If you have a credit history, it’s likely that you’ve received one of them: a large envelope with the name of a respected financial institution or some unknown lender promising a great rate on a loan. But can you trust it? With dozens of lenders sending out these marketing tools, you’ll want to learn how to tell the good from the bad.

What does it mean to be preapproved for a loan offer?

Being preapproved for a loan means that you’ve met the basic eligibility criteria to apply. It doesn’t guarantee a loan, and because it’s based on a soft credit check with only preliminary information, the lender won’t yet have all of the details required to make a final decision.

What is a soft credit pull?

A soft pull is an inquiry into your credit history that doesn’t affect your credit score. Credit card providers and other lenders often conduct soft pulls of your credit without you knowing it, usually to determine whether you’re a good candidate to borrow money. Preapproval and credit card offers are often a result of these soft pulls on your credit.

Why am I getting offers from lenders I’ve never heard of?

These offers often come unsolicited. They can be from a bank you do business with or an institution you’ve never heard of, and the loan can be for any amount and come with any terms.

The point of preapproval offers is to sell you a loan. It’s a marketing tool that many lenders, from big banks to local short-term lenders, find effective. While you may be tempted to dive right in, take a step back to fully evaluate the offer and who it’s from.

Is a preapproved loan offer worth pursuing?

If you have the time and are willing to do some research, it could be worth pursuing a preapproved loan offer.

Perhaps the offer is a preapproved loan for up to $15,000 with a competitive interest rate. If you’ve had a major purchase on your mind or if you’re considering debt consolidation, it could be rather tempting.

However, an offer by mail may not be the best you can get, which means you could benefit from fully comparing your options online before diving in. You’ll also want to make sure you check to see if the lender is legitimate and trustworthy. Some scams look like the real deal, so always do your research before you hand over any of your personal information.

Example: Letter in the mail

Julia received an offer in the mail from a well-known online lender preapproving her for a personal loan of up to $20,000. It included an offer code and a website link to visit, along with some qualifying terms. Since Julia was looking to add a swimming pool to her backyard, she decided to look into it.

Instead of applying right away, she called the lender’s customer service line and asked if the offer was real. Once the offer was confirmed, she was able to apply online.

* This is a fictional, but realistic, example.

Are mailed offers the same as what’s online?

Not always. There are differences in the rates offered by mail and those offered online. As to which is better, it depends on the lender. Some have better online rates, while others offer an attractive deal in letters to get you to apply.

Both use preliminary information about your finances to determine preapproval. Neither guarantees a certain rate or even if you’ll be offered a loan once you submit a full application. This means that you’ll still have to go through the full application process either way and will likely have to submit to a hard credit pull so the lender can confirm that you’re a good borrower. You will typically temporarily lose around 5 points from your credit score from a hard pull.

6 warning signs of a preapproval scam

Not every letter you get in the mail is honest. If you’ve received an offer and it looks suspicious, trust your gut. There are plenty of scams out there. These 6 signs can help you avoid sinking money into a fake loan offer.

1. “100% guarantee” There’s no such thing as guaranteed loan approval. Too many variables can change between when you actually apply for a loan and when you receive an offer. Lenders that offer this are trying to get you to take out a loan, often with excruciatingly high interest rates and unbearably large fees.
2. Upfront fees. If a lender requires you to make payments upfront, it’s a huge red flag. There’s never a time when you’ll need to give your credit card information to make a payment before you get funded.
3. Requests cash payments. Similar to charging upfront fees, a lender stating that you can only pay with cash, money transfers or gift cards is likely running a scam. These are untraceable, and you may not be able to get your money back once you’ve been scammed.
4. Urgency. Anytime there’s a rush to get you to apply, take extra time to research it. Scammers will try to push you through the loan process as quickly as possible so you don’t have time to determine if something doesn’t feel right.
5. Hard-to-find or no contact information. Even online lenders have physical addresses and customer service phone numbers. If a lender hasn’t listed a company address or its customer service line isn’t working, skip it and find another lender.
6. Unsecured website. If the website you’re accessing isn’t secure, be extremely cautious. Some form of encryption is an industry standard to keep your information safe. This may not be a lender scam, but hackers can easily take your personal information if a website isn’t secure.

