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What Does Conditionally Approved Mean for a Personal Loan?

What Does Conditionally Approved Mean for a Personal Loan?
Lauren Ward
Lauren WardUpdated July 28, 2022
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
Conditional approval for a personal loan is the first step toward getting a loan approved. It means your application has been received and reviewed by the lender, and that if certain financial conditions are met, you may be approved. While nothing is guaranteed, it’s a positive sign that things are moving in your direction.Read on to find out what it means to be conditionally approved, and reasons why your loan can be denied after a conditionally approved status. 

Pre-approval vs Conditionally Approved

If you’re wondering, what does conditionally approved mean for a personal loan, it helps to know what applying for a loan entails. Loans for personal use require filling out an application with financial information such as your income and credit history. Being conditionally approved means your application and information have gone through an initial screening process and the lender has not found any reason at this stage to deny your loan request. It doesn’t mean you will receive the loan, but it suggests you may. Pre-approval, in comparison, is not as in-depth a process as conditional approval is. Pre-approval for personal loans is based on information you provide to the lender. The lender quickly does what’s called a soft credit check to see if you’re likely to qualify for a personal loan. However, your information is not substantiated and verified during pre-approval. Borrowers who have been conditionally approved should keep an eye out for communication from their lender. You may hear from the loan officer or an underwriter, the person who works to confirm that the financial information you provided is correct to determine how much of a risk you may pose as a borrower.  They may reach out to request more information.

Reasons for a Conditionally Approved Personal Loan Status

Your personal loan application status moves closer to being conditionally approved and then fully approved with each piece of documentation you provide to the lender. If a lender or underwriter asks for any of the information below, provide it as quickly as possible.    

Employment and Income Verification

A lender for a personal loan needs employment and income verification. This is because you, as a borrower, have to have a strong and reliable stream of income in order to meet your monthly debt obligations. Generally, the more a borrower makes, the less risk they pose to a lender — assuming they don’t have too much debt.   

Pay Stubs

Pay stubs show how much money you’re bringing in per paycheck. While this information can usually be seen via bank statements and other documentation, pay stubs provide a lender with additional substantiation. 

Tax Returns

Tax returns are another way to verify income, which is one of the most important factors for an underwriter. 

Bank Statements

Lenders use bank statements to help determine whether a borrower can afford to take out a loan. By reviewing them, lenders can ascertain how much the applicant is able to save each month, what monthly expenses they have, and whether they have a history of being overdrawn on their account. 

Debt Obligations

Also known as debt-to-income (DTI), your monthly debt obligations show how much of your gross income goes toward paying off debt. If you have too much, you may have trouble getting approved for a loan. Each lender may have a maximum DTI they’ll accept, but generally, they’re looking for a ratio lower than 36%. To determine your DTI, divide your monthly debts by your gross income (the amount you make before taxes are taken out). Debts that influence DTI include:
  • Car loans
  • Medical or dental bills
  • Student loans
  • Child support
  • Health insurance
  • Car insurance
  • Rent or mortgage
  • Personal loan
  • Credit cards

Utility Bills

While utility bills do not count toward your DTI, a chunk of your income goes toward paying them.  That’s why lenders may ask to see what you spend on utility bills each month. 

Credit Score 

A bad credit score can significantly impact your chances of getting a loan. Borrowers with bad credit scores are more likely to miss monthly payments or default on loans. 

Asset Statements

Secured loans require collateral, so the lender needs to verify your assets. In general, these loans are a greater risk for the borrower because you can lose your asset if you don’t make the loan payments. They do come with lower interest rates, however. Unsecured loans pose less risk to the borrower because you’re not using an asset as collateral, but they do have higher interest rates.Recommended: Secured vs. Unsecured Loan: Pros and Cons of Each.   

Denial After Conditional Approval

A personal loan that’s conditionally approved can still be denied. This may be because the borrower wasn’t able to provide all the necessary documentation, or they were unable to meet other loan requirements (for instance, if their DTI is too high). 

Can You Reapply for a Loan After Denial?

You can generally reapply if your loan was denied (check with the loan officer to be sure). Before you reapply, however, find out why your loan application was denied (the lender should share that information with you), and consider addressing those factors to help increase your chances of approval. Also, know this: It is possible to get approved for a loan with another lender. Just because one lender denies your loan application does not mean all lenders will.  

The Takeaway

Conditional approval for a personal loan means a bank has verified most of the applicant’s information, but there are still documents required and conditions that must be met before final loan approval. When you are conditionally approved, you are further along in the process than you are in the pre-approved stage, but it does not guarantee that you’ll get a loan. Make sure to promptly provide the lender with all the documentation they ask for in order to help facilitate the process. If you’re wondering what personal loan rates you might qualify for, Lantern by SoFi can help. Our online comparison tool lets you review multiple loan options from different lenders. 

Frequently Asked Questions

What does a conditionally approved personal loan mean?
Can a personal loan be denied after conditional approval?
Is a conditionally approved personal loan a good thing?
Photo credit: iStock/baona

About the Author

Lauren Ward

Lauren Ward

Lauren Ward is a personal finance expert with nearly a decade of experience writing online content. Her work has appeared on websites such as MSN, Time, and Bankrate. Lauren writes on a variety of personal finance topics for SoFi, including credit and banking.
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