Last Updated on May 20, 2021 by MoneyVisual
Now that you have decided to take a Personal Loan, one the first step in the process is getting prequalified for the loan approval process. Pre-qualification for a personal loan popularly known as pre-approval gives you the freedom to check your potential terms of the loan without harming your credit.
By offering basic details about your finances and the loan you want, you will receive offers from lenders and then approve or reject them.
Apart from the huge banks that have dominated this sector for a long long time, there is a huge number of entities that have come up as lenders who can help you in providing a personal loan for your needs. For instance, you can also check out the personal loans offered by Standard Chartered Bank.
And Why Do You Think the Number of Lenders is Beneficial to You?
A bigger sector of lenders is beneficial for its consumers, implying that more number of lenders competing for their business. But most people are not aware of this great tool, which they can utilize – the prequalification process – to weigh the options from multiple lenders.
In the U.S. News Survey, the prequalification process (also sometimes referred to as pre-approval) was not used as a tool for comparing lenders by 52 percent of respondents. Only 21 percent compared to the rates of three or more lenders.
Why Get Prequalified?
The moment you apply for a loan, the lender should analyze your financial background to further decide whether you pose a good risk of repaying the loan. The prequalification process does not guarantee you loan approval, but it will help you understand the status of your application, if you’re a strong applicant or if not then how you can boost your approval chances.
There are many advantages of getting prequalified for a personal loan, e.g. it can help you find the best loan for your situation and get the best loan terms deal for you – which could save money. If you browse around and have prequalification from different lenders, you can weigh in different options for the projected length of loans, interest rates, fees, and loan sizes.
Here are the 3 Pre-Qualification Steps for a Personal Loan
1. Figure Out Your Monthly Payment
Most requests for pre-approval would inquire for the intended amount of borrowing. After all, a lender may not be willing to give you $80,000 if it determines that you can only pay back $50,000. You need to find out and be sure of how much you can afford to repay per month before you start spending around and completing the pre-approval applications.
Later, when the lenders start giving you the APRs, calculate them to make sure you have an affordable monthly payment. This will help you to plan your spending and savings in a better way.
2. Identify Lenders which Suit Your Needs
In addition to understanding what you want from your loan, you also can understand what your lender wants. Make a list of your priorities, that might 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)
After you have completed your list, find a variety of lenders that match your needs. Seek to have a mix of mainstream banks, credit unions, and online businesses.
3. Complete the Pre-Approval 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
What if You Can’t Get Prequalified for a Loan?
There might be times when you don’t get prequalified for a personal loan. Here’s what you need to do.
- Ask questions: Ask the lender to share with you the reasons why your prequalification was declined. With that info, you may be able to make changes that will improve your chances of qualifying for a loan in the future
- Review your credit scores and reports: If you are refused prequalification of the loan, it is a good idea to review your credit scores and reports and start working on enhancing your credit
- Ask about a co-signer: If you have a friend or family member who would be willing to co-sign on a loan, you can ask the lender if this can help to improve your approval chances