So, you need some money. And fast.
Perhaps you are out there hustling that good hustle but just not making enough scratch to pay off your student loans. Perhaps you are consolidating your debt to make for easier paying off. Or perhaps you need a new car cause your old one died and there is no extra smackeroos in the kitty?
Maybe you are about to start a little bakery stall at your local farmer’s market, and you need some start-up capital? Or maybe… you just live in 2019, and the world is a pretty tough place, especially job-wise.
The truth is, there are infinite reasons you might need some cash.
If any of this sound familiar, you might have thought about taking out a installment loan. On the surface, you may not see the logic in taking out a personal loan, but it may be a step in the right direction for getting a better handle on your financial situation this year.
A personal loan is money borrowed from a credit union, online lender, or even your local bank for a variety of reasons.
As loans go, it is much safer than some short-term loans because you're not going to pay through the nose for interest rates. Generally, they run with terms of 2-5 years and interest rates from 7%-36% APR depending on your credit score.
The terms often beat consolidating to a credit card unless you qualify for a great promotion. Personal loans are considered “unsecured” which means you offer up no collateral to ensure the loan – no putting your car or something else of value in your life on the line.
While secured loans cost less, with this kind of loan, you don’t risk repossession if something should go awry.
If this keeps sounding better and better to you or you’ve already done some research into personal loans and like what you’ve seen, you might be tempted to jump right in and apply for some personal loans but that would be a mistake.
You should pump those breaks and look into pre-qualifying for personal loans from different lenders.
Pre-qualifying (or pre-approval, the terms are used interchangeably) means you give some basic information to the lender in the form of a quick form, they use this information to run a “soft” search on your credit history.
What is a soft search and why is that a good thing? Well, to answer that, we need to discuss a “hard” search.
A hard search is what happens when you actually apply for a personal loan (or… like any loan). This hard search gets marked on your credit history and can knock you down a few points. A soft search is kind of a tertiary, starter credit check that doesn’t get posted to your credit history. This is why pre-qualifying is so important.
If you just went out into the world and applied at a bunch of lenders willy-nilly, hoping to compare their offers, you would be hurting your credit score every time. Comparing lenders is a great idea when dealing with personal loan shopping but you can do this with pre-qualifications instead.
After getting pre-qualified, the lenders will send you tentative offers based on the information they gathered. While these offers could change once they do a more thorough (note: hard) credit check and assessment of your financial history, the algorithms work well enough that there shouldn’t be very drastic changes.
So, in theory (and practice), these tentative offers are great ways to compare lenders and pick the one that best fits your needs. When you pick your lender, you then continue in the approval process and they’ll run that true hard check.
So, while the actual pre-qualification process is relatively easy, (apply, soft check, qualify/not qualify, accept or reject offer), you shouldn’t just dive in. There are a few things you should think about before casting your net.
You want a personal loan that is going to meet your needs as a borrower. You might want a specific interest rate range or monthly payment. You need to sit down and figure this out.
First and foremost, how much do you need to borrow? Second, how much can you afford to pay back a month? Monthly payments in conjunction with your loan amount will affect the length of your loan and how much you will ultimately pay in interest.
Student Loan Hero does a nice break down of this: “Say you want to borrow $10,000 and can afford monthly payments of $300, for example. If a lender quotes you an interest rate of 8.00% and a three-year repayment term, you’ll find that your monthly payment would be $313 and you’d pay a total of $1,281 in interest charges.” Also, keep in mind that lenders are going to make a judgment call about how much they think you’ll be able to paybacks so they aren’t going to let you borrow more than that.
You can use a personal loan calculator (like this one offered by NerdWallet) to help figure out potential terms for what you need. These are great tools to be more informed as you start this process.
Once you know what you need, it’s time to go out there and hit the keyboard to find those sweet, sweet lenders.
You want lenders that will give you the things you want (well, we want that from everything in life but… you know). You should look for interest rate ranges that suit your needs, loan lengths that sound good, as well as a few other things to keep in mind like early payment penalties.
What is an early payment penalty? Some lenders don’t like it if you pay the loan off quicker than the agreed upon time limit. If you suddenly come into some money and try to pay off a 3-year loan 1 year in, you could be hit with some penalties.
So, when looking for a personal loan lender, you might want to make sure there are no early payment penalties. Another good thing to look for is unemployment protection in case you lose your job because… you know – life happens. Also, if one of your needs is money fast, you want to look at payout windows to make sure you aren’t going to be waiting for money when you need it now.
Now it is the time to go out there and fill out pre-qualification forms.
Go to your list of preferred lenders and go to their pre-qualification pages and fill those bad boys out.
Be careful though, a lot of pre-qualification pages look just like the actual application pages. Make sure you are on the right one to avoid unnecessary hard checks mucking up your credit score!
What do you need for a pre-qualification form? Your personal and financial info. You’ll need to put in your address and social as well as some basic financial answers, so they have some idea of your financial history. Because of this, it helps to have your information on hand.
The more info you have prepared, the less time it takes to fill out these forms – and if you are planning on filling out a lot of these, then less time spent is a blessing.
After you’ve filled it out, they then take all this information, shake it up in their algorithm, then see if you pre-qualify or not. If you do, you’ll get that pre-qualification offer I mentioned earlier. If you don’t, you will be informed in person, over the phone, or in writing. If you get rejected, it might be because of your credit score in which case, they might ask you to bring on a cosigner to help your chances.
Good luck, and happy pre-qualifying!