Withdrawing a loan application is the formal process where a borrower cancels their loan request after it has been submitted but prior to the loan being funded. This allows you to stop the lending process before any funds are disbursed or final agreements signed. Borrowers commonly withdraw loan applications when they find better loan terms elsewhere, change their purchase plans, or experience shifts in financial circumstances.
Reasons to Withdraw a Loan Application
Several situations may prompt a borrower to withdraw their loan application:
- Better Loan Offers: You received a loan with more favorable interest rates, fees, or repayment terms from another lender.
- Changed Plans: You may decide not to proceed with a purchase, such as a home or vehicle.
- Financial Changes: Unexpected changes like job loss or added expenses might reduce your loan repayment capacity.
- Unsatisfactory Lender Terms: The loan approval could be for less than anticipated, or with high fees.
- Slow Processing: Lengthy lender procedures that don’t meet your timeline may cause you to opt for faster alternatives.
How to Properly Withdraw Your Loan Application
To ensure clarity and avoid complications, follow these steps:
- Act Promptly: Once you decide to withdraw, notify the lender to minimize unnecessary fees or service charges.
- Notify the Lender: Contact your loan officer or lender’s customer service by phone to state your intent.
- Confirm in Writing: Send a formal email or certified letter including your full name, application number, and a clear withdrawal statement (e.g., “I hereby withdraw my loan application #12345 effective immediately.”). This official record protects your rights.
- Request Confirmation: Ask the lender to provide written confirmation that your loan application is officially withdrawn and closed.
Impact on Your Credit Score
Withdrawing your loan application itself does not directly harm your credit score because lendings do not report withdrawals to the credit reporting agencies. However, when you initially applied, the lender likely performed a hard credit inquiry, which can cause a minor, temporary dip in your credit score. This hard inquiry remains on your credit report for up to two years but usually only impacts your score for a few months.
If you’re shopping for loans (such as mortgages or auto loans), multiple hard inquiries within a short time frame (typically 14-45 days) are often treated as one by credit scoring models, minimizing score impact.
Lender-Closed vs. Borrower Withdrawal
Sometimes lenders mark applications as “withdrawn” when borrowers fail to provide requested documentation, effectively closing the application for incompleteness. This is different from borrower-initiated withdrawals and loan denials. Understanding these distinctions is important:
| Status | Initiated By | Reason for Status |
|---|---|---|
| Withdrawal | Borrower | Decides to cancel application |
| Closed/Withdrawn | Lender | Borrower fails to provide required info |
| Denial | Lender | Application declined after review |
| Approved, Not Accepted | Borrower | Loan approved but borrower declines to proceed |
Additional Tips
- Application fees may not be refundable, especially if processing or third-party services are already complete.
- You cannot be forced to keep a loan application; withdrawal is your right until loan closing.
- Cancelling an application differs from rescinding a loan after closing, which may be allowed only under specific federal laws for certain loan types.
For more information on related loan processes, see our articles on Uniform Residential Loan Application and Mortgage Pre-approval.
References
- Consumer Financial Protection Bureau. What Is Regulation B and What Does It Do?
- Consumer Financial Protection Bureau. What is a Hard Inquiry?
- NerdWallet. Can You Cancel a Personal Loan After Applying?