If you’re thinking about applying for a personal loan, it can be helpful to check your potential eligibility before going through the full application process. Pre-approval is one way to explore your options and get a clearer idea of where you stand.
What is personal loan pre-approval?
Personal loan pre-approval, also known as conditional approval, is an initial indication from a lender that you’re likely to be approved for a personal loan. Based on basic financial information you provide, it gives you an idea of how much you could borrow, what interest rate you may be offered and what your potential repayments might look like without the need for a full application.
To be pre-approved, you’ll need to meet the lender’s key criteria related to your income, employment status and credit history. The process usually involves only a soft credit check, which won’t affect your credit score, and it’s generally much quicker and requires less paperwork than a full loan application. This makes pre-approval a convenient way to explore your options and see what you might qualify for before taking the next step.
Are there different types of personal loan pre-approval?
While all pre-approvals work in a similar way – giving you an early indication of your borrowing power and likely loan terms – they can come about in different ways. Typically this will be:
- Self-initiated pre-approval is when you apply directly through a lender’s website or broker platform, submitting basic financial details to see what you may qualify for.
- Lender-initiated pre-approval is when a lender offers you pre-approval, often as an existing customer. They may assess your eligibility based on the information they already hold and invite you to apply. However, it's important to think carefully before accepting. Consider whether you actually need the loan, and take the time to compare other lenders to ensure you're getting a competitive rate and terms.
In both cases, pre-approval is conditional, not guaranteed. It’s designed to help you weigh up your options before proceeding with a full application.
What are the benefits of pre-approval for a personal loan?
Personal loan pre-approval offers several advantages that can help you borrow with more clarity and confidence:
- Clarity on your borrowing power
Pre-approval gives you an upfront estimate of how much you may be able to borrow and what repayments to expect. This is especially helpful if you're planning a big purchase like a holiday, as it gives you a clear budget to work with.
- Stronger position when negotiating
If you’re using your loan to buy something specific, having pre-approval in hand shows sellers you’re serious and financially prepared. That can give you more confidence and more leverage when negotiating on price.
- Faster final approval
Because many key checks are already completed during pre-approval, the formal application process is often quicker and more streamlined.
- No impact on your credit score
Pre-approval typically involves a soft credit enquiry only, so it won’t leave a mark on your credit report or affect your credit rating. A hard check will only occur when you decide to apply for the loan.
Why apply for a personal loan with Savvy?
How to get pre-approved for a personal loan
The pre-approval process can vary slightly between lenders, but it’s usually quick and straightforward. Here's how it generally works:
- Check your eligibility
Before applying, make sure you meet the lender’s basic requirements, such as age, income and residency.
- Submit a personal loan application
This usually involves providing details about your income, employment, expenses and credit history. Some lenders may ask for supporting documents like payslips or bank statements.
- Get assessed
The lender will review your information and perform a soft credit check (which doesn’t affect your score).
- Receive your conditional offer
If you're pre-approved, the lender will give you a conditional offer, outlining how much you could borrow and the potential interest rate and repayment terms.
To improve your chances, here are some tips:
- Check your credit score first: a strong credit score can lead to better rates and higher borrowing limits.
- Compare lenders: pre-approval offers can vary, so shop around to see which lender offers the most suitable terms.
- Be accurate and honest: supplying correct information reduces delays and increases your chance of a successful pre-approval – and full approval down the line.
- Avoid applying with multiple lenders at once: too many applications, even if soft enquiries, can signal risk to lenders.
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What to do if your personal loan pre-approval is denied
Being declined for pre-approval doesn’t mean you can’t get a loan. Because pre-approval is only a conditional offer and involves a soft credit check, it won’t show up on your credit report like a formal application would. This gives you a valuable opportunity to reassess and improve your financial position before trying again.
Common reasons for being declined include:
- Low credit score: missed repayments, defaults or too many recent applications can lower your score.
- Insufficient income: your earnings may not be high enough to support the loan amount you requested.
- Unstable employment: irregular income or short-term work history can raise concerns for lenders.
- High existing expenses or debts: if it looks like you may struggle to meet future repayments, your application may be knocked back.
- Residency status: some lenders only offer personal loans to Australian citizens or permanent residents.
- Loan purpose: certain loan uses, such as gambling or speculative investments, may not be accepted.
Once you’ve identified the issue, take time to address it. You can then reapply with the same lender or explore other options that may be better suited to your profile.
