credit score, what you’re looking to use the loan for, etc. and you’re given rates from a variety of reputable lenders.
Prosper is a marketplace lending network, meaning your loan will come from dozens of individual investors rather than from a bank. There are pros and cons to this model, but one of the largest pros is that a site like Prosper may be able to approve borrowers with credit issues that a typical bank will reject. You can read about David’s experience using Prosper or our review of Prosper, or skip directly to Prosper and request pre-qualification.
Sofi is another lender to consider that offers pre-qualification and is offering some great interest rates in the personal loan space. Sofi can offer some very competitive APRs to borrowers with excellent credit. You should also check them out if you’re a recent graduate with a good job but don’t yet have a robust credit report. Sofi can do some things in their underwriting that can help compensate for a short credit history.