If I Apply For a Personal Loan Do I Have to Accept It?

Regardless of the reason why you applied for a personal loan, you might be wondering whether you have to accept a personal loan after applying for it. We will answer this question in much detail below.

If I Apply For a Personal Loan Do I Have to Accept It?

If you apply for a personal loan, you are not required to accept it. This is so because if you’re approved for your personal loan, the lender will not disburse the funds to you until you sign a document accepting the loan. So, even if approved, you’re not required to accept the funds. For example, if the lender qualifies you for a loan and the interest rate is too high or you did not like any of the loan terms, you are not required to accept it. You can simply decline to sign the loan agreement. You can decline to sign the agreement even if you simply changed your mind as there is typically nothing obligating you to accept the loan.

Having said that, if you believe that you are not going to accept a personal loan, you should avoid applying for it in the first place. This is so because whenever you apply for a personal loan or any type of loan, the lender will have to check your credit report. Whenever a lender checks your credit report, the lender will place a hard inquiry on your credit report, slightly lowering your credit score. Although a single hard inquiry will not lower your credit score by much, applying for too many personal loans within a short period of time will significantly lower your credit score.

If you want to avoid having a hard inquiry placed on your credit report, you should consider contacting the lender and getting pre-qualified for the loan. Prequalification will show you the likelihood that you’ll be approved for the loan before you even apply for it, saving you from the trouble of having a hard inquiry added to your credit report. If you do not like the terms, you can avoid applying for the loan in the first place and avoid having a hard inquiry added to your credit report.

That said, not all lenders will allow you to be pre-approved for a loan. Some will require you to apply for the loan to know what terms you qualify for. That said, before you apply for a personal loan, you should do some research to get an idea about the kind of terms that you should expect from the lender.

What Happens If I Do Not Accept a Personal Loan?

If you apply for a personal loan and you’re approved for the loan, you are not required to accept it. This is so because even after you’re approved for the loan, your lender will not disburse the funds to you until you sign an agreement. If you do not accept a personal loan and you paid an application fee for the loan, that fee is typically nonrefundable. Overall, if you choose not to accept a personal loan after you’re approved, you should immediately contact your lender and tell them that you no longer need the loan. Check the agreement or loan application to determine whether you owe any fees for the loan you applied for.

How Can You Apply For a Personal Loan?

Today, it’s easier than ever to apply for a personal loan. This applies whether you’re applying for a loan through your bank, a credit union, or other online providers of personal loans. Some personal lenders will be willing to work with you to get you pre-approved for the loan, which helps you avoid adding a hard inquiry to your credit report. That said, not all lenders offer a pre-approval process.

If your lender offers a pre-approval process, you should expect to provide some basic information about yourself. The information you’ll need to provide includes the following:

  • Name
  • Address
  • Full or partial Social Security Number
  • Employment status
  • Income

After you’ve provided the lender with this basic information, the lender will conduct a soft credit check to review your credit report. At this point, the lender will have a better idea of your creditworthiness, and will then proceed to put together a quote about the personal loan amount you’re pre-approved for, as well as the terms and interest rate that you qualify for. Since this is a soft check, known as a soft pull, it will not lower your credit score as would a hard inquiry had you applied for the loan.

If you like the terms of the loan and want to go ahead and you want to get it, you will have to submit a full loan application that will result in a hard inquiry. Although a hard inquiry will appear on your credit report, a single hard inquiry will only cause a slight drop in your credit score.

Furthermore, when applying for a personal loan, you will usually have to submit the following information:

  • Name
  • Address
  • Full Social Security Number
  • Employment status
  • Proof of income
  • Current banking information
  • Government-issued photo identification
  • The purpose for taking out the personal loan
  • The amount you want to borrow

After you submit the application, the lender will review the information you’ve submitted, as well as request and review a copy of your credit report and credit scores. If the lenders find that you meet their criteria, they will approve you for the loan and submit a decision to you via email, mail, or telephone call.

When the lender contacts you, they will typically provide you with the terms of the loan that you were approved for. The better your credit score and financial situation, the better your personal loan terms will be.

At this point, you will be given an opportunity to either accept or reject the personal loan. If the terms seem reasonable for you, you can accept the loan. If they do not, you can reject it. Before accepting or rejecting it, you should shop around and se what other offers you may be eligible for. Just remember, try to get pre-approved and do not apply for too many personal loans within a short period of time as this will hurt your credit score.

Are you Required to Take the Loan You Were Approved For?

Even if you were approved for a personal loan, you are not required to take the loan. This is so because once you’ve been approved, the lender will present you with the terms of the loan. If for any reason you do not like the terms of the personal loan, you are not required to take the loan, and can simply choose not to agree to it. That said, you should only apply for a loan that you know you’ll want to take if approved. Because usually, if you’re approved for a loan, this means that the lender has already checked your credit report and placed a hard inquiry on your credit file, slightly lowering your credit score.