Advantages of preapproved loan offers

If you’ve got a mailed offer in your hands and aren’t sure whether you want to apply, consider these factors when making your decision:

• You have a higher chance of being approved. When you receive a preapproved loan offer in the mail, the lender has already done some basic data pulling to see if you’re a good candidate for a loan. This means you’re more likely to be approved once you apply.
• It’s a quick application process. Preapproved offers typically shorten the application process by prepopulating the application form once you’ve entered your unique offer code.
• You can learn about new lenders. If you didn’t already know of the lender, you may learn about a new provider that fits your needs. You get the loan you need and the lender gets a new customer – it’s a win-win situation.

What to watch out for

Accepting a mailed offer just because you’re preapproved might not be the best idea. You’ll want to be cautious of a couple of things:

• It could be a scam. There’s always the chance that the preapproved loan offer you got in the mail isn’t legit. In this case, applying could mean giving away your personal information or paying for a loan that you never receive.
• It might not be the best deal. While not as bad as a scam, you could get a better interest rate from another lender. It’s worth applying for, or at least researching, other loans and learning about potential rates and terms offered by other lenders.

Example: Online offers

Steve found an offer for a preapproved loan in his email. The loan amount was for up to $10,000, which would cover his bathroom renovations and allow him to have money left over. He was tempted to apply right away but knew it would be better to research first.

When Steve went onto the lender’s website, he noticed there was no contact information to be found other than an out-of-service phone number. Rather than risk it, Steve decided against applying. Instead, he compared other lenders and found a competitive interest rate and favourable term on a legitimate loan.

* This is a fictional, but realistic, example.

Compare legit online lenders

What to look for in a legit preapproval offer

How do you know when a loan offer is legit? There are signs that a preapproval offer is real before you sit down to research more.

• Upfront terms. A real offer will have terms and conditions attached for you to review, even if they are a mile long. This signals that the lender has rules that you need to follow, which means your loan offer is much more likely to be legit.
• A name you trust. An offer from a big-name bank or financial institution, especially one you already do business with, is more likely to be legit. However, keep an eye out for inconsistencies. Scammers have designed fake preapproval offers to mimic the look of established businesses.
• Easy to contact. You should be able to easily find the lender’s phone number, email and website. When you reach out to talk, the customer service team should be available to answer any of your questions.
• No promises. There shouldn’t be a guarantee of approval or rates because the lender can’t determine if your credit will remain the same from when you receive the offer to when you apply.

Example: Phoned-in offers

When Cassidy received a phone call from a supposed lender offering her a good rate on a loan she was preapproved for, she was immediately suspicious. The lender claimed that her poor credit history wasn't a problem and that they'd just need a one-time fee of $200 to secure the loan.

Something sounded off, so she took down the name of the provider, the phone number and the name of the agent. All Cassidy could find online were reports of random solicitation calls from that number. Not able to find information about the lender, Cassidy rightfully decided not to apply for the loan.

* This is a fictional, but realistic, example.

Bottom line

An offer for low interest and quick funding might sound tempting, but you should always be prepared to research any preapproval offer you receive. Before taking any steps toward getting a loan, look over the information you’ve received completely. Check for any red flags and listen to your gut if it tells you something is off.

Even if the offer you receive isn’t legit, there are plenty of other legitimate online lenders that offer preapproval that you can apply with. Compare your options in the table above to find a loan that is suitable for you.

Frequently asked questions

• Can I be denied a loan that I was preapproved for?

  Yes. You aren’t guaranteed to receive a loan you were preapproved for. Unfortunately, a soft credit check doesn’t pull all of the necessary information for a full confirmation of your eligibility. In addition, your credit score could change from month to month, which means between the time the offer is sent out and you apply, your credit score could be drastically different.

• Will a preapproval offer hurt my credit score?

  No. Since the preapproval process relies on a soft credit pull, your score won’t be affected. However, when you submit a full application, the lender will conduct a hard credit pull of your credit history, which can slightly affect your score by around 5 points.