How to prequalify for a personal loan

Many lenders will allow you to get prequalified and compare rate quotes before you submit an application. (iStock)

Personal loans are among the most versatile forms of debt because you can use personal loan funds for just about anything. They’re also available to consumers across the credit spectrum, though loan terms will be significantly better for people with good and excellent credit.

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For the most part, the personal loan application process isn’t time-consuming, and you can often get a response -- and possibly even funding -- within a day or two of applying. But it’s a good idea to get personal loan prequalification before you submit a loan application to ensure you’re getting the best deal.

Here are some fast and easy steps to help you get prequalified for a personal loan:

  1. Get your credit in top shape
  2. Determine how much you need to borrow
  3. Shop around and compare lenders
  4. Get all documents prepared
  5. Consider all options before applying

Step 1: Get your credit in top shape

If you’re in a situation where you need emergency funds, you may not have time to improve your credit. But if your money needs aren’t immediate, it may be a good idea to take some time to build your credit to improve your odds of scoring a lower interest rate.

Start by checking your credit score to see where you stand, and getting a copy of your credit report to see which areas you need to address, if any. Other ideas include:

  • Get caught up on past-due payments and make it a priority to pay on time every month going forward.
  • Pay down credit card debt.
  • Avoid applying for new credit unnecessarily.
  • Dispute inaccurate or unfair information on your credit reports.

As you review your credit report, you’ll find more specific information about how you can work on your credit history. If you're confident in your credit score, then consider using Credible to view your prequalified rates within two minutes. It's free to use and there are no hidden fees.

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Step 2: Determine how much you need to borrow

Every situation is different, but it’s a good idea to know exactly how much money you’ll need, so you can avoid borrowing too little or too much.

Whether you’re planning to use the funds to consolidate credit card debt, make some home improvements, cover emergency expenses or whatever else, think carefully about how much money you’ll need.

You’ll also want to consider that some personal loan lenders charge origination fees, which are deducted from your loan disbursement. As a result, you may need to borrow more than you need to accommodate for the fee.

Depending on how much you plan to borrow, you can use an online personal loan calculator to help you understand what it might cost.

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Step 3: Shop around and compare lenders

Many lenders allow you to get personal loan prequalification through their websites. With this process, the lender will run a soft credit check, which doesn’t impact your credit score.

Instead of visiting each lender’s website individually to complete this process, though, online marketplaces like Credible will allow you to shop around and compare multiple lenders in one place. You’ll be able to view and compare personal loans, including interest rates, repayment terms, monthly payments and more based on your credit profile.

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Step 4: Get all documents prepared

Once you’ve found the best offer for you, you can move on to the loan application process. Each lender has different requirements for what you’ll need to apply for a personal loan, so check the lender’s website for specific information.

In general, though, you may need to provide a variety of documents, including:

  • Income information, such as a paystub, W-2 form, tax returns or bank statements.
  • Information about how to verify your employment.
  • A copy of your driver’s license or other government-issued photo ID.
  • Proof of residence, such as a lease agreement, bank statement or utility bill.

Some lenders may also ask a series of questions to verify your identity and prevent potential fraud.

If you know how much you need to borrow and the lender charges an origination fee, include that in your desired loan amount. For example, if you’re planning to borrow $10,000, and the lender charges a 5% origination fee, divide the $10,000 loan amount by 0.95 to find out how much you’d need to borrow to maintain a $10,000 disbursement after the fee is taken off.

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Step 5: Consider all options before applying

Personal loans can be used for a variety of purposes, and it’s possible to get one even if you have bad credit. Before you start this process, though, consider if it’s the right decision to borrow money or if you might be better off waiting and saving to accomplish your goal.

If a personal loan is the right move for you, take your time to compare all of your options before making a decision which lender to use. If anything, avoid taking the first offer you get—shopping around will help you ensure that’s the best rate available, or it can provide you with a better one somewhere else.

Use a marketplace like Credible to save some time comparing rates from top lenders.

Finally, if getting access to the funds quickly is important to you, make sure you have all the documentation and figures ready before you apply, so the process will go smoothly.

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