With many debt instruments, be they home loans or credit cards, the terms pre-qualified and pre-approved are often attached with promotional materials and communications sent. The meaning of the two terms can be quite different, and this article will explain the difference between pre-approved and pre-qualified.
Being pre-qualified for a loan or a credit card is often the first step undertaken in actually getting that loan or credit card issued to you.
Pre-qualification is based on a very preliminary look at your financial information and based on certain criteria you can be pre-qualified for specific terms or credit limits.
Sometimes this information is sent to you in a promotional capacity, where you receive a notice from the bank that you are pre-qualified for something. This means that based on a cursory glance at your financial details you would be eligible for the product if you were to apply. Pre-qualification can also often be received in a home loan context during a quick meeting or phone call with bank representatives, where they will enter the information you provide them with to see what you would be qualified for.
The important point to note about pre-qualification is that it is a preliminary step towards actually having the loan or credit card based on a limited amount of financial information. Being pre-qualified does not automatically mean that you will be able to obtain the loan or credit card but only that based on the most basic of reviews you would be able to.
Pre-approval for a loan or credit card is a further step in the process and implies that based on a more in-depth review of your financial information you are approved. In this case your credit score has likely been evaluated and a more comprehensive view of your financial information is now available to the lender.
On limited occasions, pre-approval can be received for certain things through promotional materials, but the dollar value is often fairly low, and even based on a preliminary review of your information the lender is comfortable giving you the loan or credit card. When going through a formal loan process, i.e. for a home loan, pre-approval received after you’ve reached out to the bank is the final step before actually signing on the dotted line. For many buyers getting pre-approval is important when house shopping begins, as it will show buyers that you are committed and ready to actually close the sale.
While pre-approval doesn’t guarantee you will receive the loan or credit card you are looking for it is a very strong indicator that this is the case, and often the terms will be stated in your pre-approval letter. It is important to remember that you don’t have a loan or credit card until you have actually signed on the dotted line and have a contract in place with the lender.