- What is a pre-approved loan?
- Guaranteed approval for personal loans
- Marketing tactics using pre-approved loans
- Pre-approved applications and credit scores
- Finding a pre-approved loan
Pre-Approved Personal Loans
As the name suggests, pre-approved small personal loans are an offer from a lender or bank which states that they are willing to consider an application for a loan. Pre-Approval does not mean there is a 100% guarantee that you will get a loan but merely means that the loan will be granted subject to full approval.
Pre-Approved Loans Meaning
In lending, the literal meaning of pre-approval is “at a stage before approval.” Thus, pre-approved creates no obligation whatsoever on the lender and grants no rights whatsoever to the potential borrower. “Pre-approved” is thus a popular advertising catch phrase to induce people to apply for a loan – source Wikipedia.
Does Guaranteed Approval On A Personal Loan Exist?
Being offered a pre-approved personal loan sounds too good to be true and in some instances it is. Banks will often send out literature or messages to those who bank online stating that the customer has ‘X’ amount reserved for a loan or that a set sum is guaranteed to be available subject to application.
However, a little research often reveals that the offer is subject to status and only applies if circumstances have not changed. If you are aware that your credit rating and credit report information is not great or know that you have missed or made late payments for a debt then the chances are that the offer will not apply to you.
Are Pre-Approval Loans Just A Marketing Ploy?
Anyone who has received unsolicited flyers or letters about pre-approved personal loans will be aware that these are meaningless. Although this practice is not as prevalent as it was in the credit card heyday during the early 2000s, it can still be used as a way of attracting much needed business for lenders, who may try to offer you their cheapest personal loan rates.
If the bank where you hold your accounts has sent you notification that you are pre-approved for a loan you could be forgiven for assuming that the money is just there awaiting your signature on the contract but this is not the case. Every application for a personal loan is subject to the same checks and investigations and if there is anything amiss with your credit record the application may be turned down.
The latest strategy for selling personal loans is to attract applicants who have mobile devices for banking. Many of the most well known lenders have now developed mobile applications for phones and tablets.
The Pitfalls Of Pre-Approved Personal Loans
Getting a letter or other notification that you have been granted pre-approved personal loans might fill you with joy. How much more so if it comes at a time when you are most in need of funds. Keep your cool, even whilst faced with an offer. Never sign up or even make the application without confirmation of the terms and conditions of the contract.
Even if the initial offer of a low monthly repayment looks attractive, if the interest rate is uncompetitive and the term of the loan runs for many years it may not be the best rates for personal loans deal.
Temper the temptation to take an offer with caution if you urgently need funds. You could well end up getting into a large amount of debt that will affect your credit rating in the future.
No Credit Check Loans
There are numerous examples of offers for loans that offer no credit check loans. Avoid these offers at all costs.
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Borrowing money is a serious business and you should always choose a reputable lender. If your lender turns down your request, there will be a good reason behind the decision. An ethical lender, even a flexible loan lender who will allow you to repay early without any extra charge, will always practice responsible lending. So, when that offer of a pre-approved loan appears in front of your eyes, think carefully before taking it up.
Will You Be Approved?
There is no standard scoring when it comes to lending money and each bank or finance company uses its own criteria regarding what is a good credit score and what is poor.
Furthermore, as some banks have different brands it is possible that one part of the business may turn you down and another part will accept you. Many factors are involved and if one brand is looking to sell more unsecured personal loans it is possible that the criteria may be slightly lower than another brand. In addition, banks might use different credit reference agencies for information and this can also affect the outcome of an application.
Will Applying for a Pre-Approval Loan Affect My Credit Score?
Obviously, having an application for a personal loan turned down is not good and it will leave a mark on your credit record. The only way you can get a deal is to apply and see what rate you will be offered. This is the antithesis of shopping around because if you don’t like the deal and try elsewhere it can cause damage to your credit rating.
Pre-Approved Loans for First Time Borrowers
Loan companies always prefer to lend to borrowers who have an established record of repayment. So, if you have never had any debt and get an offer for pre-approved instant personal loans, you are unlikely to get past the first stage of the application.
Pre-Approval Eligibility Calculators
The latest developments on money websites include an eligibility calculator. This is a way of performing a ‘soft search’. You will be able to see the soft search recorded in your credit file, but no one else can see it. Potential lenders are not made aware of the search so the process does not reduce your credit score. Of course, nothing is ever guaranteed and no one can grant 100% pre-approval. Your lender must instigate fraud and ID checks before fully approving any loan.
Furthermore, as already mentioned, pre-approved personal loans may not be on the best personal loan rates or terms. Using an eligibility calculator will give you the deals but will also show others that might offer a better rate. So, think about balancing the risk of rejection against a higher rate of interest.
Information Needed For Pre-Approved Loan Calculators
The information that is put into the eligibility calculator is comprehensive. It includes;
- Your income and outgoings
- Existing debts
- Employment record
- Residential status
The more information that you provide, the more secure the outcome will be. Many lenders now also use this kind of soft search that will not affect your credit score. This system is often used by peer to peer lenders, and high street banks like Nationwide also use this method.
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Finding Pre-Approved Loans
So, you have ditched the unsolicited flyer, letter or email but have decided to look for a pre-approved loan. Where do you start your search?
Step 1: Deciding if you really need a loan
First ask yourself whether you actually need a loan. The idea has been planted in your head but just because an offer was made there is no justification for borrowing unless the need is essential. Think about the many other types of sales pitch that you may have come across. Then consider again whether you should look into taking pre-approved personal loans.
If a company comes up with a sales pitch and tries to get you to buy a new car, modern central heating or double glazing it does not mean you would take up the offer. Borrowing money is a just the same as buying any other product. Think about the implications of being in debt before going any further.
Step 2: Checking the details
Advertisements for pre-approved personal loans or guaranteed instant approval loans often appear tempting especially if getting a personal loan through normal channels is proving difficult. Try looking for a personal loan with a guarantor as opposed to falling for adverts. A close look at these adverts often reveals that they are for short term pay day loans. Otherwise, your lender may charge you very high rates of interest. Furthermore, some of these advertisements are for third parties. These are brokers who promise a good deal but who also charge extortionate arrangement fees as well as high rates of interest.
This is a typical example of extortionate brokerage fees:
- Representative APR of 9.8% (only 51% of applicants get this rate)
- Amount Borrowed £26,000 over 7 years
- Interest comes to £6,328.68
- Brokers Fee is £2,080
- Lender Fee is £590
This same advert boasts rates from 4.5% APR but also reveals a highest rate of 47.9% APR. Repayment periods for loans are on offer from 3 to 35 years.
Step 3: Searching for a good deal
Having decided that a personal loan is the way you want to go, where do you start your search for a good deal? You can find many offers from all the UK high street banks and the Internet is full of banks and finance companies who appear to be itching to lend you money. Which one is the best choice? Beware of companies offering the ‘personal loans pre-approval’ tag and concentrate your search on reputable and ethical lenders who will adhere to responsible lending.
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One last thing to consider is if you want to take out a home improvement loan and the pre-approved loan just sounds too good to be true. Make sure that you work out your loan properly before you start doing your home improvements.
Pre-approved Personal Loans
We have spoken about what a pre-approved loan is, and why lenders might offer such a loan. But like anything that seems too good to be true, you need to take care when using pre-approved loans. When you need to borrow, Personal Loans Now would love to help you find the very best loan for your needs. We don’t charge you a brokerage fee, and only deal with trusted direct lenders, so you can be sure you’re in good hands. Apply now, and you could get the money in your account today,