Personal loans have become a necessity in today’s time to meet the daily as well as emergency expenses. A personal loan is offered by various lenders, and one can apply for the same by filling the personal loan application form on the lender’s website or app.
Another way of applying for a loan is pre-approval as well as a pre-qualify personal loan. In this article let us learn about the difference between the two.
Pre-approval vs Pre-Qualify Personal loan
Lenders from time to time conduct an initial assessment to determine your eligibility for a loan. In such cases based on your past credit records and CIBIL and you can either be qualified for a loan or already have a loan approved on your name. The creditor may offer you potential interest rates, terms, and loan amounts based on the assessment. The true difference between preapproval and prequalification can vary for different creditors.
While for a pre-approved loan a rigorous assessment is carried o, the same is not true for a pre-qualified personal loan. Pre-approval also requires the borrower to share more personal and financial information with a creditor.
What is a Pre-Qualified Personal Loan?
A pre-qualified loan means that the creditor after careful analysis of your creditworthiness has determined whether you qualify for a loan. This process is carried on when the consumer initiates the personal loan application.
After the qualification, the borrower is required to submit documents for review for final approval.
What is a Pre-Approved Personal Loan?
After rigorous research, some lenders can provide you with a pre-approved personal loan offer. All you are required is to respond to the offer to know the final loan terms. Though the pre-approved loan is a better indication of getting the loan, it does not guarantee loan approval. It depends on various factors like your income, collateral, or credit history that have recently changed.
Similarities between pre-qualification and pre-approval
Now that we have clearly defined both, let us start with understanding the similarities between pre-qualification and pre-approval.
In both cases it is important to know why you need the loan, and how much loan amount is required. Based on your financial history and financial capabilities you can decide on the loan amount that will in most cases be approved - as it suits your financial ability.
Both a pre-qualified or a pre-approval personal loan letter will give you an upper hand in your personal loan application.
Difference Between Pre-Qualification and a Pre-Approval Loan?
While both the loans have been defined earlier, they do not have much difference.
A pre-qualification is the first step of a pre-approval.
If you want to get a loan approved, pre-qualification is the priority.
Pre-qualification is more like a verbal discussion between the borrower and the lender.
The customer care executive through the financial details of the borrower like credit history, current financial status and income of the last few years, his/her annual income, the company he/she works for, the debt-to-income ratio will determine if the borrower is eligible for the loan.
After this, the borrower will be offered a loan that suits them best - one which is within the budget.
In case of a pre-approval, an in-depth or comprehensive verification is done by the lender of the customer’s credit score, income over the last few years, annual income, monthly net income, debt-to-income ratio, and so on.
The process is not verbal and isn’t based on the details verbally provided by the customer. Instead, based on the information provided by the borrower, the lender does a thorough background check.
What not to do?
Both pre-qualified or pre-approval personal loan does not guarantee loan approval. However, before the approval comes through, these are some things that you should avoid.
Pay Your credit bills on time to ensure that the credit score is optimum.
Avoid any expensive purchases and plan your repayment.
Do not switch jobs
Make sure that no new debts are incurred
No lender is obligate to provide you loan approval whether you have a pre-approval or pre-qualified letter. All it will do is offer you the upper hand on your personal loan application. The final approval depends on numerous factors, some of which are already mentioned above.
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