How do I Know if I Qualify For a Loan?

For this post, we’ve teamed up with our partners at Fairstone

When you’re looking to borrow money, the last thing you want to have happen is to be turned away. If you’ve been turned down by a lender before or you’ve never applied for an installment loan, you may be wondering how you can find out if you qualify before applying. We asked our partners at Fairstone to come up with 4 tips to help people find out if they’ll qualify for a loan before they set foot in a financial institution. Here are their tips:

#1 – Check your credit score

These days it’s fairly simple to check your credit report on your own. You can access your report through a third-party provider, or contact one of the two Canadian credit bureaus – Equifax or TransUnion – for a copy of your report. For the most accurate result, you’ll want to go right to the source. Once you know your current credit score, outstanding bills or debts, and your general credit standing, you’ll be able to get a sense of which financial institutions will be likely to lend you money. The higher your credit score and the less debt you have, the more likely you are to be able to qualify.  

#2 – Determine where you should go to borrow money

There is a spectrum of lenders, each of whom serves a particular credit score niche. Once you know your score, you can determine where you may qualify for a loan.

• Banks are the most conservative lenders and are likely to lend only to those with very good or excellent credit scores (scores above 720 out of a possible 900).
• Credit unions are a little more liberal with lending than banks, but not much. People with high “good” scores, as well as very good or excellent scores, may qualify for a loan with a credit union. 
• A lender like Fairstone serves customers with fair to good credit scores, as well as those who may have been turned down by banks or credit unions because of their current debt load. There is a spectrum of middle-ground lenders (between banks and payday lenders) who serve customers with credit scores lower than 700. These lenders have various qualifying factors, and their interest rates and loan terms reflect the larger risk they are taking by lending to customers who have poorer credit.
• Many payday or private lenders also offer loan products. These loans have the highest interest rates and often the shortest loan terms since they are given to high-risk borrowers. If you are considering a payday loan, or are currently paying off a payday loan, it’s a good idea to try to qualify for a loan with a middle-ground lender. You may be able to consolidate outstanding debt and start fresh with a loan that has a lower interest rate and a longer repayment term than a payday loan. 

#3 – Try a loan calculator

After considering the type of lender you might choose, you’ll want to do some investigating to see if they offer a loan estimate or loan calculator tool. This is a generic tool that you can use yourself to find out what types of loans they offer, without providing very much personal information. A loan estimator gives you a rough guess of how much you may be able to borrow, but will not be personalized to your current financial context. 

#4 – Ask the lender for a personalized quote that won’t impact your credit score

Once you’ve tried the general tools on a lenders’ website and learned about their loan products, it’s time to see if they can offer you a personalized loan quote. Ideally, the lender should be able to take just enough of your information to be able to develop a quote that reflects your current financial standing but does not require a hard credit check. Remember, every time a lender does a “hard” credit check it is reported to a credit bureau, and having too many credit checks close together can actually negatively impact your credit score. 

Are you interested in a loan quote from a middle-ground lender? If you want to find out how much money you might qualify for, without impacting your credit score, get a no-obligation instant quote from Fairstone.

Although it can be nerve-wracking if you don’t know whether or not you’ll qualify for a loan, doing your research and asking the lender to provide a no-obligation quote puts you in the driver’s seat. Whether you’re looking for a loan to cover urgent expenses, consolidate debt, or just for some extra room in your budget, there’s a lender that is right for your current financial situation.