What does a pre-approved loan mean

What is credit pre-approval

Credit pre-approval is a notification to a potential borrower that the application has been received by the lender and the client meets the bank's requirements. This means the credit institution is ready to further consider the candidate.

You can receive a notification about a pre-approved application in the following cases:

• when the client applied via online services (for example, through financial marketplaces);
• the client applied directly to the credit institution itself;
• the borrower is subscribed to the bank's or MFI's newsletter.

Note.

The notification may arrive as an SMS message, an email newsletter, or a voice message.

What a borrower should do after an application is pre-approved

Pre-approval of a loan application means that the client can visit the bank for a final decision. Therefore, to get a final positive response, it is best to prepare for the meeting with the credit specialist:

• choose an office dress code (do not come to the bank in athletic or casual clothing);
• prepare a full package of documents required to conclude a loan agreement (certificate of income, bank statements, property documents if necessary).

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How banks check a borrower's solvency

There are several methods for checking client solvency: visual, scoring, or manual. For this reason, one bank may refuse a loan to a borrower, while another bank, conversely, issues a positive decision on the application.

1. The first stage of client verification is visual. The credit specialist pays attention to such factors as: the borrower's appearance, attitude toward staff, and authenticity of documents.
2. The second stage is scoring assessment. Each bank develops its own borrower evaluation program based on statistical data from previous loans. The essence of scoring assessment is that the system gives points to each item on the application, which are then added up into a total score, allowing the bank to make a decision on the application.
3. The third stage is manual verification. This includes calling the client and contact persons, calling their workplace, and checking social media profiles.

Can a bank deny a loan if it was pre-approved

Yes, the bank can refuse a loan to a borrower even if it previously sent a pre-approval decision. The reasons for this may include:

1. Incomplete picture of the client's solvency. When filling out an application, potential borrowers provide only a small part of the information: passport details, employer information, and family composition. This is not enough to draw a conclusion about their solvency. Therefore, after pre-approval, the lender also checks the client's income, length of service at their current job, credit history cleanliness, and debt load.
2. Discrepancy in the provided information. When filling out an application, potential borrowers often state an income higher than their actual earnings in the hope of getting approval.

In what cases will a bank refuse to issue a loan even after pre-approval

You should keep in mind that preliminary approval of an application does not guarantee loan issuance, but only means that the bank is ready to begin a more detailed check of the potential borrower. In other words, even if you see the message "Loan pre-approved", it does not mean at all that you will definitely receive the loan.

The bank has the right to refuse you a loan if you do not meet certain criteria. For example, your debt load may not allow you to comfortably pay off another loan. Consequently, there is a high probability that you will default on the lender.

Alternatively, the reason for rejection may be a lack of official income. Banks do not verify this information for preliminary approval, but they require it to make a final decision on the application.

In addition, loan approval or rejection can be influenced by:

1. The borrower's appearance. If it does not match the previously provided information, the bank may refuse to issue the loan.
2. Condition. If the client arrives in a state of alcohol or drug intoxication, the lender is guaranteed to refuse the loan.
3. Credit history. If it contains significant delays on monthly payments or even court proceedings with other credit organizations, the application will be rejected.
4. Attitude towards bank employees. If the client makes demands from the outset or shows disrespect, the loan will most likely be denied.

How to protect yourself from fraudsters

Sometimes fraudsters operate under the guise of a bank. They pose as credit specialists and inform borrowers that they have been pre-approved for a loan. However, to receive it, you need to pay a bank fee or loan insurance. Despite the fact that this is a clear sign that a person is not actually communicating with a credit organization, several thousand Russians fall into the trap of fraudsters every year.

The sole way to protect yourself in such a situation is to hang up the phone as soon as you hear about the need to pay for bank services prior to getting a loan.