Is pre-approval of loans something you’re familiar with? This might be the case. After all, you’ve been notified at some point in your life that you’ve been approved for a pre-approved loan by a financial institution. In order to qualify for pre-approved offers, you have to possess any one of the following traits: either you have a solid financial record, a good relationship with your financial institution, or a good credit rating. Regardless of your situation, it’s incredible that you were shortlisted for a pre-approval loan.
Difference between Pre-Qualification and Pre-Approval
A common misconception is that pre-qualification and pre-approval mean the same thing, only the terminology distinguishing them. Despite this partially true statement, a few major factors still differentiate pre-qualification from pre-approval.
An application for pre-qualification does not guarantee that you will be approved for a loan, but it is the first step toward obtaining one. During this stage, you submit your documents to the lender, and if you can convince them, you can proceed to the loan application stage. Afterwards, you have to submit an application and undergo a verification process to obtain pre-approved loans.
A pre-qualification involves a verbal discussion between the applicant and the lender, during which the lender inquires about the applicant’s income and credit history. To pre-approve a buyer, the financial lender compares the credit score, income, debt-to-income ratio, and other factors with their own. Before signing off on the pre approved offers, the lender runs a thorough background check on the buyer.
It is important to remember that you are not obligated to get loan approval even after requesting a pre-approval or pre-qualification letter from the bank. You are in a better position than most in the current situation; however, you must remember that the financial institution needs to consider several factors before disbursing your loan. Lenders have every right to reject loan applications when too many of these factors are not in sync.
Why are pre-approved loans different?
Consumers with good credit scores and a record of timely loan repayment are usually eligible for pre approved loans from financial institutions. The lender may also pre-approve the personal loan interest rate even if the customer does not have a loan, based on some conditions such as cash inflow and transactions related to the customer’s salary account.
You need to have some basic eligibility criteria.
Benefits for you as a consumer
- Loan terms that can be adjusted
- Funding more quickly
- Documentation should be minimal
- Competitive rates
- Processing time is faster
- The ability to negotiate
- A special discount