Here are a few tips you need to know before you inquire about a loan.
A loan inquiry may be an important financial step for you, and you may not know where to start. Here are a few tips you need to know before you inquire about a loan.
1. Know Whether You Need to Do a Soft Inquiry or a Hard Inquiry
Before inquiring about a loan, you should find out what type of loan inquiry you need to complete. If you are unsure, ask the lender which type of loan will be required. Different loans require different types of inquiries and checks from lenders. A soft inquiry is an automated check to see if you are eligible for a loan without hurting your credit score. When a soft inquiry is performed, there is no negative impact on your credit.
However, a hard inquiry is a credit application that will be performed when you apply for a loan. When a hard inquiry is performed, there will be a small impact on your credit score. It will not be significant unless multiple inquiries are done in a short period of time. More information about soft and hard inquiries will be found below.
2. Be Aware of Your Own Credit Score and History
Lenders will consider your credit history and credit score before they decide whether or not to give you the loan you need. They will use these factors to determine whether you will be able to repay the loan on time. They will also use these factors to determine if you are a suitable candidate for a loan.
Therefore, it is important to check your credit history and credit score before you apply for any type of loan. This will give you a better idea of whether you meet the minimum requirements for the loan you are applying for. It will also show you if there are any issues that need to be resolved before you start the application process. Remember: you are more likely to qualify for a loan if your credit history and credit score are excellent. Conversely, you are less likely to qualify for a loan if you have bad credit.
3. Learn About Soft Loan Inquiry
A soft inquiry, also known as a soft pull, does not have any impact on your credit score, because it is not attached to any application. It generates a credit score by looking at your credit card history.
A soft inquiry occurs when a lender checks if you are eligible to obtain credit for a certain product, or when you check your credit report yourself but don’t submit a new application for credit. A soft inquiry might also happen if you apply for a soft-pull pre approval or a company checks your credit. Soft inquiries happen regularly.
A soft inquiry will appear on a report that is visible to you. You can view an online report of your soft inquiry on Experian. If you wish to view your soft inquiry on a physical report, a free report will be available every 12 months. You can request it at any major credit bureau.
You could have completed many soft loan inquiries, and they will not be a cause for concern – because they will only ever be visible to you on your personal report.
4. Learn About Hard Loan Inquiry
Also called a hard pull, a hard inquiry can hurt your credit score. They might remain in your reports for about up to two years. The impact is typically not significant. However, if you apply for new credit from several lenders within a short time period, it may indicate that you are actively trying to borrow money and may subsequently cause a lowering of your credit score.
Hard work is done by creditors and lenders. A hard inquiry is when a lender checks your credit in order to get you approved for a loan. That might be a car loan, a credit card, or a mortgage loan. You will have given consent before anybody completes a hard inquiry on your credit. For example, prior to buying a car, you might sign a form that gives the appropriate person in the dealership legal permission to complete a hard inquiry.
Hard inquiries should not be a cause for concern or a reason to hold back from applying for credit when it is needed. However, it is certainly something to be mindful of, as it should not be overdone. To avoid the risks, complete minimum hard loan inquiries.
5. Check Hard Inquiry Activity
It is a good idea to ensure that any hard inquiries that are showing up on your credit card report match with those that were completed in reality. This may help you prevent fraud, such as identity theft. It will also ensure that your credit score is not harmed by fraudulent activity. You can check your annual report by visiting Annual Credit Card Report.
6. Be Aware of Minimum Income Requirements
Often, lenders will have a minimum required income that they would like to see prior to approving your application for a loan. If they have not disclosed a specific sum, you can ask them what the minimum income requirement is by discussing your finances with them or by reviewing the terms and conditions of your loan offer. However, many lenders will not disclose their minimum income requirements.
You may be asked to provide evidence of income, like bank statements, tax returns, or others. You may also be required to provide verification of your employment, such as a pay stub or a signed letter from your employer confirming your current position at the company.
7. Other Things to Be Aware of
There are other things lenders will consider before granting you your loan. For example:
- Collateral: In the case of a secure personal loan, you’ll be required to pledge some property or valuable assets as security for the loan. If you don’t repay the loan when it’s due, the lender will be able to seize the asset pledged as collateral.
- Debt-to-income ratio: this is a percentage of your income that will be used to pay off your debt monthly. The lender might use this percentage to decide if you’re capable of paying off your debt. The percentage may vary depending on the lender.
- Personal loan origination fee: this may need to be paid as a fee to cover processing your loan. If you don’t want to apply for a personal loan, you may want to consider an alternative.