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If today's low interest rates have you thinking about a personal loan, you have plenty of great unsecured personal loan lenders from which to choose. Whether you want to consolidate debt or make an addition to your home, the first step is pre-approval. Here, we'll tell you what you need to know about the pre-approval process and discuss what you can expect after you've made it through.
We'll also cover some tips to help you navigate the process and choose the best personal loan for you.
Pre-approval is the period during which a lender determines your eligibility for a loan. It's a simple process. You provide the lender with information about your income and employment. The lender then runs a soft credit check to get a sense of how well you've handled debt in the past and whether you can easily handle the monthly payment.
After they've run the soft credit check, the lender lets you know whether you qualify for a loan with them, and if so, what your interest rate will be. It's also during this time that you'll learn more about the loan offer, including terms, origination fee, and other charges levied by the lender.
To be clear, a pre-approval isn't a binding offer. The pre-approval is based on the information in your credit report and other information you provide. The personal loan application involves more documentation.
For example, your pre-approval might be based on a certain amount of income. What happens if your lender is unable to verify your income? You could be rejected for the loan -- even though you passed the pre-approval process.
Get the best rates and terms to fit your needs. Here are a few loans we'd like to highlight, including our award winners.
While many people use the term prequalify and pre-approved interchangeably, there are some differences to be aware of. Pre-approval is typically a better indicator if you qualify for a loan compared to prequalifying for a loan. Here are the differences between the two.
A prequalification is an estimate of how much you may qualify for. A lender will rely on the information you provide and not a third-party source like a credit report. The lender will give you how much you can expect to borrow based on the income, employment history, debt, and other factors you provide. A lender will not look more deeply into your financial situation until you get to the pre-approval and application stage. Since a borrower can give inaccurate information, a prequalification is not as reliable as a pre-approval.
A pre-approval is more involved and since the lender will check your credit report, it is a better indication if you qualify for a loan. You will need to submit your information to the lender and the lender will perform a soft pull on your credit report. This will not impact your credit score. Since the lender verifies the information you give, they are able to better determine if you qualify for the personal loan. When pre-approved for a loan, you will know how much you are approved for, your interest rate, and other loan terms.
No, not usually. Most personal lenders conduct what's known as a soft credit pull. Think of this as an "unofficial" credit check. The lender views a report containing your credit score and credit history, but no official credit inquiry (also known as a hard credit pull) is performed. A soft credit check has no impact on your credit score.
TIP
FICO says hard inquiries generally have a small effect on your credit score, with many people seeing less than five points taken off. This drop will be brief and your score should return back to normal within a few months.
Although most personal lenders let you check your rates without a hard credit pull, not all of them do. Are you worried that a particular lender's rate-checking process could result in a hard credit pull and adversely affect your credit score? Look for an indication on the pre-approval page that checking your rates won't affect your credit score or something similar. If there's any confusion, ask the lender before allowing them to pull your credit report.
Personal loan lenders will have different processes to get pre-approved for a personal loan, but most will require you to follow these steps:
A pre-approval letter is a document from a financial institution stating it is tentatively willing to approve a personal loan up to a certain amount. During the pre-approval process, lenders will review your credit score and other factors. Lenders will want to ensure you are creditworthy before you apply for a loan.
The pre-approval letter will typically have the amount you qualify for, the interest rate, the repayment time period, and other loan terms. Many letters will have an expiration date on when the pre-approval is good until. Pre-approval letters may also have conditions you must meet, documents you need to provide, and other personal information to apply for the loan.
Once you've decided on the personal loan that makes the most sense for you, you'll need to proceed past the lender's pre-approval process and complete a loan application.
When you apply for a personal loan, you'll be asked for information that wasn't part of the pre-approval process. For example, the lender will want to verify your income with a W-2 or 1099, pay stubs, and/or a recent tax return or two. You'll probably also need to submit a copy of your driver's license or other ID and your Social Security card.
It's also a good idea to have your bank account information handy. Lenders generally don't require you to automate your loan payments, but many offer an interest rate discount if you do. Autopay can also be a good idea if you're concerned about getting your payments in on time each month.
Expect several rounds of documentation requests before the loan is finalized. This is especially true if you're self-employed or if any part of your application is complicated. This is normal, so don't be discouraged.
