Can You Be Denied a Loan After Pre-Approval?

Your loan can be denied even after you’ve been pre-approved. While this may seem unfair, it’s understandable, because the loan must undergo the underwriting process before it’s fully approved and confirmed.

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This process involves thorough scrutiny of your current financial situation by the lender to determine if you’re eligible for a loan.

So, if you’re experiencing financial problems, your lender might deny your loan application, even after receiving your pre-approval letter. If these problems are related to a drop in your credit score, a reliable Miami, Florida credit repair company like The Phenix Group can help.

What Does ‘Pre-Approval’ Mean?

In credit finance, pre-approval refers to the preliminary evaluation and approval of a potential debtor by the creditor to determine their eligibility for a loan. A pre-approval letter is generated by the lender in collaboration with a credit bureau, which conducts the pre-approval evaluation through investigations. A pre-approval analysis helps the lender to estimate the appropriate interest rate offer for you as well as the maximum principal amount.

This scrutiny is important because it reveals whether you have had a debt collection report on your credit score. This report can have a major effect on your credit score, which may prevent lenders from giving you loans, which is why you have to work harder to have any collection reports removed from your credit score.

Reasons Your Loan May Be Denied After Pre-approval

Increase In Debt

If you add more debt to your credit profile after receiving a pre-approval letter, you increase the risk of having your loan application denied because of a higher debt-to-income (DTI) ratio. DTI refers to the amount of valid debt you have compared to your total income. Creditors prefer to lend money to borrowers with low DTI because they’re more likely to repay their loans promptly.

However, if your DTI is too high or close to the lending limit, your loan is likely to be denied after pre-approval, especially if you add more debt after being pre-approved. So, once you receive your pre-approval letter, avoid additional debts until your loan application has been accepted.

Change of Employment

Most lenders consider a sudden change of employment by a borrower as a significant red flag because it could mean a drop in income. For instance, if you change from full-time employment to an hourly job after getting the pre-approval letter, your lender may deny your loan application.

The chances of having your loan application denied after pre-approval are even higher if you change from a salaried job to a commission-based one because your paychecks will be unpredictable. The same is likely to happen if you change from a high-paying position to a lower-paying one.

Adjusted Loan Requirements or Guidelines

Most lenders keep updating their loan requirements and guidelines, which could affect your eligibility after pre-approval. If these changes are made between when you receive your pre-approval letter and when the underwriter decides whether your application should be approved, your lender may decline your application if you don’t meet the new requirements.  

Find a reputable credit repair company like The Phenix Group to help you get the effects of collections out of your credit score as quickly as possible–we know the most effective steps to take to get a creditor to remove a collection from your credit score immediately.

Your credit repair company should also help you be able to handle collections agencies by informing you about your rights and the available legal actions that you can take against the agency when they violate the Fair Debt Collection Practices Act (FDCPA). Wondering who Dynamic Recovery Solutions collects for? The experts at The Phenix Group can answer this and any other debt-related concerns you may have.

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