Editorial Note: We earn a commission from partner links on Forbes Advisor. Commissions do not affect our editors' opinions or evaluations.
If you’ve been shopping around for private student loans, you might have been prompted to prequalify with lenders you’re interested in. That’s generally good advice to follow, but it’s important to understand why.
Here’s how student loan prequalification works and how it can help you score the best possible deal on your education debt.
What Is Student Loan Prequalification?
When you apply for a private student loan, the lender will determine your interest rate by checking your credit score and financial history. If you have a high credit score, you can likely qualify for a lower interest rate. Applicants with a low credit score, however, will receive a higher interest rate or may not be approved for a student loan at all.
When you submit a student loan application, most lenders run a hard credit check to verify your financial history and creditworthiness. A hard credit check shows up on your credit report and can result in a slight dip in your credit score.
To help you avoid submitting multiple applications to lenders you may not be approved for, you can instead opt to prequalify for a student loan. When you prequalify, you enter a few basic details about yourself and the lender instantly shows you the estimated interest rates and terms you could qualify for. Importantly, prequalifying only results in a soft credit check, which won’t affect your credit score.
By prequalifying with multiple lenders, you can get a sense of which companies will work with you and what rates they offer. By better understanding your options and narrowing down the list of your top lenders, you can reduce the number of loan applications you have to submit.
4 Benefits of Prequalifying for a Student Loan
1. See Estimated Rates and Loan Terms
The biggest benefit of prequalifying is that you can view your estimated interest rate and repayment terms. This can help you decide which lenders you want to submit a full application with.
Student loan lenders often advertise a wide range of interest rates, and you may assume that you’ll qualify for their lowest advertised rate. But those are usually reserved for borrowers with excellent credit, high income and few debts. Prequalification shows the rates you may actually qualify for—which may be higher than you anticipated.
This is a useful tool to help you compare potential lenders. However, the interest rate you prequalify for is simply an estimate; the final rate you receive once you’ve submitted a full application may be different.
2. No Hard Credit Check
Notably, prequalifying for a student loan doesn’t incur a hard credit check. This means you can view estimated interest rates without dinging your credit.
In addition to preserving your credit score, having too many hard credit checks in a short window may be a red flag to future lenders. Hard inquiries remain on your credit report for two years. By minimizing your number of inquiries, you could appear to be a safer borrower to future lenders.
3. Compare Lenders You’re Eligible for
When you prequalify for a student loan, you can see if you’re eligible to borrow money through a certain lender at all. Prequalifying saves you the hassle of filling out a full application if you’re unlikely to be approved.
By weeding out incompatible companies, you can save time and maximize your chances of finding a competitive loan.
4. Determine If You Need a Co-signer
Many student borrowers find it difficult to borrow a loan on their own; adding a co-signer can help them qualify or get better interest rates. However, including a co-signer comes with its own pros and cons, so it’s a decision that should be considered carefully.
When you prequalify for a student loan, you can choose to include only your information to determine if you can qualify without a co-signer. If the lender says you’re not eligible for a loan or you only qualify for higher interest rates, then you can often add a co-signer to the prequalification tool. This allows you to compare your options and see if a co-signer is necessary before submitting a full application.
Not all lenders allow co-signers on student loans, so if it’s important for you to have one, be sure to factor that into your search criteria.
How to Prequalify for a Student Loan
Many (but not all) private student loan lenders allow you to instantly prequalify on their site. Here’s what to do.
- Visit the lender’s website. Make a list of the lenders you’re interested in and see if they offer prequalification. On their websites, you might see a button that says “Prequalify now” or “Check your rate.” If you see language that says the lender won’t run a credit check, that usually means you can prequalify.
- Input your information. Each lender requires different personal details, but expect to provide your name, email address, annual income and loan amount. You may also be asked about where you’re attending college and what you intend to major in. Sometimes, you’ll have to input your credit score. Be as precise as possible when submitting your information, otherwise the rates you prequalify for may not be accurate.
- View your results. Prequalification usually only takes a few minutes from start to finish. Once you’re prequalified, the offer may only be available for a limited time. Note how long you have before making a final decision and submitting an application.
Compare Student Loan Rates In Minutes
Compare rates from participating lenders via Credible.com
FAQs
When you prequalify, you enter a few basic details about yourself and the lender instantly shows you the estimated interest rates and terms you could qualify for. Importantly, prequalifying only results in a soft credit check, which won't affect your credit score.
