How to get pre-approved for a personal loan

Find out how pre-approval works for personal loans and how you can the green light from a lender.

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Did you know that there is more than one type of “approval” for loans? While the most common type is when you submit an application for a loan and are approved, there is another type: pre-approval.

This involves a bank or lender conditionally approving your application, with the stipulation being that you will provide further documentation so the lender can approve you; or you can use the pre-approval to arrange a purchase, for example, a vehicle. This guide explains how pre-approval works for personal loans and which lenders offer it.

What is pre-approval?

Pre-approval is a conditional approval of a personal loan. To arrange pre-approval, you still have to apply to a lender and they agree to provide you with finance as long as certain conditions are met. Pre-approvals usually last for three to six months.

One common type of pre-approval occurs when you want to purchase a vehicle. The lender agrees to provide you with a certain amount of money but will not give you the funds until you purchase the vehicle. The conditions that need to be met will include that the vehicle is of a certain value. Also, the lender is likely to send the funds directly to the car dealer, not you.

Another pre-approval involves you submitting part of an application and the bank or lender approving your loan pending supporting documentation.

Conditions for pre-approval

Lenders provide pre-approvals based on the following conditions:

  • The information supplied is accurate.
  • Your personal and financial details can, and have been, verified.
  • If you are applying yourself, you have provided the lender with all the relevant information needed to verify deposits, securities, assets, income and liabilities.

Types of pre-approval

  • Conditional approval to existing customers. Banks have an enormous amount of data on their customers and may use this to make pre-approval offers. This may come up in the form of a suggestion from the teller, “did you know you’re eligible to increase your credit limit?”, to products appearing on your Internet banking.
  • Self-sought pre-approval. Many lenders offer pre-approval with personal loans, especially car loans, to help borrowers check how much finance they can get, without submitting a formal application. Pre-approved car loans can.
  • Bad credit pre-approval. Sometimes, people with bad credit scores also receive pre-approvals from lenders, but the terms and loan amounts may vary based on the circumstances of the borrower. Be sure you check the nature of such an offer before you accept because several less-than-reputable lenders operate in this way.

How the preapproval process works

When you’re ready to apply for a loan, follow these steps to see if you can be pre-approved by your lender:

  1. Select a lender.
  2. Fill out a preliminary loan application.
  3. Wait while the lender reviews your application.
  4. Receive your pre-approval decision.

What happens after I get preapproved?

Your lender will likely contact you to confirm the information you’ve submitted if you’re preapproved for a loan. Be sure everything is accurate. At this point, your lender may take a day or two to fully underwrite your loan application. If you do receive an official approval, review your contract carefully and decide if you still want to move forward with the loan.

How long does it take?

In many cases, preapproval takes place online within just a few minutes. This is because the lender and its underwriting team haven’t evaluated your application yet and are using software to analyze the information you supply. On-the-spot preapprovals are often just indications that you may qualify for a loan.

What documents do you need to submit to obtain pre-approval?

  • A completed and signed application form
  • Identification documents
  • Proof of income e.g. payslips, tax returns etc.
  • Proof of expenses
  • Details of assets, liabilities and debts e.g. credit cards, loans
  • Proof of deposit
  • Credit history
  • Proof of employment

Owen is offered a personal loan

A few years ago, Owen took out an unsecured personal loan with his bank to buy a secondhand car and take a holiday. He has been repaying it over the past four years and is coming close to paying the whole thing back. One day he receives an email from his bank offering another personal loan. The email mentions that not only has he made his repayments on time, but his financial position means he has been conditionally approved for another personal loan.

Owen is in a good financial position. He has a joint savings account with his partner as they are both saving for their first home, and have approximately $30,000 in savings. Apart from his personal loan, he has no other credit products with his bank, and so no other debts. He considers the email, and while the offer for the personal loan is tempting, Owen is happy to be almost out of debt. He also doesn’t need to finance anything else. He declines the offer and continues to repay his loan.

Common reasons your application might be rejected

  • You haven’t supplied the correct documents to validate your earnings
  • You have a low credit rating
  • There are numerous enquiries on your credit file
  • Changes in your personal circumstances, for instance, a change of job
  • Changes in the policies of the lender after offering the pre-approval
  • The interest rate has increased and you’re no longer eligible

What to watch out for

Pre-approvals are marketing tools used by banks and other lenders, and while they can give you access to credit you may need, it can also encourage you to take out loans you really don’t require. Also, having a pre-approval does not mean the lender will readily give you the funds. Often, lenders have a pre-approval process that is more rigorous than the approval one. If you don’t clear the actual approval process, you could find yourself in a very sticky situation. This is especially true if you sign a contract agreeing to purchase a vehicle, and expect the bank to lend you the funds you need, but are then declined.

Loan alternatives

Not sure if a pre-approved loan is right for you? It pays to do your research. Check out some other personal loans types that you could consider.


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