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How Personal Loan Pre-Approval Works

Updated
Ryan Wilcox
Author: Ryan Wilcox
Ryan Wilcox
Ryan Wilcox

Ryan is a full-time Personal Finance Writer at Motley Fool Money. He’s been covering topics like credit cards and savings since 2022, when he began his writing career at The Points Guy. He later joined Motley Fool Money, where he continues helping people who are new to the world of personal finance. Outside of work, you’ll find Ryan reading, writing, listening to music or obsessively updating his Letterboxd account.

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Need cash now? You've come to a good place -- the world of personal loans.

A personal loan can be a great way to borrow money when you need to consolidate debt, cover an emergency, or pay for a large expense. Before you hit "apply," though, it's often smart to go through a pre-approval or prequalification process.

Pre-approval can give you a better idea of what you might qualify for and give you an idea of what you're getting into. As someone who's been writing about personal finance for years -- and is shopping around for a personal loan myself -- I can say there's definite value in the pre-approval process.

Below, I'll explain how personal loan pre-approval works and how it differs from prequalification -- and what to do if you don't get the offer you hoped for.

Why get a personal loan?

People turn to personal loans for a bunch of different reasons. Here are a few common uses:

  • Debt consolidation: A personal loan lets you roll multiple high-interest balances, like credit card debt, into one fixed monthly payment, potentially at a lower interest rate.
  • Large expenses: You can use a personal loan to fund everything from home improvements to weddings.
  • Emergencies: Medical bills or urgent repairs can sometimes be too costly to cover out of pocket.
  • Budgeting: A personal loan's fixed rates and terms make it easier to plan ahead, unlike credit cards with variable rates.

In short, personal loans also give you access to quick, fixed-rate funding -- a great way avoid higher-interest debt or cover major expenses without dipping into your savings.

With a few large purchases coming up, I'm shopping around for a personal loan myself, but I also have limited debt and a strong credit history. Without those two things, taking on a personal loan is going to be much less appealing because you'll be offered worse terms.

And because most personal loans are unsecured, you don't need to put up collateral like a car or home. But that also means lenders take on more risk -- which is where pre-approval comes in.

Compare the best personal loans

Get the best rates and terms to fit your needs. Here are a few loans we'd like to highlight, including our award winners.

Lender APR Range Loan Amount Min. Credit Score Next Steps
7.99% - 24.99%
$2,500 - $40,000
660
7.99% - 19.49%**
$2,000 - $30,000
740
6.70% - 35.99%³
$1,000 - $50,000¹
300

Prequalification vs. pre-approval

These two terms are often used interchangeably, but they come with a few small differences.

  • Prequalification is typically the first step in the loan process. It involves a soft credit check and a basic review of your finances (like income, debt, and employment). Based on that info, lenders provide an estimate of what you could qualify for.
  • Pre-approval involves a deeper look. It requires a hard credit check, which will temporarily lower your credit score by a few points, but it's generally a stronger signal that you meet the lender's criteria. If pre-approved, you'll receive a formal offer with your exact loan terms, should you choose to accept it.

In both cases, you're not guaranteed a loan -- it's just a preview of your terms. The real decision happens when you formally apply for the loan.

Prequalification and pre-approval are great because they let you check your potential loan options without making any commitments. You can get pre-approved from multiple lenders to compare offers more confidently.

You'll get a sense of the interest rates, loan amounts, and repayment terms you might qualify for before committing. Most pre-approvals are valid for 30 to 90 days, too, so you have a bit of time to make a decision.

I recommend starting with prequalification to avoid too many hard pulls on your credit. Once you've found an offer you really like, you might consider getting pre-approved to see if the final terms are right for you.

How to get pre-approved for a personal loan

Applying for pre-approval or prequalification is incredibly simple and can quickly be done online. Here's how:

1. Check your credit

Before you fill out any forms, review your credit score and history. Most personal loans require good credit (typically 670+) or very good credit (740+), though some lenders work with lower scores. There are a number of sites that'll let you check your credit report for free.

2. Compare lenders

Different lenders offer different loan amounts, interest rates, fees, and qualification criteria. Keep an eye out for:

  • Credit score requirements
  • APR ranges
  • Repayment terms
  • Other fees (such as origination or prepayment penalties)

Ready to shop around? Check out our list of the best personal loans available now.

3. Gather your info

You'll need to provide things like:

  • Your name and contact info
  • Employment and income details
  • Desired loan amount and purpose
  • Monthly costs

4. Submit a pre-approval or prequalification form

This usually takes just a few minutes. The lender will run a soft credit check, which won't ding your credit score (preferable), or a hard credit check, which does. Then they'll show you estimated offers, including loan amounts, interest rates, and monthly payments.

5. Review your offers

If you get multiple offers, compare the total cost of each, not just the monthly payment. Focus on the APR, which includes both interest and fees.

If you're approved and you like the offer, you can move forward with a full loan application. This will include a hard credit check, which will temporarily ding your credit score by a few points.

The lender may also request documentation to verify your income and identity. Then, once approved, you'll sign the loan agreement and receive your funds, often within a few business days.

What to do if you can't get pre-approved

If your pre-approval is denied or your estimated terms aren't ideal, don't panic. Here's what you can do:

  • Improve your credit: Pay down debts, make on-time payments, and reduce credit card balances.
  • Add a cosigner: Some lenders allow cosigners with better credit to boost your chances.
  • Reduce your loan amount: Borrowing less can sometimes help you qualify.
  • Shop other lenders: Some specialize in borrowers with fair or poor credit, although be on the lookout for predatory lenders.

You can also take time to build your credit before applying again. The higher your score, the better your chances of approval and favorable terms.

Want to get prequalified today? See our full list of the best personal loans available now.

FAQs

  • Yes, pre-approval does temporarily hurt your credit, because it uses a hard credit check. Prequalification uses a soft credit check, which doesn't impact your credit score.

  • In many cases, you'll get results within minutes of submitting your information online.

  • Some lenders work with lower scores, but your rates and terms may be less favorable. Improving your credit before applying can help.

  • No. You can apply directly, but pre-approval helps you avoid surprises and shop more effectively.