How to prequalify for a personal loan without hurting your credit

Whether you've got a major expense to cover or are looking to consolidate debt, a personal loan can be a valuable tool. However, knowing if you qualify and whether the terms will help or harm your situation can be tricky. That's where prequalification can make all the difference.

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Prequalifying for a personal loan is an effective way to gauge your eligibility and potential loan offer—without affecting your credit score. Shopping around and prequalifying where you can will not only save you hundreds, but it can also ensure a personal loan is the right tool for the financial job. 

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In this article, we'll break down what it means to prequalify, how you can go through the process, and alternative loan options to consider. 

What it means to prequalify for a loan

You can think of pre-qualification as a soft check into your financial profile and a teaser of what you may be eligible for. It's a great way to get an early idea of your eligibility status, loan amount, as well as the interest rates and repayment terms that lenders may offer. Best of all, there is no damage to your credit score, and you don't need to make any final commitments.

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However, it's critical to note that prequalifying does not mean you're guaranteed to get approved for the loan or are locked into the rate and terms provided.

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While prequalification allows a lender to assess whether you're a good fit for the loan, the formal loan application process—which requires a more thorough review of your credit report, income, and financial situation—can change the outcome. 

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To get the most accurate insight into your eligibility and terms, it's best to prequalify with various lenders. 

How to prequalify for a personal loan without hurting a credit score

Do your research 

Most banks, credit unions, and online lenders offer prequalification tools directly on their websites. However, before leaping into forms, it pays to explore what kind of borrower any potential lenders work with. For example, if you have bad credit, a lender who explicitly advertises loans for low-credit borrowers will be far more likely to offer you cash. 

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You'll want to check your credit, debts, and income. Then, check the loan requirements to gauge your eligibility. If your financial profile is a match or a close match, it's worth trying to prequalify.

Fill out prequalification forms

Once you've taken stock of your finances and relevant lenders, it's time to prequalify. 

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Although each lender will have a unique prequalification form, you should be prepared to provide details about your income, employment status, housing expenses, and other debts. Simply provide the information asked of you and submit the pre-application. 

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Since prequalification does not guarantee approval, it's important to be as honest as possible to find out the most likely outcome. 

Undergo soft credit checks

Unlike a hard inquiry, which can lower your credit score, a soft inquiry is pulled to assess your eligibility for the loan. The soft credit check will give lenders a general idea of your creditworthiness without making a formal request to the credit bureaus. This means you can prequalify with multiple lenders without damaging your credit. 

Find out what you prequalify for

After a lender evaluates the soft pull and information you provided, you'll get a near-immediate response as to whether you're pre-approved. 

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In most cases, you'll also get insight into potential loan terms, including loan amounts, interest rates, and repayment terms. Some lenders may also give you an idea of any expenses, like origination fees or late payment penalties.

Compare your offers

After receiving multiple offers—three or more—it's time to determine what's best for your situation. You'll need to look beyond interest rates to determine the true cost of each loan. 

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Consider factors like fees, repayment flexibility, and any prepayment penalties. If you want to pay off a loan as quickly as possible, you should ensure you can do so without incurring extra expenses. Alternatively, interest rates and repayment terms should be prioritized if you want to keep monthly costs low. 

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Take the time to review your options, and ensure you choose the lender that offers the best solution for your needs. 

When to formally apply for a loan

After carefully reviewing your offers, you can move forward with a formal loan application. Since a hard credit inquiry is necessary—and will temporarily drop your credit score—you should feel confident with your choice before taking this step. 

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If you’ve done your homework during the prequalification phase, you’ll have a better chance of being approved for the loan and receiving comparable terms. 

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However, if getting pre-approved or securing favorable terms proved challenging, be sure to explore alternatives before running a hard pull on your credit.  

Alternatives to explore

Getting approved for financing or scoring decent terms can be challenging for borrowers with poor credit scores, high debt levels, or insufficient income—but it's not impossible. 

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Various alternatives can offer more flexible requirements or better terms to help you accomplish your goals. 

Secured personal loan

For those struggling with personal loan approval, a secured loan may offer a better chance of financing. Because lenders require collateral—like a car, savings account, or another valuable asset—they typically come with lower interest rates and are easier to qualify for than unsecured loans. 

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The main disadvantage, however, is if you’re unable to repay the loan, the lender can seize the asset. Many lenders allow prequalification for secured loans so that you can explore your options without a hard credit check or giving up collateral. 

Home equity loan/HELOC

Check your eligibility for a HELOC using this free calculator. 

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If you own a home and have sufficient equity, a home equity loan or home equity line of credit (HELOC) is worth exploring. 

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Both allow you to borrow against the equity in your home for cash. A home equity loan provides a single lump sum, while a HELOC works like a credit line you can draw from as needed. 

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Both require at least 20% owned equity, a debt-to-income ratio of less than 43%, and decent income to qualify. Unlike a personal loan, you can typically access a greater deal of cash—from $500K up to $1M in some cases. 

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Home equity loans and HELOCs have lower interest rates than personal loans. However, they also use your home as collateral, so defaulting could result in foreclosure. 

Home equity investment

Prequalify for an HEI with no commitment to apply and no hard pull on your credit.

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A home equity investment (HEI) is another way to tap into your equity—but it offers more flexible requirements than HELOCs and home equity loans. 

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With an HEI, you get a single lump sum in exchange for a share of your home's future value. During the flexible 30-year term, there are no monthly payments. Rather, you repay the HEI when you sell the home, refinance, or use another source of funds. 

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You'll need sufficient equity and a credit score above 500 to qualify. There are no income requirements. 

401(k) loan

You can borrow with no impact on your credit score.

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Although treating your retirement savings like a piggy bank is not generally recommended, a 401(k) loan can be a useful tool in urgent situations. The loan allows you to borrow up to 50% of your vested balance or $50,000, whichever is lower. You then repay the loan plus interest through automatic payroll deductions over a 5-year term.

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Since you're essentially borrowing your own money, there is no credit check or impact on your score. However, you will need an eligible 401(k) account and enough funds to qualify. 

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Because you're risking future financial security, it's best to consult a financial advisor when considering a 401(k) loan. 

Final thoughts

Prequalifying for a personal loan is a great way to explore your options without harming your credit score. By understanding the prequalification process, evaluating your financial situation, and comparing offers, you can find the right lender—or alternative—for your needs. 

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As always, make sure you fully understand the risks and benefits of each option before proceeding with a formal application.

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Ready to tap into your home equity with no monthly payments? Explore Point's Home Equity Investment and let your home wealth work for you.

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