Did you get a letter saying you're pre-qualified for a loan
but don't know whether that means you will get a loan or
not? Is being pre-qualified the same as being pre-approved?
And which is better: getting pre-qualified or pre-approved
for an
online loan? It's not unusual to get such questions or be confused
between the terms pre-approval and pre-qualification.
Lenders could mean different things when using specific
financial terminologies to describe their loan application
and approval process. Likewise, some also use pre-approval
and pre-qualification interchangeably, but they essentially
represent two different stages of a loan process.
Here's a basic process flow to give you a fair idea of when
you can apply to get pre-qualified and pre-approved for an
online loan.
4 Steps to Get an Online Loan
When applying for a
personal loan online, there are some essential financial terms that every
borrower should understand to avoid any unpleasant
surprises. So, we'll walk you through the meaning of the
terms pre-approval and pre-qualification, how they differ
from one another, and show you how they can make your loan
experience seamless and accessible.
What Does a Pre-Qualified Loan Mean?
Pre-qualification is a preparatory stage in your loan
process that gives you an estimate of the loan amount you
can expect to receive. Lenders who provide an option to
pre-qualify for a loan require you to fill out an
application to initiate the process. Though the information
needed for pre-qualification may vary from lender to lender,
most lenders only ask for basic details about your financial
situation without affecting your credit. Once you
pre-qualify, you'll be sent a pre-qualification letter from
the lender within one to three days. It's then up to you to
accept or decline the pre-qualified offer.
The pre-qualification option can be helpful, especially when
hunting for a loan that suits your budget and needs. You can
submit your basic financial details to various lenders, get
a pre-qualified amount, and make an informed decision.
Remember, a pre-qualified loan amount should not be confused
with the pre-approved amount or the final loan offer. A
lender will require more information if you decide to get
pre-approval or apply for a loan after being pre-qualified.
The purpose of getting pre-qualified by a lender is to
assess the likelihood of you qualifying for a loan. This
means there are also chances that you might not pre-qualify
for a loan.
What If You Don't Pre-qualify For An Online Loan?
Being turned down for pre-qualification is undoubtedly not
the end of the world. By using a few easy tips to
improve your credit score, you might be able to increase the probability of your
online loan application getting pre-qualified. pre-qualify
We know this could take a while and so here are some steps
that you can take as soon as you get denied for
pre-qualification:
1. Reach Out To The Lender:
There are chances that a lender might not be able to
determine your actual creditworthiness from the basic
financial information you shared. You can talk to the lender
to be sure and provide additional details or find out why
your pre-qualification application was rejected to help you
work on improving your chances of getting approved in the
future.
2. Consider Adding A Co-Signer:
If your lender allows, you could add a
co-signer
with good credit to your loan application. Fortunately,
a cosign loan
can help you qualify for an online loan even with a low
credit score. Since the co-signer has no right to the
borrowed funds but is responsible for making the payments if
you default, choosing a close family member, friend, spouse,
or parent as a co-signer is better.
3. Review Your Credit Report
The inaccurate or incomplete information on your credit
report can negatively impact your credit scores and make it
difficult for you to pre-qualify for a loan. You can check
your credit report for free and submit a dispute if you find
any errors in your credit report. The credit reporting
agency is then responsible for investigating and assisting
you in rectifying the information.
If a lender doesn't pre-qualify your loan, you can always
explore alternative
loan options
for bad credit. Not every lender prefers working only with
people having fair to excellent credit. Since
pre-qualification is quick, you could look for a lender
willing to lend you money based on factors other than your
credit score. After getting the pre-qualification letter,
you may proceed to get pre-approved for the loan.
What Is A Pre-Approved Loan?
The loan pre-approval process is slightly more rigorous than
the pre-qualification one. Lenders perform an extensive
check on your financial background when you apply to get
pre-approved for a loan. A pre-approval helps you determine
whether you're eligible to get a loan or not, your possible
loan amount, and the best available interest rate for you.
You can get all this information only and only if you get
pre-approved. Like pre-qualification, the lender offers a
pre-approval letter to all the borrowers who have proved
their creditworthiness and are just one step away from
getting the actual loan.
It is important to note that some lenders charge an
application fee for pre-approval. If you're not in urgent
need of cash, you can inquire about other
online lending companies
rather than choosing the first lender that offers you
pre-approval. You can find lenders who only run soft credit
checks to pre-approve an online loan. By doing this, you can
not only ensure that your credit won't be affected by
submitting multiple pre-approval applications but won't have
to wait long to get pre-approval letters from different
lenders.
How Long Can You Be Pre-Approved For A Loan?
Your financial situation may not remain the same, and since
a pre-approval offer is based directly on your current
financial background, it may not last forever. Your
pre-approval letter mentions the number of days in which the
loan pre-approval expires. The days to expiration (DTE) are
not the same across lenders, but a pre-approval letter is
typically valid for anywhere between 30 to 90 days. You'll
have to decide within this timeframe whether to go through
the final loan process or not.
You can neither extend nor renew your pre-approved offer if
it's about to expire. And once your pre-approval has
expired, you'll have to run through the pre-approval and
probably pre-qualification application process all over
again.
What's The Difference Between Pre-qualification And
Pre-Approval?
According to the Consumer Financial Protection Bureau,
there's a very thin line between a pre-qualified and a
pre-approved loan. Still, the two terms have often created a
massive confusion in borrowers' minds. So, here's a table
summarizing the key differences between pre-approval and
pre-qualification:
Differentiating Factors
|
Pre-Approval
|
Pre-Qualification
|
The Objective
|
Provides a preliminary loan offer that
mentions the loan amount and interest rate.
|
Provides an estimate of how much the lender
may be willing to lend.
|
Need for Credit Check
|
Depending on the lender, it might require a
soft or hard credit check.
|
It may require a soft credit inquiry or no
credit check at all.
|
Processing Time
|
Due to extensive background checks, you may
have to wait for the pre-approval response
from up to a few days to two weeks.
|
The pre-qualification process is much faster
than the pre-approval process. You might
receive a response1-4 in days.
|
Lock the Interest Rate
|
You may be able to lock in your interest rate
for up to 120 days.
|
You can get an interest rate estimate, but may
not be able to lock in the interest rate.
|
Requirements
|
Require a thorough assessment of your finances
by verifying all the financial documents
requested by the lender.
|
Requires basic details about your financial
situation which can be provided verbally or
online.
|
Why Getting Pre-Approved Or Pre-Qualified Is Important?
By now, you may have understood that both pre-approval and
pre-qualification don't guarantee you a loan. However, there
are some intangible benefits of getting a pre-approval or a
pre-qualification letter:
-
Getting a rough idea of the loan amount could help you
know if your existing budget will be able to handle the
monthly payments of a new loan
or not.
-
You may be able to find any errors or need to improve your
credit when the lenders examine your finances as part of
the pre-approval and pre-qualification process.
-
It can make you look like a genuine and potential
borrower.
Bottom Line
With an increasing number of lenders in the market, one
might get confused while choosing the right online loan.
Things can get even more tricky when you are unclear about
specific terms of the loan process. Through this article, we
have attempted to familiarize you with the terms
pre-approved vs. pre-qualified, which can assist you in
identifying a suitable lender and loan without affecting
your credit score. However, different lenders refer to
pre-approval and pre-qualification differently, so always
check with them before proceeding further in their loan
process.