Personal loans can come in handy when you need a large amount of money, but it is likely that when you apply for these loans, you may not be signed off on. Therefore it is suggested that you pre-qualify for these loans. Pre-qualifying removes the chances of getting rejected by a lender as it involves pre-screening of your application to inform you if you are likely to get the nod and what the terms would likely be if your application were successful.
Most of the people are worried that pre-qualification does involve a credit check, and this may harm your credit score. Well, the fact is that you can pre qualify for a personal loan without hurting credit. At the time of pre-qualification for a personal loan, you need to provide some details like your earnings, outgoings, and how much debt you carry so a lender gets an idea of your current financial situation, and then they will run soft inquiries that, of course, do not show up on your credit file. Therefore, there is no chance of losing your credit points.
It may seem easy to get pre-approval, but the fact is that you will have to go through certain steps.
This is a pre-qualification form. The online form that you see on the websites of a lender allows you to fill in your details related to your monthly income, monthly outgoing, any debt you owe, and the details of other financial accounts such as savings, retirement, and investment accounts.
Apart from it, you will have to provide the details of the amount of money you need, the purpose of borrowing, and the repayment length. Note that some lenders use this form as an online application form, so all the details provided by you will be checked thoroughly, and this includes a hard credit check.
So, it is suggested that you drop an email to your lender to ask about the procedure of pre-qualifying for a personal loan, or you can contact a customer support team to know the procedure. Some lenders usually run a credit check after getting all of your documents, so the same online form could be used as a pre-qualifying form. Otherwise, they may make other arrangements for you.
When you submit the application form, a lender will run a soft credit check to see your credit report status. However, it will not let them get into details about your previous financial obligations and your behaviour toward them, so the actual interest rates applied to you may differ from those revealed when you proceed with your application to apply for a loan or, in other words, you take your application to the next level.
However, although lenders will run soft credit checks, they can easily find out if you have the potential to pay back the debt. They will go through your incomings and outgoings and the status of other debts to get an idea if you are able to have enough room in your monthly income to pay your debt. They will straightaway turn down your proposal if they suspect that you cannot repay the debt.
There could be a few reasons why a lender does not give you a pre-approval letter. For instance, your credit score could be poor, your expenses could be higher, or your debt-to-income ratio may be higher. What should you d to boost the approval odds?
First off, you should try to know the exact cause from the lender. Depending on their policy or approach, they may or may not tell you, but the most common reasons are the aforementioned.
You should improve your credit rating, so you do not get rejection next time when you apply for a loan. Since personal loans are unsecured and let you borrow a large amount of money, a lender would require you to have a good credit score. Pay off your debts on time, as it will improve your credit rating.
If you use a credit card, make sure you pay the balance within the interest-free period. Credit builder loans can also come in handy to improve your credit score. In fact, these loans can help if you do not have a credit history. Having no credit history at all could also be a reason for rejection.
Your income is not about to increase, but your debt obligation is. It is your out-of-pocket expenses, so a lender would see if you are left with enough money in your wallet after meeting all of your expenses, including investment and retirement contributions and monthly expenses, including debt obligations. You must be able to have sufficient cash after paying all of these expenses.
Improve your income if that is not the case. With online calculators, you can get an idea of how much you would need to pay down every month. If increasing your income source is not a feasible option for you, you should cut back on your expenses. Try to whittle down all of your discretionary expenses so you can use that money to utilize to pay off your debt.
A lender will be sceptical about your repaying capacity if you have already taken on too much debt. Therefore, you should try to settle all of your current debt obligations by the time you apply for a personal loan. If that is not possible, it should still not account for more than 30% of your income.
It is possible to pre-qualify for a personal loan without hurting your credit score because lenders make soft inquiries to determine your eligibility for borrowing money that does not show up on your credit report.
However, getting pre-approval is not always straight away because there could be some roadblocks like your poor credit rating and vague financial situation. Make sure you try to improve those odds.