What you need to know about pre-approval for personal loans
Whether you’re looking to fund a renovation project, a car purchase or a holiday, there are many reasons why you may need to draw on a personal loan to make ends meet. However, when researching your options, it’s important that you understand all the moving parts of applying for a personal loan. In particular, understanding pre-approval is an important part of the application process.
So how does a pre-approval work? It involves a lender giving you an indication of how much you will be able to borrow. Ultimately, this helps during the application process as it shows lenders that you’re a more “serious” borrower and that you’ve undertaken a preliminary finance check.
Read on to learn more about pre-approval and what it could mean for you.
What is unsolicited pre-approval?
A bank may recommend a personal loan to you via your online banking account or even through marketing efforts. This is normally based on the data they’ve collected on your history and it may encourage you to take out a loan that you don’t necessarily need. If you’re not in the market for a loan, remember that this is just an attempt by the bank to earn your business. On the other hand, if you do need to take out a loan, just be cautious of the product being presented to you (including the interest rate and any major fees that may apply).
How do I get pre-approval?
Pre-approval for a personal loan, particularly car loans, is offered by many lenders. You can check which lenders offer pre-approval by jumping online. Getting pre-approval allows you to work out how much you can borrow without going through the lengthy formal approval process. It also means that you’ll only apply for products that you’re likely to be approved for.
The pre-approval process involves filling out a loan application and including identification documents and other financial documents. It’s important that all the information you provide is accurate and verified so that you can get a proper quote from the preliminary assessment. Often, this process only takes a few minutes online.
Why might my application be declined?
There are few reasons why you might not qualify for a pre-approved loan. It could be because you haven’t supplied proper documentation, you have a low credit rating or there have been changes to the lender’s policies. Before you apply for pre-approval for a particular loan, make sure you read the eligibility requirements carefully and make sure you meet them all.
Can I receive pre-approval with bad credit?
It’s possible to receive pre-approval with bad credit, but it depends on the lender, your terms, and the loan amount. However, you’re generally better off trying to improve your credit score before applying for a loan. A higher score will show reputable lenders that you’re capable of paying back your debt. You can improve your score by establishing a good repayment history and by making your repayments (and/or bill payments) in full and on time.
How can pre-approval be beneficial?
Seeking pre-approval provides you with a greater insight into the sort of products that you can apply for and the amount you’ll be approved for. For this reason, it can pre-empt loan rejection or disappointment if you find out that you’re not eligible for a particular product. Pre-approval can also speed up the application process as the lender has already done a background check on your financial health.
Will I definitely get the funds I require if I have pre-approval?
Even if you’ve received pre-approval from your bank or lender, it doesn’t guarantee that you’ll receive your personal loan. This is because you need to have your formal application reviewed by either a credit assessment team or an insurer.
Ultimately, pre-approval can give you more peace of mind as it will help ensure that you only apply for products that you’re likely to be given the green light for. It also shows the lender that you’re a proactive borrower and it can even speed up the application process, which means you’ll be able to make your purchase sooner rather than later!
Bessie Hassan | Money expert at finder.com.au