Pre-approval is often spoken about in terms of mortgages and personal loans. Most often, you might receive a letter advising that you have been ‘pre-approved’ for a loan or credit card – while many of these mailshots tend to end up in the recycling, you may be able to consider the offer. But just what is a ‘pre-approved loan’?
Essentially pre-approved does not mean that your loan application will be automatically accepted – although many people wrongly feel that it does. In fact, this means that the lender is offering a loan pending full approval. In other words, even though you are pre-approved, there is no guarantee that your loan application will be successful.
So what’s the point of being told you are ‘pre-approved’? Well, it’s important to remember that being ‘pre-approved’ means that the lender may be able to approve your application once you have made a full application. A lender may well have carried out a limited check and identified you as being potentially eligible for a loan or credit card.
In many instances, an invitation for a pre-approved loan means you have already cleared the first hurdle and the lender would welcome an application from you. However, any loan will still be dependent on a full application and you passing more stringent financial checks.
In some instances, online loan applications may have an automated first check that accepts your loan application in principle. Again, this form of pre-approval is not a conclusive agreement to provide you with the loan but rather a way of signalling that your loan application has passed the initial checks. Full approval will normally come after, once your application has been looked at in more detail.