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If you’ve been looking for private student loans, you may have been asked to pre-qualify 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 get the best possible deal on your educational debt.
What is the Student Loan Pre-Eligibility?
When you apply for a personal student loan, the lender determines your interest rate by reviewing your credit history and financial history. If you have good credit, you can likely qualify for a lower interest rate. However, applicants with poor credit ratings may receive a higher interest rate or may not be eligible for a student loan at all.
When you apply for a student loan, most lenders do a hard credit check to verify your financial history and creditworthiness. A hard credit check appears on your credit report and can result in a slight drop in your credit score.
To avoid making multiple applications to lenders that you may not be eligible for, you can prequalify for a student loan instead. When you pre-qualify, you enter some basic information about yourself and the lender will immediately show you the estimated interest rates and terms you might qualify for. Importantly, pre-qualification only results in a gentle credit check that will not affect your credit score.
By pre-qualifying with multiple lenders, you can get an idea of which companies will work with you and what interest rates they offer. By better understanding your options and narrowing down your list of top lenders, you can reduce the number of loan applications you need to submit.
4 Benefits of Prequalifying for a Student Loan
1. See Estimated Prices and Loan Terms
The biggest benefit of pre-qualification is that you can see your estimated interest rate and repayment terms. This can help you decide which lenders to submit a full application to.
Student loan lenders often offer a wide range of interest rates, and you can expect to qualify for the lowest advertised rate. But these are usually reserved for borrowers with excellent credit ratings, high incomes and little debt. Prequalification shows the rates you may actually qualify for – which may be higher than you expected.
This is a useful tool to help you compare potential lenders. However, the interest rate you pre-qualify for is only an estimate; The final rate you receive after submitting a complete application may vary.
2. No hard credit check
Notably, pre-qualification for a student loan does not require a tough credit check. This means you can view estimated interest rates without draining your balance.
Besides preserving your credit score, having too many tough credit checks in a short window can be a red flag to prospective lenders. Hard inquiries stay on your credit report for two years. By minimizing the number of inquiries you make, you could appear as a safe borrower to future lenders.
3. Compare lenders you are eligible for
If you pre-qualify for a student loan, you can see if you are even eligible to borrow money through a particular lender. Pre-qualification saves you the hassle of completing a full application when you’re unlikely to be admitted.
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 take out a loan on their own; Adding a co-signer can help them qualify or get better interest rates. However, including a co-signer has its own pros and cons, so it’s a decision that should be carefully considered.
If you are pre-qualifying for a student loan, you may choose to provide 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, you can often add a co-signer to the pre-qualification tool. This allows you to compare your options and see if a co-signer is required before submitting a full application.
Not all lenders allow co-signers on student loans. So if having one is important to you, be sure to include that in your search criteria.
How to qualify for a student loan
Many (but not all) private student loan lenders allow you to prequalify right away on their website. Here’s what to do.
- Visit the lender’s website. Make a list of lenders you are interested in and see if they offer pre-qualification. On their websites, you may see a button that says “Prequalify Now” or “Check Price”. If you see language that says the lender doesn’t do a credit check, it usually means you can prequalify.
- Enter your information. Each lender requires different personal information, but expect to provide your name, email address, annual income, and loan amount. You may also be asked where you are attending college and what you intend to major in. Sometimes you need to enter your credit score. Be as specific as possible when submitting your information as the prizes you pre-qualify for may not be accurate.
- View your results. The prequalification usually only takes a few minutes from start to finish. Once you have prequalified, the offer may only be available for a limited time. Note how long you have before making a final decision and applying.
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