In order to apply for a Loan, a borrower will send a loan application to a lender. Based on the borrower’s eligibility, the lender then chooses whether to accept or reject the application. However, lenders occasionally approach prospective clients with offers of “pre-approved loan.”

Be very careful with an offer for a pre-approved loan. Is the offer of Credit actually guaranteed? Are there any other hoops you need to jump through? It’s rare for a lender to actually guarantee approval for a loan.

Pre-approval usually only happens as part of the final checks. Sometimes you can be offered a guaranteed APR instead. It all depends on your financial situation.

What is a Pre-approved Loan?

A pre-approved loan is an offer made by your lender. If your information is accurate and you pass the credit check, your loan application is more likely to be approved. Even when you have a mortgage pre-approval, you might still need to submit a more info to the lender.

Before approving your application, lenders evaluate the data you provide. This can come in the form of a soft credit check. If you’ve applied for a loan with an eligibility checker tool – then you’ve probably had a soft search.

How To Get Pre-approved for a Loan?

Lenders often make pre-approved credit offers to their existing customers. Or customers that they really know well. If you’ve made timely payments to the bank in the past, it’s possible that they will let you know if you’ve been pre-approved for a personal loan or business loan. However, you will usually have had to apply for a loan first.

If a loan company is claiming that you’ve got a pre-approved loan offer, but you don’t remember applying, check if they are legit. Did you submit a formal application? Have you checked their registration number?

If you haven’t been approached by a lender, you can get pre-approved for a mortgage through loan eligibility checker tools. Most bank account providers and lenders have eligibility checking tools on their websites.

These tools require you to enter information like your name, address, employment status, occupation, bank account and basic financial details. Once you submit the information, the lender will run a soft credit check on you. If the lender is satisfied with your eligibility, you are likely to prequalify for a mortgage. They can also help you understand what interest rates you might be offered.

If you want to get the best loan deals, it’s important to shop around and consider other loans.

An initial query may be done with a soft search. When you take out the loan the lender will convert this to a hard search.

What Happens After Getting a Pre-approval?

You are not obliged to borrow money even if your lender has given you a pre-approval offer. The offer is not legally binding on you. It only suggests the likelihood of your loan application being approved is very high.

The lender validates the information you provided when you submit your formal application. To confirm your creditworthiness and credit score, they also run a hard credit check. To make sure you are a legitimate borrower, they may also run fraud checks. This helps them know you will pay back the loan.

Your application will be approved if you have correctly filled out every field and have a solid credit report and score. If not, your application would be turned down by the lender due to a bad credit report or score.

Pre-Approved Mortgage: Pros and Cons You Should Consider

Hoping for a mortgage loan pre-approval is a tempting option. However, you should be aware that no credit choice is perfect. You should be aware of some limits with pre-approved loans as well Here are some advantages and disadvantages of pre-approved credit. It’s always important to be careful when dealing with money.

It’s always worth asking your lender if they can actually pre approve any loan offers.

The Benefits

The advantages of choosing a pre-approved mortgage are many, including:

• Borrowers can find out whether they prequalify for a mortgage within a few minutes.
• You can understand what you’d have to pay (and when). You can also understand the total cost
• A pre-approved loan offer is based on soft credit checks, which have no impact on your credit score.
• By seeking pre-approved credit, borrowers reduce their chances of getting rejected. Loan rejections can badly affect one’s credit rating, which can be avoided in pre-approved credits.
• Mortgage loan pre-approval enables faster processing of loan applications.
• If you have a strong credit file, you could get a loan at a favourable interest rate and terms. Subject to any final checks.

The Drawbacks

Some of the major drawbacks of getting pre-approved credit are:

• Despite having a pre-approved loan offer, your loan application may still be denied if you have a low credit rating.
• Simply because you prequalify for the mortgage, you may find yourself applying for a loan even if you don’t need one.
• Pre-approved loans might only be offered for a short period of time, and the timing might not suit your requirements.
• Getting the offer and making a decision in a short space of time may not let you think it through

Evaluate both the pros and cons of mortgage loan pre-approval before deciding. Money is serious and you should consider this carefully.

Pre-approved Loan Application Turned Down? Possible Reasons and What You Can Do

If your loan application has been rejected even though you prequalify for the mortgage, there may be some issues with your credit history or score. Here are some reasons why your application could be turned down and what you can do as damage control.

1. Mistakes in Loan Application

You may have made a mistake while filling out your loan application. Even if you mention your name or address in a way that doesn’t match with documents, your lender could get suspicious.

Make sure that your spelling matches on all documents and that you have mentioned your correct address, employment status, income, etc.

You can get these mistakes corrected and make another application. Check your name, address, and other personal details on all important documents and make sure that they match with each other. If they don’t match, take steps to get your documents corrected.

2. Eligibility Criteria Not Fulfilled

Loan providers specify separate eligibility criteria for each type of loan. They may specify a minimum credit rating, monthly income, age, or even work experience for each category. If you do not satisfy the criteria for your desired loan, your application could be rejected.

You can consider applying for a different type of loan whose eligible criteria you can satisfy. Or perhaps for a loan for a specific purpose, like home improvements.

3. Poor Credit Score

Lenders judge your creditworthiness based on your credit score. If you do not have the required credit score, your application could be rejected. You can check your credit score for free on a credit reference agency’s website.

Have you checked your credit file for any fraudulent activity – this could have been why you were declined. If not a lender, can you get support from friends and family?

If you do not have a good credit score, you can take steps to improve it. Read this blog post to find out how to improve your credit score.

Bottom Line

Pre-approved mortgage is an excellent choice for you as long as you meet the eligibility requirements and have the necessary credit score. Even if acceptance isn’t guaranteed, the chances are much higher than with a traditional loan offer.

Your loan may be authorised more quickly and with a better interest rate, annual percentage rate, and terms than normal. However, it’s crucial to be aware of the drawbacks and make an informed choice.

Frequently Asked Questions

Disclaimer: The information given above is provided for reference only. This is not financial advice.

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