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Updated
Among the bills, postcards and letters that come by mail, you might happen upon a letter from a financial institution that announces you’ve been preapproved for a loan. Though it might be tempting to apply right away, take a moment to carefully consider the offer. And if it is legit, remember: there’s no guarantee you’ll be approved for the same amount and terms stated in the letter.
Min. Loan Amount | $500 |
---|---|
Max. Loan Amount | $100,000 |
APR | 3.49% to 35.99% |
Interest Rate Type | Fixed |
Minimum Loan Term | 3 months |
Maximum Loan Term | 144 months |
Turnaround Time | Varies by lender |
A preapproved letter is a promotional form letter that a bank or other lender sends as a marketing tool to encourage you to apply for a loan. They typically contain a code you can enter online or a form for you to complete and send in.
Many state that you’ve already been preapproved for a specific amount, which can range anywhere from a few hundred dollars to a large loan worth thousands.
Preapproval letters are proven marketing tools designed to attract more borrowers.
For banks and credit unions that you have an existing relationship with, it’s an attempt to get more of your business. It lets you know that the product exists and that you may be able to get a loan should you need it.
You can also receive letters from banks that you’ve never done business with or lenders you’ve never heard of. These providers are likely attempting to raise brand awareness. The offers you’re being sent are a way for them to get more exposure and potentially more customers.
Despite what the industry calls it, “preapproval” doesn’t guarantee that you’ll get a loan if you apply. When companies extend these offers, they do so with cursory information from either a third party or a soft credit pull.
These lenders have determined that you meet the basic eligibility criteria and might meet the financial requirements. Their information for you may be out of date, which means you may not actually be able to receive the advertised loan — or any funding at all.
If you’ve got a mailed offer in your hands and aren’t sure whether you want to apply, consider these points when making your decision:
Accepting a mailed offer just because you’re preapproved might not be the most sound idea. You’ll want to be cautious to be sure the offer isn’t a scam.
Not always. There are differences in the rates offered by mail and those you can qualify for by filling out an online form. The better option often depends on the lender itself. Some have better online rates while others offer 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’re offered a loan after you submit an application.
You still have to go through the full application process and will likely have to submit to a hard credit pull so the lender can confirm that you’re a suitable borrower.
A preapproved offer has two additional benefits: you have an increased chance of approval and the application process will be quicker.
Since the lender has already done the work of pulling some basic data on you, it knows that you may meet the criteria to borrow. And since you’ll likely be able to enter a code onto the lender’s website, you may save time by having many of the fields already filled in for you.
It depends. If you have the time and are willing to do some research, it could be worth applying for a preapproved loan offer. Ask yourself the following questions:
Scammers are notorious for pulling these tricks on people who don’t know better. If you’re not cautious, you could end up wasting money on a cheap trick or giving over your sensitive banking information to a disreputable company.
The best way to avoid a scam is to familiarize yourself with what a real loan offer looks like and learn about common loan scams.
Preapproved loan offers are a form of advertising that is quickly becoming archaic, but that doesn’t make them a bad deal. If you’re in the market for a personal loan, it’s worth it to compare your options online and do a little research. A mailed preapproval might be convenient, but it could also be costly if you accept an offer without knowing the lowest rate you could qualify for.
Before you jump onto the lender’s website and complete the offer, compare your other personal loan options to see what kind of deals are out there.
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