What is a pre-approved loan?

Before submitting an application, loan pre-approval can give you a clearer idea of whether you’re likely to be accepted. But how do pre-approved loans work? What does a pre-approved loan mean, and are there any benefits to them?

In this guide, we answer some of the most asked questions about pre-approved loans. To help you make an informed decision on whether borrowing is right for you, see our previous guide on what to consider before taking out a loan.

In this guide: 

• What are pre-approved loans?
• How do pre-approved loans work?
• What are the benefits of a pre-approved loan?
• Can a pre-approved loan be denied?
• How to get approved
• Key takeaways

What are pre-approved loans?

If you’re pre-approved for a loan, it means the lender deems you eligible based on a soft search of your credit history. Pre-approval shows that you’re likely to be accepted, however it isn’t guaranteed. This is because final approval only happens once you complete a full application and pass more in-depth credit and affordability checks.

So, pre-approval is a strong indicator of acceptance, but the lender’s final decision is based on a detailed hard search.

How do pre-approved loans work?

Pre-approved loans are conditional offers from lenders, indicating that you’re likely to be accepted for a specific amount and interest rate. You can usually check whether you’re pre-approved by using online eligibility checkers, either on comparison sites or directly on a lender’s website.

For a pre-approval check, you’ll typically need the following information to hand:

• Your name, date of birth, and address history
• How much you’re looking to borrow
• What you intend to use the loan for
• Your employment status and job title
• Your annual income

If you meet the lender’s criteria, you’ll receive a pre-approved offer detailing the maximum loan amount, estimated Annual Percentage Rate (APR), and terms of repayment. At this point, you can either apply for the loan directly or continue comparing other lenders. If you do decide to apply, the lender then carries out their hard credit check before making a final decision.

What are the benefits of a pre-approved loan?

One of the main benefits of pre-approval is the confidence it gives you when applying for credit. Applying for multiple loans and being rejected can negatively impact your credit score, yet pre-approval only requires a soft check, allowing you to assess your eligibility without impact.

If you’re looking for more information on soft vs hard credit checks, explore our credit check guide.

Most pre-approved loans also come with a guaranteed APR, clearly laying out interest rates and giving you an idea of the potential cost of borrowing.

However, even if approval looks likely, you should only borrow if you’re confident you’ll be able to comfortably meet the repayment deadlines. Even if a lender pre-approves, you still need to make sure it’s the right route for you.

When might pre-approval loans be useful?

There are certain situations when pre-approval can be particularly helpful, such as when you’re:

• Planning a large purchase: Pre-approval loans can make it easier to understand potential monthly payments and decide whether borrowing is affordable.
• Comparing lenders: Pre-approval helps you compare interest rates, loan amounts, and repayment terms with confidence. You’re able to choose a product and lender that best suits you.
• Borrowing with a less-than-perfect credit history: If your credit history isn’t perfect, borrowing and applying for loans can feel uncertain. Pre-approval can help you reduce the risk of unnecessary declines, which is particularly helpful if you’re working towards rebuilding your credit.

Can a pre-approved loan be denied?

Yes – while there’s a good chance you’ll be accepted, pre-approval doesn’t guarantee final loan approval. This is because pre-approval is based on a soft credit check, with a more detailed review of your credit history, income, and affordability required before your application can be finally approved.

If you don’t meet the requirements and are rejected, this could be due to outstanding debts, changes in income, or even minor errors in your application.

How to get approved for a pre-approved loan

While pre-approval isn’t guaranteed, the following steps may help improve your chances:

1. Boost your credit score: Simple steps such as making regular payments and settling any outstanding balances can help improve your credit score.
2. Check your credit report: Review your credit file at least once a year for any inaccuracies that might be damaging your score. If you spot anything that doesn’t seem right, contact the relevant lender or credit reference agency immediately.
3. Limit applications: Multiple credit applications in a short space of time can negatively impact your score, signalling to lenders that you’re struggling.
4. Provide accurate information: Ensure application details such as your name, employment status, and address are all correct.
5. Consider a lower amount: While it’s not guaranteed, lenders may be more likely to preapprove smaller, more affordable loans.

Pre-approved loans: Key takeaways

• Pre-approval allows you to compare loans and rates without undergoing multiple hard enquiries. You’re able to gauge the likelihood of acceptance before applying, and your credit score is only impacted if you go ahead with a full application.
• Pre-approval doesn’t guarantee final loan approval. Lenders can still deny your application when carrying out more thorough credit checks.
• Just like there’s no guarantee you’ll be accepted, there’s also no obligation to apply for a loan if you’ve been pre-approved. Take some time to carefully consider whether credit is right for you.

Explore more helpful resources

Looking to learn more about responsible borrowing and understanding your credit score? You’ll find plenty of helpful resources over on the Moneyboat blog. There you can read guides on topics such as how to prepare for a loan application and what is a good credit score?

And remember, if you’re unsure about your next steps, there are various free and independent support organisations you can contact. From government-backed resources like MoneyHelper to charities like StepChange, there’s always guidance available.