While the initial pre-approved loan offer doesn’t require a hard pull, if you decide to apply for it, then the lender does a hard check on your credit report. 

Pre-approved loans allow borrowers to tide over any unforeseen financial emergencies. These are mostly granted on personal loans. Pre-approvals come in two formats: 

  1. secured 
  2. unsecured

Secured loans are generally home loans, while unsecured loans are personal loans, credit cards, etc. There are varied impacts of pre-approved loans on credit score and every borrower must be aware of these before using a pre-approved loan:

Hard Pulls

Pre-approved loans are often targeted by lenders at existing customers, based on good credit health and credit score. This does not mean that a pre-approved loan does not require the usual loan application and approval process like in other types of loans. 

Loan inquiries made by an applicant may negatively affect his/her credit score, especially if the report is accessed multiple times within a short period. This can result in a hard pull since frequently inquiring on a loan means you are credit hungry and this could be arising from financial stress. This can result in the rejection of the pre-approved loan application, which further reduces the credit score.

Chances of application rejection

Pre-approved loans do not mean that a loan comes with approval by the lender. Such loans are offered to existing customers based on their current income, credit history, etc. In case the pre-approved loan application is rejected by the lender, it can impact the credit score of the applicant negatively.

Changes in Interest Rates and other Loan Terms 

Depending on your current credit score and credit history, the lender may alter the terms and conditions of a pre-approved loan. 

Pre-approval can result in a hard pull especially for applicants who are desperate for some form of finance or credit facility. Therefore, pre-approved loans must be carefully considered before making an application.