Additionally, you should carefully consider applying for a personal loan because many lenders will charge you a non-refundable application fee. So, to avoid paying unnecessary application fees, only apply for a loan that you’re reasonably sure you want to take and one that you’re likely to be approved for.

Also, you should be aware of loan origination fees. Although most major lenders will not charge you a loan origination fee, some lenders will charge you this fee. A loan origination fee is a fee that’s charged by a lender to compensate them for the expenses related to providing you a loan. Typically, lenders that charge this fee will deduct it from your personal loan. So, if the lender you want to borrow from charges this fee and you do not want to pay it, you should look for another lender that does not impose this fee.

Should You Get a Personal Loan?

We will now consider some reasons that would make it good for you to obtain a personal loan vs some reasons why you should not obtain a personal loan.

Paying Down Debt (Pro)

Getting a personal loan to pay down some of your high-interest credit card debt may be a great idea as personal loans tend to have significantly lower interest rates than credit card debt. So, if you qualify for a personal loan, it may be an excellent idea to obtain one to pay down your debts. This is so because personal loans can significantly reduce the amount of money that you owe. Furthermore, using a personal loan to pay down your credit card debt can increase your credit score because it reduces your credit utilization rate, which can boost your credit score.

Unsecured (Pro)

Personal loans are often unsecured, meaning you are not required to deposit any type of collateral with the lender to obtain them, making them fairly easy for the average person to obtain. In the event that you are not capable of repaying the loan, you will not lose any collateral because none was deposited. Although, home equity loans are cheaper than personal loans because they often come with a lower interest rate, if you do not pay a home equity loan, the bank may foreclose on your home as repayment of the unpaid home equity loan.

Quick (Pro)

Obtaining a personal loan is fairly quick, often taking no longer than 7 business days to get a personal loan. So, if you have an emergency and you need quick cash, a personal loan is a great way to get quick access to funds.

Short Repayment Term (Con)

Typically, personal loans come with a fixed and short repayment terms, with most ranging from 1 to 5 years. So, you should keep this in mind as you will be liable for making a fixed payment every month. So, before you apply for a personal loan, keep in mind that you will have to keep enough funds to afford the monthly payment for the term of your loan.

Expensive (Con)

Usually, with a personal loan, you will have to make pre-determined loan payments within a short period of time to pay back the money that you’re borrowing. For some people, this may result in a large payment that they are not capable of making on a monthly basis. Although credit cards charge higher interest, you have significant leeway when it comes to paying your down debt so long as you’re making the minimum payment on your credit card.

Although personal loans are significantly cheaper than borrowing money on your credit card, some lenders charge a high interest rate. Some personal loans are cheap, coming in at interest rate of 5% to 7%, however, other personal loans are expensive, often exceeding 10%. So, you should consider the amount of interest when choosing to take a personal loan.

Does a Personal Loan Affect Your Credit Score?

Yes, taking out a personal loan will affect your credit score. However, the effect it has on your credit score will depend on a few things. First off, when you apply for a personal loan, your lender will place a hard inquiry on your credit report when they access it to review your eligibility for the loan. That said, a single hard inquiry will only lower your credit score by a few points.

Furthermore, a personal loan increases the amount of debt that you owe, which can lower your credit score, especially if you’re not using the funds to pay down other debts, such as credit card debt.

Moreover, since personal loan account status is reported to the credit reporting bureaus, if you do not make your payments on time, late payments will be reported to the credit reporting bureaus, significantly lowering your credit score. However, to avoid this, just make all of your payments on time and this will improve your credit score in the long run.

That said, a personal loan can improve your credit score because it creates a more diverse credit mix, which is a factor that has an effect on your credit score.

Frequently Asked Questions (FAQs)

1. Can I cancel a personal loan after approval?

Yes, in most circumstances, you can cancel your personal loan so long as you did not sign an agreement accepting it and the funds have not been dispersed to you. If you signed the agreement and the funds have been dispersed to you, you should immediately contact your lender and ask them about your options for cancelling the personal loan.

2. Is it worth it to take out a personal loan?

In some circumstances, it may be worth it for some individuals to take out a personal loan. The answer to this question depends on your specific circumstances. We discussed the advantages and disadvantages of taking out a personal loan in the sections above.

3. Can I use a personal loan for anything?

Once personal loan funds have been dispersed to you, you can use them as you see fit unless otherwise restricted by your lender.

4. How soon do you have to start paying back personal loans?

Typically, you will need to begin paying back personal loans within 30 days. That said, you should check the terms of your agreement and look for any communications from your lender as to when your payments are due.