Although a loan pre-approval appears to be lucrative, you should only avail it after assessing your financial situation. A pre-approved Personal Loan has advantages and disadvantages you must know. These are a few:
| Advantages of Loan Pre-Approval | Disadvantages of Loan Pre-Approval |
| Whatever purpose you need a Personal Loan for, you can plan your expenses according to the loan amount you are eligible to borrow. | Most pre-approved loan offers come with limited amounts that may not serve your intended purpose. |
| With a pre-approved loan, you can better negotiate with the sellers to obtain special discounts and deals. | Pre-approved loan offers are valid for limited periods only, usually for a few months. You must avail of the offer within that period. |
| Since half the work is already done, a pre-approved Personal Loan takes less time to process, making funds instantly available without hassle. | If you do not finalise the purchase within the validity period, you must re-appraise the application with the latest documents. |
| If you have received a pre-approved loan offer, you are already a favourable borrower for the loan provider. They may attract you with lower interest rates and fair terms and conditions. | The final loan terms and conditions may differ from the pre-approval depending on your eligibility. |
Eligibility Criteria for Pre-Qualified Personal Loan
You must fulfil the following conditions to get a pre-qualified Personal Loan:
- Minimum annual income
- Stable job and employment
- Decent credit score
- Low debt-to-income (DTI) ratio
Eligibility Criteria for Pre-Approved Personal Loan
You must fulfil the following conditions to get a pre-approved Personal Loan:
- A good credit history
- Existing customers of the lender
- Clean record of debt repayment
How to Get Pre-qualified and Pre-approved Personal Loan?
To get pre-qualified and pre-approved for a personal loan, follow these steps:
Getting Pre-qualified
- Research Lenders: Start by researching lenders that offer pre-qualification options for personal loans.
- Online Tools: Many lenders provide online pre-qualification forms. Visit their websites and look for a pre-qualification tool.
- Fill Out the Form: Complete the pre-qualification form by providing basic information such as your income, employment status, monthly expenses, and desired loan amount.
- Submit: Once you've filled out the form, submit it online.
- Review: The lender will review the information you provided. Based on this information, they will give you an estimate of the loan amount you may qualify for and the interest rate.
Getting Pre-approved
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Gather Documents: Before applying for pre-approval, gather necessary documents such as:
- Proof of income (pay stubs, tax returns).
- Identification (driver's license, passport).
- Bank statements.
- Choose a Lender: Select a lender you wish to work with and begin the pre-approval process.
- Complete Application: Fill out a formal loan application provided by the lender. This application will require detailed information about your finances, employment history, and other personal details.
- Credit Check: The lender will conduct a hard credit inquiry, which may temporarily impact your credit score.
- Wait for Approval: The lender will review all the information and documents you provided. If everything meets their criteria, they will issue a pre-approval letter, which outlines the loan amount, interest rate, and other terms.
- Use Your Pre-approval: With your pre-approval letter, you can confidently shop for homes or vehicles within your approved loan amount, knowing that financing is likely to be approved when you make an offer.
Conclusion
The concept of pre-qualified vs. pre-approved can be confusing since many loan providers may use the terms interchangeably. Therefore, always review the loan offer carefully and evaluate your loan requirements before proceeding with the formal application. Borrowing loans sensibly and repaying them consistently are integral to sound financial management. If you are looking for an instant Personal Loan online without hurting your credit score, opt for a pre-qualification or pre-approved first to get an idea of your eligibility.
Frequently Asked Questions
1. Which is better pre-approval or pre-qualification?
Getting a pre-approved Personal Loan is better for serious borrowers as it gives a more accurate estimate of the loan amount, interest rate, and other terms and conditions.
2. Does pre-qualified mean approved for a loan?
Getting a pre-qualified Personal Loan does not guarantee a final approval. However, it is a way to apply for a loan without pulling a hard enquiry. If the lender rejects your loan application at this stage, you can avoid hurting your credit score. You get time to prepare your application and proceed with a formal application.
3. Does it matter who you get pre-qualified with?
Yes, if you get pre-qualified with a reputable lender, you demonstrate high credibility and get better loan offers from other lenders.
4. Does pre-approved mean approved for a loan?
Getting a pre-approved Personal Loan might mean that you appear in the credit provider's good books. However, it does not guarantee loan approval. The lender may only accept your application if you fulfil their other eligibility conditions like age, income, employment, DTI ratio, etc.
5. Does pre-qualified affect credit score?
No, applying for a loan pre-qualification is like a soft enquiry that does not pull a hard enquiry on the credit report. However, if you get pre-qualified and proceed with the formal application, the lender will check your credit history, affecting your credit score.
