What are the benefits of a pre-approved loan?
There are several benefits to getting pre-approved for a loan before you apply, such as:
- it's an easy process that takes a matter of minutes online
- mostpre-approved loans come witha guaranteed APR, so you know exactly what interest rate you’ll be offered
- a soft search doesn’t impact your credit score, saving you from having to make multiple applications if you aren’t eligible for some deals
- if you’re pre-approved, there’s more certainty you’ll be accepted for the loan
How does this differ from a traditional loan offer?
In the past, you had to make a formal application and then cross your fingers and hope you were going to get accepted. Whereas now you can check your eligibility and get pre-approved before you apply, which takes some of the risk of rejection away.
This helps to prevent you from making multiple credit applications in a short space of time, damaging your credit score and making you appear desperate for cash.
Unlike a formal application, a pre-approved loan isn’t legally binding. So you are free to reject it in favour of something else if you like.
How does the pre-approval process work?
The pre-approval process works in one of two ways. You can get pre-approved on a loan, either by:
- making an enquiry yourself
- receiving a notification from your current lender stating they’vepre-approved you,usingdatathey already holdon their system
We explain how to approach the lender to make an enquiry:
1. Decide how much you need to borrow
If you’re looking to take out a loan, the first step is to research what type of loan is best for you. Consider factors such as how much money you need to borrow, the Annual Percentage Rate (the total cost of borrowing) and how much you can afford to repay.
Unsecured or personal loans may go up to £15,000, depending on the lender. Your eligibility will depend on your individual circ*mstances and the lender’s criteria.
Secured loans (also known as homeowner loans) can go up to around £500,000 but bear in mind that you must use an asset as collateral, meaning your property could be repossessed if you fall behind with payments (usually as a last resort).
2. Research loans
You can research different loan providers in different ways:
- directly – using a lender’s website, over the phone or in person
- using comparison websites – these compare different loan deals for you
- through a broker – these are experts who research different offers for you
3. Use a loan eligibility checker on a suitable loan
Once you’ve found a suitable loan, use an eligibility checker to see how likely you are to get accepted – without leaving a footprint. This is an important step because it helps you to fish out the best deals that you’re eligible for - and disregard the ones that could end up rejecting you.
4. The lender will carry out a soft credit check
Once you’ve entered your details into an eligibility checker tool, the lender will perform a soft credit check on your credit report. They’ll use this basic information to assess whether they’re willing to pre-approve the loan.
5. You’ll be pre-approved or declined for the loan
You’ll either be pre-approved or declined for the loan depending on the results of the soft credit check. Declined means that unfortunately, you won’t be able to take out the loan at that time.
Pre-approval means that if the information you provided is accurate and you pass a full credit check, you will very likely be offered the loan.
6. Decide whether to make a formal application
If you’re happy with the terms of the loan, you can make a formal application. The lender will then run a hard search on your credit report and carry out fraud checks to make sure the information provided is accurate.
Following this, the lender will either formally offer or decline your application. It’s unlikely you’ll be declined after pre-approval but be aware it can happen.
Can I be denied a loan after pre-approval?
After being pre-approved on a loan, you can still be denied by the lender. This is because pre-approval is based on a soft credit check – essentially the lender is relying on you to provide accurate and up-to-date information.
The lender is not obligated to offer you a pre-approved deal. In most cases, however, they will usually only reject your application if they find out that the information you gave was incorrect or unearth something on your credit history that makes them wary about lending to you.
How to get pre-approved for a loan
If you’re struggling to get pre-approved for a loan, follow these four steps to maximise your chances of getting accepted:
1. Improve your credit score
You can improve your credit score by making sure you pay any debt you owe on time and in full. This will also improve your debt-to-income ratio and will show lenders that you are a reliable borrower, making it more likely you’ll get accepted.
2. Fix any mistakes on your credit report
A simple thing to do is fix any mistakes on your credit report, such as spelling mistakes or an old surname. Simply get in touch with the relevant lender and/or credit reference agency to ask them to update it.
Mistakes can make it harder for the lender to verify your identity, which could put them off lending to you. Make sure you also report any fraudulent activity on your account (such as an unknown payment) to your lender.
3. Limit credit applications
Limiting your credit applications means not making too many formal applications for credit in a short space of time. These hard searches all show up on your credit history and can make you look desperate to borrow money. Instead, use an eligibility checker to get pre-approval before formally applying.
4. Provide accurate information
Provide accurate information when you fill in the eligibility checker form. This usually includes your name, DOB, address, employment status, income and outgoings, for example. Mis-matched information can harm your chances of getting approved for a loan, as it could show up as a red flag to lenders.
Check your eligibility for a loan from £1,000 to £500,000
- Personal and homeowner loans available
- Getting a quote is FREE and won't affect your credit score
- Easy online comparison tool
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We're a credit broker not a lender. Homeowner loans are secured against your home.
Disclaimer: All information and links are correct at the time of publishing.
