A lot of factors have to be in your favour to get approved for a personal loan. While having a favorable credit score will increase your chances of landing a loan at a great rate, each lender will also have unique factors that they look for in every loan applicant. As a result, they will typically need to look into your credit report among other financial details.
Although having lenders check your credit reports once will not harm your score, several checks will affect the score and potentially lower it. This is because they make hard inquiries that last in your report for a couple of years. As a better alternative than deteriorating your score through these hard inquiries, it would sometimes be wiser to get prequalified for a loan so you can know whether or not you qualify for it.
Here is what you should know about pre-qualifying for loans:
What Does Getting Prequalified Really Mean?
It’s a common misconception that once you get pre-qualified for no credit check loans online instant approval among other loan types, you will definitely get approved for the loan. The truth is that getting pre-approved is a form of a “soft yes” from the lenders. Your application might still be rejected.
However, the fact that they will only be checking on your chances to qualify on the loan means it will only cost you a soft inquiry on your account. Unlike hard inquiries, soft ones barely dent your score. Your potential lender will only look at the basic information in your credit card report and offer you their thoughts about qualifying for a loan.
What Is The Prequalification Decision Based On?
While there are basic requirements to get qualified for a loan, every lender will have their own criteria for choosing between loan applicants. However, there are a few aspects that will tend to be vital in their decision-making process. These include:
- Your income
- Your credit
- Your age and status
- Employment status
- Debts and other monthly obligations
- Your reason for borrowing the loan
How to Increase Your Chances of Qualification
The best way to improve your probability of pre-approval would be to improve your credit score. This will include paying up loan obligations in good time, having a healthy debt mix and even having a low credit utilization ratio. Simply put, potential lenders will use your credit score to determine your ability to offset the loan that they offer you.
If you have a low score, working with a co-signer can help you boost your chances of loan approval, especially if they have a stellar credit score. To be safe, choose a co-signer with a strong credit score, and a person who is financially responsible. Remember that working with a co-signer will mean that any late loan payments will affect their score, which is why you need to commit to the payments all the way to the end.
What Happens If You Don’t Get Pre-Qualified?
if you fail to get pre-qualified, there is nothing much you can do. You will receive an adverse notice from your lenders telling you that you did not qualify for the loan. However, this shouldn’t alarm you as there was no hard inquiry involved in the process.
Since they might have rejected you for falling short of their policies, you can proceed to try getting pre-approved by other lenders. Alternatively, you can try to get pre-qualified in another 30 days. During this waiting period, commit to strategies that will help raise your credit score fast.
Getting prequalified doesn’t mean that you’ll land the loan, but it at least gives you a preview of your chances. Furthermore, they eliminate the detrimental effect of multiple hard inquiries. Consider getting pre-qualified to identify what changes you need to make in your credit status.