If I Apply For A Loan, Do I Have To Accept It?

Sometimes, you might find yourself in need of a financial boost. That’s where taking out a loan comes into play. You can use loans to consolidate other debts, cover medical bills or pay for money-related emergencies. 

Generally speaking, it’s wise to compare rates when you are considering the idea of taking out a loan. But if you apply for several loans and you are offered loan terms by multiple lenders, what happens then? Well, you might find yourself asking, “If I apply for a loan, do I have to accept it?”

The good news is fortunately that no, you do not have to accept a loan just because you applied for it and the lender approved you for the loan. Let’s take a closer look at the entire process. 

What does a loan approval mean?

After you’ve applied for a loan, the lender can either approve or deny your application. If you get a loan offer, that means the lender has agreed to lend you money under specific conditions, which generally include a particular interest rate, known as the APR, and the amount of time you have to repay the loan, which is the loan term. 

At this point, you will have two choices. You can either accept the loan or deny the offer. If you have accepted the loan, you’ll receive the funding you need after agreeing to the terms of the loan. Alternatively, you can deny the loan, at which point the loan process comes to an end. 

What happens if you decline a loan?

Just because you’ve been accepted for a loan doesn’t mean you have to follow through and accept the loan yourself. Being accepted does not mean that you have to accept the money. 

Instead, it simply means the lender has accepted your application and is willing to loan you the funds you applied for in the form of a loan. Fortunately, choosing not to accept a loan that you are approved for does not yield any consequences on your end. 

That said, you might not be refunded for any loan processing fees you had to pay during the loan application process. Additionally, your credit score might decrease by a few points as a result of the lender conducting a hard inquiry prior to approving you. 

Does rejecting a loan affect your credit score?

Rejecting a loan cannot directly cause any damage to your credit score or your credit report. While any hard inquiries generated in the process may drop your score ever so slightly, you should be able to recover quickly. 

What to consider before accepting a loan

Before you borrow any money, it’s important that you know what you’re getting into. Failing to read the fine print can result in you taking on debts that you cannot repay, agreeing to terms that have a lot of fees or choosing a loan with a high interest rate. 

Costs, fees and interest rates

Every lender charges fees and interest rates based on the applicant’s creditworthiness as well as the lender’s own policies. Before you accept a loan, consider the costs of doing so. Factors such as late fees and prepayment fees can pile up quickly, so you will want to keep this in mind. 

You should also keep an eye on the lender’s interest rates. Lenders often charge one of two types of interest rates, those being fixed interest rates and adjustable interest rates. Fixed-rate loans offer the same interest rate for the life of the loan, which keeps costs and payments consistent over time. 

Adjustable-rate loans carry interest rates that fluctuate based on market conditions. Some adjustable-rate loans offer low introductory rates to attract consumers, but if the APR increases later on, your monthly payment could skyrocket to a shockingly high rate. 

Repayment terms

After you’ve applied for a loan, you will find out about possible repayment terms. Your loan term indicates how long you have before you must repay your loan in full, but repayment terms also spell out the size of your loan payments and the amount of interest paid. 

In most cases, longer loan terms come with smaller monthly payments. However, you’ll pay interest on your loan for a longer period of time, which can result in higher costs overall. 

On the other hand, shorter loan terms come with larger monthly payments, but you will likely pay less in interest over time. This usually keeps the total amount that you pay lower in the long run. 

Funding amounts 

Once you’ve got your loan offer, you may find that you have been approved for more money than you need. While extra money can be tempting, it’s not always wise to accept more than you need. After all, you have to repay every dime that you borrow and then some, so keep this in mind as you consider how much money to accept. 

The importance of accepting a loan 

Taking out even the smallest of loans can greatly impact your financial life. This is not necessarily a good thing. 

If you absolutely need the loan to meet your goals or pay bills on time, loans can be beneficial tools that can help you in certain situations. But if you would be able to meet your goals by dipping into your savings or spending more time saving up, then accepting a loan piles on debt and risks your credit score. 

Can I cancel a personal loan after signing?

You can cancel a loan at any point prior to signing for the loan. However, once you’ve accepted the loan, you’ve officially entered into a binding contract. 

At that point, whether or not you can cancel the loan will depend on the lender’s policies. Similarly, lenders may offer a three-day grace period that gives you a few days to cancel the loan. 

You might also be able to change your mind if the money has not been deposited into your bank account yet. If you want to exercise your contractual right to cancel the loan, you will need to provide written notice to the lender as soon as possible. 

If the lender does not honor any cancellation clauses, then your alternative is to repay the loan immediately. However, this option can still come with additional costs. For starters, lenders often take the origination fee out of the total loan amount.

This means that if your origination fee is $100 on a $1,000 loan, you will only receive $900 instead of the full $1,000. However, you are still responsible for $1,000 despite only receiving $900. You might also have to pay a prepayment penalty for paying off your loan early. 

How to decline a loan offer or cancel a loan application

If you want to cancel a loan application before you have the chance of being approved, simply reach out to the lender and explain that you don’t need the loan after all. Once a lender has approved your loan application, they will reach out to you with the terms of the loan. 

Most lenders will give you a few days to think it over and consider the loan terms before you accept them. This can provide you with the opportunity to compare any other loan offers you have received before committing to one loan in particular.  

If you ultimately choose to decline a loan offer, politely explain to the lender that their offer is not a good fit for you after all. If you are choosing to deny the loan offer altogether, you can stop communicating with the lender and part ways from there. 

However, if you’re still shopping around for the best rates on a loan, you can consider showing the lender your other loan offers. From there, you can ask if the lender is willing to beat the interest rate or terms from other lenders. 

So, if I apply for a loan, do I have to accept it? 

As long as you haven’t signed for anything yet, you don’t have to accept all of the loan offers you get. After all, the process of rate shopping is designed to help you find the best loan for your needs. But if you decide that you no longer want a loan that you have already signed for, it might be more difficult to change your mind, so make sure you are certain about loans before you sign for them. 

FAQ