Once all of your documentation is received and verified, your lender will send you a promissory note and other documents to sign. Once the documents are returned to the lender, your funds can be disbursed. Depending on your lender, funds typically show up in your bank account in anywhere from one business day to two weeks (although some loans can take a bit longer). As you shop lenders, make sure to check out their funding times if you need the money quickly.
Here's a list of lender that will allow you to fill your application online to get a pre-approved loan. The lender will conduct a soft credit check and it will not impact your credit score. You will know how much you qualify for, your APR, loan length, and other loan terms.
Looking for a personal loan but don’t know where to start? Our favorites offer quick approval and rock-bottom interest rates. Check out our list to find the best loan for you.
Some people who are pre-approved may be denied when they actually apply. A pre-approval does not necessarily guarantee a loan approval. If your credit score or other factors changed from the time you were pre-approved to when you submitted your application, the lender may deny your application.
How long a loan pre-approval lasts will depend on the lender and the type of loan. A personal loan pre-approval offer will typically have an expiration date, which may last 30 days to 60 days. Every lender is different so it is important to find out what the time period is.
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent, a Motley Fool service, does not cover all offers on the market. The Ascent has a dedicated team of editors and analysts focused on personal finance, and they follow the same set of publishing standards and editorial integrity while maintaining professional separation from the analysts and editors on other Motley Fool brands.
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent, a Motley Fool service, does not cover all offers on the market. The Ascent has a dedicated team of editors and analysts focused on personal finance, and they follow the same set of publishing standards and editorial integrity while maintaining professional separation from the analysts and editors on other Motley Fool brands.
Citi Personal Loan disclaimer:
**Rates as of 05-31-2024. Your APR may be as low as 11.49% or as high as 20.49% for the term of your loan. The lowest rate quoted assumes excellent credit and a loan term of 24 or 36 months. Your APR will depend on a variety of factors including your creditworthiness, term of loan, and existing relationship with Citi. For example, if you borrow $10,000 for 36 months at 15.99% APR, to repay your loan you will have to make 36 monthly payments of approximately $351.52.
There is a 0.5% APR discount if you enroll in automatic payments at loan origination. Additionally, existing Citigold and Citi Priority customers will receive a 0.25% discount to the interest rate. If you are in default, your APR may increase by 2.00%. No down payment is required. Rates subject to change without notice.
You must be at least 18 years of age (21 years of age in Puerto Rico). Co-applicants are not permitted. Loan proceeds cannot be used for post-secondary educational or business purposes.
If you apply online, you must agree to receive the loan note and all other account disclosures provided at loan origination in an electronic format and provide your signature electronically.
Credit cards issued by Citibank, N.A. or its affiliates, as well as Checking Plus and Ready Credit accounts, are not eligible for debt consolidation, and Citibank will not issue payoff checks for these accounts. If you are unsure of the issuer on the account, please visit https://www.citi.com/affiliatesproducts for a list of Citi products and affiliates.
Rates quoted are with AutoPay. Your loan terms are not guaranteed and may vary based on loan purpose, length of loan, loan amount, credit history and payment method (AutoPay or Invoice). AutoPay discount is only available when selected prior to loan funding. Rates without AutoPay are 0.50% points higher. To obtain a loan, you must complete an application on LightStream.com which may affect your credit score. You may be required to verify income, identity and other stated application information. Payment example: Monthly payments for a $10,000 loan at 8.49% APR with a term of 5 years would result in 60 monthly payments of $205.12. Some additional conditions and limitations apply. Advertised rates and terms are subject to change without notice. Truist Bank is an Equal Housing Lender. © 2024 Truist Financial Corporation. Truist, LightStream, and the LightStream logo are service marks of Truist Financial Corporation. All other trademarks are the property of their respective owners. Lending services provided by Truist Bank.
*Upstart Loan Disclaimer
The full range of available rates varies by state. The average 3-year loan offered across all lenders using the Upstart platform will have an APR of 21.97% and 36 monthly payments of $35 per $1,000 borrowed. For example, the total cost of a $10,000 loan would be $12,646 including a $626 origination fee. APR is calculated based on 3-year rates offered in the last 1 month. There is no down payment and no prepayment penalty. Your APR will be determined based on your credit, income, and certain other information provided in your loan application.