What is pre-qualification?
Securing a personal loan for financial emergencies is becoming one of the popular and cheap ways to get a quick money lately.
It is not only convenient but also affordability and that explains why more and more people are going personal loans way and shying away from the traditional lines of credit like credit cards.
However, there is one step many people miss in the process of personal loan application; the pre-qualification.
Pre-qualification helps achieve 2 main goals:
(1) It helps you access your loan suitability and creditworthiness and how to improve it.
(2) You will be able to find the best loan offers for your financial situation.
Pre-qualification is the quickest way to determine your chances for loan approval.
Seeking it from multiple lenders will guarantee you get the cheapest personal loan for your need.
And, it takes less than an hour to complete the prequalification process online. It is free.
1. Choose a lender
The first step in the pre-qualification process is choosing lenders you are interested in getting personal loan from. It can be your local bank, credit unions or a reputable online bank.
It is safe to get pre-qualification from more than one lender. The more lenders you have the better it is for purposes of comparison. From pre-qualification -assuming they will be successful, you will choose the best offer that works best for your situation.
When you have already brainstormed lenders and settled on, let’s say 5 of them, then can we move to the next step.
2. Submit your pre-qualification forms
At this stage, you are expected to fill the pre-qualification forms then submit.
You can do this in person at the bank, fill an online form or simply over the phone depending with the lender you are pre-qualifying with.
Very often, lenders will seek to know details like:
- Your Income, its sources and stability.
- The amount of active debt you have.
- Personal details like name, phone number and email address.
- The current address of where you live in.
- Your education details like level of education, name of the school and what you studied.
- Your social security number.
- Employment details like name of the employer, address and their phone number.
Lenders will seek more or less information depending on the type of personal loan you are applying for and the risk factor associated with you.
Once you submit your information, you will be taken to step 3.
3. Give time for lenders to review your pre-qualification information
After submitting your details in the pre-qualification form, sit back and wait.
Each lender you submitted your form to will review your information to check your suitability for a personal loan.
The whole process takes a few minutes and you will have your results.
The lender will perform a soft credit check ( which does not affect your credit score) to pull your credit score and credit history data.
Based on this information, the lender will determine the risk associated with lending you money which will form the basis for their next action.
Whichever decision they will settle on, takes us to step 4.
4. Get your pre-qualifcation results
It takes less than 30 minutes after you submit your pre-qulifiion form to get the results.
The lender can either deny or grant your pre-qualification depending on the information you submitted in the previous step.
Most often, the results you get (favourable) boils down to your credit worthiness and the perceived risk lenders associates with you.
If you get pre-qualified:
Pre-qualification does not mean you are approved for the loan. It is just one step closer to personal loan approval.
After pre-qualifying, lenders will send you the following details:
- Personal loan options you qualify for.
- The amount of loan you can get.
- Interest rates they charge for each loan product.
- The terms of repayments (monthly installments and length of the loan).
- And, other fees and penalties associated with the loan products.
These details are estimates arrived at, from the information you submitted and your credit history.
In the final step before your loan is approved, lenders will verify the information you provided in the steps above.
At this stage, the terms might be different from the estimates you are sent during pre-qualification.
However, disparities will not be noticeable; as long as you provide the correct, true-picture of your financial situation during personal loan pre-qualification.
If you don’t get pre-qualified:
If you need a personal loan fast and you get denied a pre-qualification, it often feels like being suffocated.
While there is no way to dispute it rightaway, there are a number of mitigation measures you can take before re-applying so that you guarantee chances of a favourable outcome.
Here is what to do if your pre-qualification is denied.
- Ask why you did not pre-qualify
You can ask your lender why you did not pre-qualify for the loan. Use the feedback to make necessary adjustments before seeking another pre-qualification.
You will be surprised to discover it was a simple misinformation from your side which you can correct right away and get a favourable discharge.
- Get your credit report and correct any mistakes
You can seek your credit report and start working to improve it based on the insights from the report. You can dispute errors if any and use the insights to work on a credit score recovery path.
- Seek other financing alternatives
There are a number of financing options you can look for which serve the same purpose as a personal loan. You can opt to credit card balance transfer, home equity loan or seek peer to peer lending.
- Ask if you can get a guarantor or cosigner
You can also ask the lender if they accept guarantor or cosigner arrangements in order to boost your credit worthiness.
- Strengthen your credit score
A strong credit score makes financial life easier. You must take necessary steps to strengthen it.
At this stage, you already have your pre-qualification results. It is better you get them from as many lenders as you can.
With the best option at hand, you can move to the next stage.
5. Apply for a personal loan
This is the last and the final stage.
At this stage, you already have all the information you need at hand. You have pre-qualifications from a number of lenders too.
If you get a pre-qualification, you can either accept or decline it.
Sift them based on your financial situation and only remain with the best personal loan that is more beneficial to you.
The best lender should have:
- The highest amount close to what you are seeking.
- The lowest interest rates charge.
- Affordable monthly installments you can pay without having an adverse effect on the budget.
- No hidden fees and harsh penalties for prepayments and late payments.
Once you accept a pre-qualification offer, the bank will send you the loan application form.
They will also seek additional information to support those provided during pre-qualification. This may include your bank statements or recent tax returns to ascertain your income.
A hard credit check will be conducted which will knock a few points off your credit score temporarily.
If the information provided are verified to be true, the loan will get disbursed to your checking or savings account a few hours after. Sometimes, it can take up to 3 days depending on the bank.
If any of the information you provided during prequalification is false, you will get an adverse action.
An adverse action is simply a notification to let you know why the loan you applied for was denied. Here is a video explanation.
Every time you are seeking a personal loan, pre-qualification should be your first step.
You will get to know the amount of money you qualify for and the interest rates you will be charged beforehand.
Pre-qualification gets you offers from a number of lenders. This puts you in the best position of getting the best deal with the lowest interest rates which saves you money in the long run.
The whole process of pre-qualification takes 30 minutes or less and is free. You can check how much loan you can take today and at what rates.