Loans

Pre-Approved vs. Pre-Qualified: What’s the Difference?

When shopping for a loan, lenders might encourage you to get a pre-approval or pre-qualification. Either of these terms indicates you meet at least some of the lender’s requirements to take out a loan. But, understanding the differences can be helpful as you navigate the lending process. Let’s explore the distinctions between pre-approved vs. pre-qualified and what the difference means for prospective borrowers.

What is a pre-approval?

Every lender has a distinct process, which means a pre-approval might mean different things to different lenders. But in general, a pre-approval involves a close look at your finances, which can lead to higher approval chances for the actual loan.

For some lenders, there’s no difference between pre-approval and pre-qualification. For example, getting a preapproved credit card offer or personal loan might not look very different from getting pre-qualified.

But in the realms of real estate and auto lending, a pre-approval tends to carry more weight than a pre-qualification. For example, a pre-approval usually involves a relatively comprehensive look at your financial situation.

The application might include documentation of your income through bank statements, pay stubs, and tax returns. Plus, mortgage and auto lenders often require a hard credit check as a part of this process, which shows up on your credit report.

What is a pre-qualification?

A pre-qualification often means the lender has conducted a review of your creditworthiness to determine whether or not you might qualify for a loan. But it’s not a guarantee that your loan application will be approved.

In most cases, the lender will request some baseline information about your finances. For example, you’ll often need to provide your annual income, housing costs and agree to a soft credit inquiry. However, the information can be self-reported, which means you won’t have to dig out your bank statements or tax returns.

The pre-qualification indicates that you are likely to qualify for the loan. But when you want to finalize the loan, you’ll need to submit a formal application that includes documentation of your financial situation.

Pre-approved vs. pre-qualified: What are the key differences?

As you navigate the borrowing process, both pre-approved and pre-qualified are preliminary steps in the application process.

Even if you obtain either of these documents, you’ll need to submit a final application before you are officially approved for the loan. But the two options aren’t entirely the same. Below is a breakdown of the key differences between pre-approved vs. pre-qualified below.

  • Depth of assessment: Generally, a pre-approval is more comprehensive than a pre-qualification.
  • Level of commitment: Some pre-approvals involve a hard credit inquiry, which impacts your credit score. With that, a pre-approval can involve more of a commitment than pre-qualification. If you are closely managing your credit, then you might choose to stick to pre-qualifications to avoid the hard credit inquiry until you are ready to take out your loan.
  • Verification of income: Many lenders will require a more extensive look at your income if you’re seeking a pre-approval. For example, prospective home loan borrowers may need to provide paystubs for pre-approval but just an estimate of their income for pre-qualification.
  • Reporting: Pre-approval involves a thorough evaluation of credit, income, and financial history, while pre-qualification is a preliminary estimate based on self-reported information.
  • Timeline: In many cases, a pre-qualification is faster to receive than a pre-approval. While a pre-qualification might happen in minutes, it might take days to get a pre-approval.

The type of credit you are seeking might have an impact on the process. For example, receiving pre-approved credit card offers in the mail might be the same as a pre-qualification. But if you’re applying for a mortgage, the pre-approval process tends to be more involved.

Pre-approved vs pre-qualified: Taking the first step

Whether you are pre-approved or pre-qualified, it’s generally the first step in the loan approval process. If your financial situation doesn’t pass this first test, you’ll have the opportunity to improve it before officially applying for the loan.

Frequently asked questions about the terms pre-approved vs pre-qualified

Does being pre-approved mean I’m guaranteed a loan?

No. Being pre-approved for a loan doesn’t mean you are guaranteed to obtain a loan. Although a pre-approval is a good sign for your ability to get the loan, it doesn’t mean the lender is ready to finalize the loan. It’s possible a further review of your finances will lead to a loan denial.

Can I opt out of credit offers?

Yes. It’s possible to opt out of prescreened loan offers. You can sign up to opt out of credit offers at optoutprescreen.com.

Does pre-approval or pre-qualification affect my credit score?

For credit cards, neither pre-approval nor pre-qualification should have an impact on your credit score. When you submit a formal loan application and agree to a hard credit inquiry, your credit score might be impacted. But for some mortgage preapprovals, your credit score might be impacted.


Written by Sarah Sharkey | Edited by Rose Wheeler

Sarah Sharkey is a personal finance writer who enjoys diving into the details to help readers make savvy financial decisions. She lives in Florida with her husband and dogs. When she’s not writing, she’s outside exploring the coast. You can connect with her on her blog Adventurous Adulting.


Read more:

  • What Is a Personal Loan? Here’s Everything You Need to Know
  • How Many Credit Cards Should I Have?
  • What Is Credit History?
  • Freezing Your Credit: How It Works
  • How Much Does Your Credit Card Really Cost?

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