1. Cancellation Fees or Penalties

• Administrative Costs: Lenders often incur administrative costs when processing a loan application, including credit checks, paperwork, and other processing fees. If the borrower cancels after approval, they may be charged for these non-refundable costs.
• Cancellation Fees: Some lenders impose specific cancellation fees for processing a loan and then canceling it, even after approval. These fees can vary depending on the lender and the terms of the loan agreement.

2. Impact on Credit Score

• Credit Report: If the loan has already been approved and the borrower decides to cancel it, it might still appear in their credit report, potentially lowering their credit score. Even though the loan may not be disbursed, the approval and cancellation could be seen as an indication of financial instability or indecision, which could hurt future borrowing opportunities.
• Credit Inquiries: The process of loan approval involves hard inquiries on the borrower's credit report. Multiple cancellations of loan approvals may result in too many inquiries, which could negatively affect the borrower’s credit score.

3. Negative Impact on Future Loan Applications

• Perceived Risk: Lenders may view a borrower who repeatedly cancels loans after approval as a higher risk, which could lead to future loan applications being denied or offered with less favorable terms (e.g., higher interest rates or stricter conditions).
• Increased Scrutiny: Borrowers who cancel approved loans may face increased scrutiny in future loan applications. Lenders might be concerned that the borrower is unreliable or not fully committed to the terms of the loan.

4. Loss of Loan Benefits

• Loss of Lock-In Rates or Offers: In some cases, loan approvals come with special rates or offers that are only available for a limited time. Canceling the loan might cause the borrower to lose these favorable terms if they decide to reapply for a loan later.
• Missed Opportunities: By canceling a loan after approval, borrowers might miss out on opportunities that would have helped their financial situation, such as consolidating debt, financing a major purchase, or accessing funds for emergencies.

5. Legal or Contractual Consequences

• Contract Terms: Depending on the loan agreement, there could be clauses that impose penalties for canceling a loan after approval. In some cases, the borrower may be legally obligated to pay a penalty or forfeit certain fees for canceling after the approval stage.
• Breach of Agreement: If the borrower cancels the loan after they have signed the loan agreement, this could be considered a breach of contract, which may result in legal consequences or further penalties.

In conclusion, canceling a loan after it has been approved can lead to financial costs, potential damage to credit scores, and missed opportunities. Borrowers should carefully review the loan agreement and understand the potential penalties before deciding to cancel an approved loan.

6. Negative Impact on Credit Score

• Credit Report Impact: If the loan is canceled after approval, it may still show up on the borrower’s credit report. This can signal to other lenders that the borrower is not reliable or committed to completing financial agreements. Even though the loan wasn’t disbursed, this negative mark could lower the borrower’s credit score.
• Multiple Cancellations: If the borrower frequently cancels approved loans, it could have a cumulative effect on their credit report, making future borrowing more difficult and potentially resulting in higher interest rates or denied applications.

In Summary:

Cancelling a loan after it has been approved and incurring a 30% penalty on the loan amount is a serious financial decision that can result in a significant financial burden. The borrower faces high penalties, damage to their credit score, potential legal consequences, and long-term effects on their ability to borrow in the future. It is crucial for borrowers to carefully consider their decision before applying for a loan and to weigh the potential costs of cancellation carefully.