If I Get Approved for a Personal Loan, Do I Need to Accept It?

Quick Answer

If you get approved for a personal loan, you do not need to accept it. However, because applying for personal loans has an impact on your credit, it’s best to shop around and compare lender preapprovals to avoid applying for a personal loan you won’t end up accepting.

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If you apply for a personal loan and get approved, you're not obligated to accept the offer. This is important to know because not all personal lenders allow you to get preapproved, so you may need to apply just to get an idea of what terms you qualify for.

Before you apply for a personal loan, however, it's important to know how the process works, how it can affect your credit and what to consider before you start shopping around.

How to Apply for a Personal Loan

Getting a personal loan is a relatively easy process. You can apply for one with a bank, credit union or an online lender. Here's what the process typically looks like:

1. Get preapproved. Look for a lender who allows you to get preapproved before you apply. During preapproval, the lender will ask for information such as your name and Social Security number and run a soft credit check, which doesn't impact your credit score.

2. Compare multiple lenders. Shop around and review preapproval offers to select the lender with the most favorable terms you can qualify for. Or, try Experian CreditMatch™ to easily review personal loans matched to your credit profile in one convenient hub.

3. Complete an application. Once you settle on an offer that you have good preapproval odds for and that has terms and rates you find favorable, follow your lender's instructions to submit a formal application. You'll typically need to share more information, including your:

  • Social Security number
  • Address
  • Proof of income and employment
  • Government-issued photo ID
  • Bank information
  • Purpose for the loan
  • How much you want to borrow

4. Wait for a decision. Once you submit the application, the lender will review the information you've shared and check your credit reports and score. You may find out your results instantly. Or, you may have to wait for your lender to contact you with requests for additional information or with your results.

Can You Apply for a Loan and Not Accept It?

Yes. If a lender has approved your application for a personal loan, you're not required to take it. This is an important distinction from credit cards, where your account is opened immediately upon approval.

That said, there are still a couple of things to consider before you start submitting applications all over the place:

  • Some lenders charge application fees. While most lenders won't charge you this fee, some personal lenders may charge you a nonrefundable application fee simply for submitting an application. Check to see if the lender does before you apply. If they do, it may be best to avoid applying unless you're confident that's the lender you're going to choose.
  • Frequent applications hurt your credit. Almost every time you submit an official application for credit, it will trigger a hard inquiry on your credit report. Unlike a soft credit check, a hard credit check usually knocks a few points off your credit score with each inquiry. And the more you apply, the larger the negative effect of hard inquiries on your credit. That can make it more difficult to get approved, and each hard inquiry stays on your credit report for two years.

What to Consider Before Applying for a Personal Loan

Personal loans are a big financial commitment and can often take years to repay, so it's important to understand both the benefits and the drawbacks before you apply for one.

Benefits of Getting a Personal Loan

There are a few situations where a personal loan may be a better option than other available credit options, and here's why:

  • They can help you eliminate credit card debt. If you can qualify for a personal loan with a lower interest rate than what you're paying on your credit cards, the loan can help you consolidate your credit card debt and save money as you pay it off. Moving your credit card debt over to a personal loan will also reduce your credit utilization rate, which can help improve your credit score.
  • They're often unsecured. Many personal loans don't require collateral to get approved. If you're doing home improvements, for instance, a home equity loan or line of credit may be cheaper than a personal loan, but you risk losing your home if you can't repay the debt.
  • They can fund quickly. If you need money fast to cover emergency expenses, some personal lenders can provide funds as early as the next day, or at least within the week.

Downsides of Getting a Personal Loan

While there are some clear advantages to using a personal loan in some situations, it's not always the best option available. Here are some reasons why:

  • They can be expensive. The average rate on a two-year personal loan is 11.21%, but borrowers who need longer repayment terms or who have low credit can end up paying as much as 36%. In addition to a high interest rate, you may also be on the hook for an origination fee, which can be as high as 8% among top lenders.
  • They can have short repayment terms. Depending on the lender you choose, you may only have a few years to repay the debt you've incurred. If you're looking to fund a large purchase, such as a new car or a home improvement project, a short repayment term could make the monthly payments unaffordable.
  • They may be unnecessary. With most personal loans, you can use your funds for just about anything. But just because you can take out a personal loan for a vacation, college costs or a big-ticket item you don't need, it doesn't mean you should. In situations like these, it may be a better financial decision to save up for the purchase or use a different type of loan, such as student loans, that may be a better fit.

How a Personal Loan Can Affect Your Credit

Personal loans can affect your credit in multiple different ways, both good and bad. While simply applying for a personal loan can lead to a small and temporary dip in your score, mismanaging a personal loan can do serious damage to your credit. On the other hand, responsibly handling a personal loan can help you increase your creditworthiness over time.

As you consider whether a personal loan is right for you, think about how it can impact your credit for better and for worse. Here's a breakdown of the specific impacts a personal loan can have on your credit.

How a Personal Loan Can Hurt Your Credit

Applying for a personal loan can result in a hard inquiry on your credit report, which can temporarily drop your credit score by a few points. In addition, taking on the new monthly payment will increase your debt-to-income ratio, which can affect your chances of getting approved for credit in the future.

Last, if you miss payments or default on a personal loan, there will be a significant negative impact on your credit score.

How a Personal Loan Can Help Your Credit

When managed well, a personal loan can also potentially have positive effects on your credit. For starters, taking out a loan and making payments on time and in full each month can establish a positive payment history, which is the most significant factor in your credit score.

Also, a personal loan can improve your credit mix—the different types of credit you have—and reduce your credit utilization rate if you're using it to pay down credit card debt.

Check Your Credit Score Before You Apply

Having a great credit score can improve your chances of getting approved for a personal loan with favorable terms. If you're not sure where your credit stands, check your credit score from Experian for free to see. If it's considered good or excellent―typically a FICO® Score of 670 or higher―you'll have better approval odds.

If it's less, though, or if you want to maximize your chances of scoring a low interest rate, consider working on improving your credit before you apply for a personal loan.

Also, to help simplify the shopping around part of the process, consider using a tool like Experian CreditMatch™, which can provide quotes from multiple lenders in one place based on your credit score.