Does prequalified mean you will get the loan? ›
Both pre-qualified and pre-approved mean that a lender has reviewed your financial situation and determined that you meet at least some of their requirements to be approved for a loan. Getting a pre-qualification or pre-approval letter is generally not a guarantee that you will receive a loan from the lender.
What is the prequalification process for a loan? ›
Prequalification is an early step in your homebuying journey. When you prequalify for a home loan, you're getting an estimate of what you might be able to borrow, based on information you provide about your finances, as well as a credit check.
What makes a student loan qualified? ›
A "qualifying loan" is a loan you took out solely to pay qualified education expenses that were: For you, your spouse, or a person who was your dependent when you took out the loan, Paid or incurred within a reasonable period of time before or after you took out the loan, and.
How does someone know they qualify for student loans? ›
Eligibility Requirements. Our general eligibility requirements include that you have financial need for need-based aid, are a U.S. citizen or eligible noncitizen, and are enrolled in an eligible degree or certificate program at an eligible college or career/trade school.
Do you have to pay to get prequalified? ›
Mortgage preapproval is free with many lenders. However, some lenders charge an application fee which you may have to pay upfront regardless of whether you're approved.
How long does it take to get prequalified for a loan? ›
On average, it takes 7-10 days to get a pre-approval, although in some cases it may take less time. To speed up the home loan pre-approval time, you should gather your financial documents that the lender will require (e.g., W2s, proof of income, tax returns, etc.).
How is prequalification done? ›
Pre-qualifications are conditional and involve the lender reviewing a borrower's creditworthiness before granting a pre-approval. Lenders generally use this as a marketing tactic for creditors seeking to obtain new customers, especially for things like credit cards and mortgages.
What are the disadvantages of prequalification? ›
Time-consuming process: Prequalification can be a time-consuming process, requiring the GC to collect and review a significant amount of information from potential partners. This can result in delays in the procurement process and potentially impact project timelines.
What information is needed for prequalification? ›
Key takeaways
Documents such as employment and income verification, asset statements, debt information, credit history and identification are necessary for mortgage preapproval. Preapproval letters are typically valid for 90 days and can be obtained within a few days if all necessary documents are provided.
Lenders may look at your employment history, credit score, debt-to-income ratio, and enrollment status at your school. One of the most common reasons why a student might not qualify for a private student loan is because they don't meet their lender's FICO® Credit Score criteria.
What is the highest income to qualify for financial aid? ›
There is no set income limit for eligibility to qualify for financial aid through. You'll need to fill out the FAFSA every year to see what you qualify for at your college. It's important to make sure you fill out the FAFSA as quickly as possible once it opens for the following school year.
Do all students get approved for student loans? ›
Most college students can qualify for student loans, but some programs and lenders may not be available to you based on your situation. Understanding the requirements upfront can help you determine which loans to apply for.
What disqualifies you from getting FAFSA? ›
Other reasons for financial aid disqualification include: Not maintaining satisfactory progress at your college or degree program. Not filling out the FAFSA each year you are enrolled in school. Defaulting on a student loan.
What are my chances of getting approved for a student loan? ›
In 2020, the approval rate for borrowers with a co-signer was 38%, while the approval rate for borrowers without a co-signer was just 8%. Adding a co-signer to your private student loan application will raise your chances of being approved, but it could mean putting someone else in a risky position.
How hard is it to get student loans? ›
Federal student loans usually don't require a credit check, making them easier to get for most students. However, private loans often require a good credit score, a minimum income and at least half-time enrollment in an eligible institution. If you don't meet these criteria, a cosigner may be necessary.
Does pre-approval mean you will get the car loan? ›
A preapproved car loan is a financing offer from a lender that you get before purchasing a car. When you get preapproved, you don't actually receive the funds. Rather, it shows you how much money you can borrow, and at what interest rate, when you are ready to buy a vehicle.
Is it better to be prequalified or pre-approved? ›
While prequalification is a good first step, it typically won't carry as much weight as a preapproval because a lender hasn't verified your information. Going beyond prequalification and getting preapproved by a loan officer is a critical step that shows you're serious about buying a home.
How do you know if you will get approved for a loan? ›
By having a strong credit score, stable income and employment, and a low debt-to-income ratio, you increase the likelihood of your personal loan being approved. However, it's important to note that each lender may have specific requirements and additional factors they consider.
Is a prequalification a guarantee from the lender? ›
Prequalification and preapproval letters both specify how much the lender is willing to lend to you, up to a certain amount and based on certain assumptions. These letters provide useful information about your likelihood of getting a loan but are not guaranteed loan offers.
