What Is Personal Loan Pre-Approval?

A personal loan pre-approval is a preliminary loan application. It involves a lender assessing the likelihood that you’ll qualify for a particular loan before you formally apply for it. It’s a form of soft enquiry that won’t affect your credit score. Being pre-approved means the lender is happy to loan you money in principle, though there are requirements you’ll need to meet to receive final approval.

Pre-approval can be helpful if you’re planning to use a personal loan to borrow for a big purchase. It gives you a clear spending budget and allows you to shop confidently, knowing you meet the lender’s basic eligibility criteria. In many cases, you’ll also get an estimated interest rate and repayment amounts.

When is pre-approval offered for a loan?

Not all banks and finance companies offer pre-approval. For those that do, it’s an initial step in their lending process. If you’re pre-approved for a personal loan and decide to continue with a full application, the lender will send a request to view your credit report, which will be recorded as a hard enquiry.

It’s pretty common to receive unsolicited pre-approvals from a financial institution you bank with or have borrowed from previously. Banks and finance companies usually collect a lot of customer data, allowing them to offer pre-approved personal loans and other credit products to people who meet their basic lending criteria.

While every lender has its own eligibility criteria, most require borrowers to:

Be at least 18 years old.
Have Australian citizenship or permanent residency, or hold an acceptable visa.
Be currently employed.
Have a regular source of income that meets minimum income requirements.
Have a good credit rating.

If you’re initiating a pre-approval instead, it’s a good idea to compare a few options from lenders who offer conditionally approved personal loans before applying, so you can choose one that’s right for your budget and needs.

Types of loan pre-approval

Below are common pre-approvals and what you should know about them if they apply to your situation.

Conditionally approved personal loans for existing customers

As mentioned, banks and finance companies often encourage existing customers to take out new loans by sending pre-approved personal loans and other product recommendations. These might be communicated through emails and posts, or they might appear as notifications on your online banking account.

If you receive a promotional offer and would like to act on it, bear in mind the offer is based on what the lender knows about you, and their information could be out of date. Let’s say you recently changed your job or reduced your work hours, and you’re now on a lower salary. In this case, the pre-approval might not be a reliable indicator of the amount you can borrow, your interest rate or even your chances of qualifying for the loan.

Self-sought pre-approval

This type of pre-approval is initiated by borrowers, often for vehicle purchases.

Pre-approved car loans allow applicants to check the loan amount and terms they could potentially get before they start car shopping.

You can arrange a pre-approval by submitting an application form. If the lender agrees in principle to lend to you based on your eligibility, you’ll typically have between three to six months to buy your vehicle.

It’s essential to understand the terms and conditions of the pre-approval as you may have to meet specific requirements to secure the loan. For example, you may have to buy a vehicle of a particular value or condition.

Funds may be sent to the car dealership directly to ensure you can’t use them for anything else.

Bad credit pre-approval

For borrowers with poor credit, arranging pre-approvals rather than making formal credit applications can be a smart move.

Instead of risking further damage by having multiple hard enquiries recorded on your credit report, conditional approvals allow you to determine your chances of qualifying for the loan you want and check whether you can afford the lender’s estimated interest rate and repayments.

» MORE: What is home loan pre-approval?

Loan pre-approval process

Each lender will have a different process — some will require a completed application form with few supporting documents, while others will ask for evidence of your identity, income, employment, assets and liabilities and more.

Sometimes, the speed at which you’re pre-approved can indicate whether it was automatically generated or manually assessed. Although you can get system-generated, pre-approved personal loans quickly, they may not be reliable. They could also have a lot more conditions attached to them.

How to get pre-approved for a loan

Here are the steps you can take to arrange a conditionally approved personal loan:

Calculate the amount you can borrow based on how much you can afford to repay — online repayment calculators are often helpful for this.
Compare pre-approved personal loan options from different lenders. Look for features like interest rates, fees, maximum and minimum loan amounts and loan terms.
Fill out the pre-approval application form for your preferred lender and provide supporting documents as required.
Submit your application.
Receive your quote for the loan amount and terms.

Yes. Perhaps the pre-approval was generated automatically without involvement from the lender’s credit assessment team, or your financial situation has changed since it was granted. Whatever the reason, the lender isn’t obliged to provide finance even if your loan was pre-approved.