So you’ve heard about pre-approved loans. You imagine getting pre-approved feels like finding a crisp £20 note in the dark depths of an old jacket pocket; it’s money you didn’t even know you had!
But, exactly what is a pre-approved loan? Why are you being offered one? Can you apply for a pre-approved loan yourself? And, do you even need one?
Before you run out and spend your new-found cash read our advice to find out exactly what pre-approved loans are all about.
1. What is a pre-approved loan?
So what is a pre-approved loan? There are two types of pre-approved loan. The first type is an offer of a loan made by a lender, usually one you already have a banking relationship with, to you, the customer. The second type is where you, the customer, submit a preliminary application to a lender to see whether you’re likely to be approved for a loan.
Why might a lender offer you a pre-approved loan? Throughout their banking relationship with you, your bank may acquire enough information about you and your finances to feel secure in offering you a loan, without you requesting one.
On the other hand, you may find a better deal from another lender, in which case the new lender will want to assess you to ensure you are creditworthy first. If you meet their criteria, then they can pre-approve you before you make a formal application.
Why might you apply for a pre-approved loan? Lenders often advertise loans at attractive rates. Unfortunately, there’s a chance you might not qualify for those rates. Getting pre-approved allows you to see what a lender can actually offer you, at what rate and under what terms and conditions.
2. What is the pre-approval process?
The pre-approval process is the process carried out by a bank or lender before they offer you, the customer, a pre-approved loan. The process involves a series of checks into your credibility and financial standing.
Lenders are likely to check your credit history and behaviour. As an example, how regularly you have kept up with previous loan or credit card repayments can be taken into account. Lenders may also check your income and any bad credit weighing your creditworthiness down. All of the criteria or Lender Factors add up to create a picture of the likelihood that you’ll repay the loan in full.
If you’ve applied for a pre-approval, the lender will then provide you with a quote for a loan.
3. Does pre-approval guarantee a loan?
The short answer is no. While a bank or lender may have offered you a pre-approved loan they have the right to rescind that offer at any time.
You are also not obligated to take out a pre-approved loan. Just because you have been offered or received a quote for a loan doesn’t mean you have to take a lender up on their offer!
If you do decide to take up the offer of a pre-approved loan, you will still need to submit a relevant application along with the necessary documents. This may take considerably less time than a standard loan application as you’ve already been identified as eligible for a loan during the pre-approval process.
However, lenders are obliged to carry out a number of further checks for identity and fraud purposes, and there is a small chance you might fail these subsequent checks if the lender has reasonable concerns.
4. What are the pitfalls of pre-approved loans?
Lenders may offer pre-approved loans for a limited time only. If you are set on a pre-approved loan, you will have to act fast to secure the loan before the offer expires.
However, before you take up the offer of a loan, ask yourself, ‘Do I really need a loan?’ Spending money unnecessarily by taking out a loan you don’t need is something to be avoided at all costs.
Remember to check the terms and conditions of the loan, as well as what would happen if you are unable to repay. A pre-approved loan may have higher interest rates compared to other loans on the market so ‘shop around’ and look at comparable offers from other lenders, including their terms and conditions.
But when comparing deals be sure to check whether your searches will show up on your credit report. Some lenders carry out a full credit check before they offer you a quote. These checks can show up on your credit report and, if you’ve enquired about a number of loans in a short period, could harm your creditworthiness. One way to avoid this is to ask lenders whether they offer a ‘quotation search’ which doesn’t show up on your credit report.
5. Where is the best place to get pre-approved?
At Credibble, we have an in-depth understanding of the criteria lenders are looking for during the pre-approval process. We break down your credit report, explain exactly how lenders view you through our Lender Report, and offer you tailored insights into the best financial products for your specific situation making us the best place to get pre-approved.
Lenders do not use credit scores – that’s why we set up our site.