Prequalified vs. Preapproved: What’s the Difference?
The difference between preapproval and prequalification can depend on the creditor and the type of loan or credit card—some creditors may even use the terms interchangeably.
In either case, a creditor has done an initial assessment to determine if you’ll likely get approved for a new loan or credit card. It may then offer you potential interest rates, terms and loan amounts based on the assessment.
Prequalification tends to refer to less rigorous assessments, while a preapproval can require you share more personal and financial information with a creditor. As a result, an offer based on a prequalification may be less accurate or certain than an offer based on a preapproval.
What Does Pre-qualified Mean?
Prequalification means the creditor has done at least a basic review of your creditworthiness to determine if you’re likely to qualify for a loan or credit card. Consumers initiate this process when they submit a prequalification application for a loan or card.
Requirements for prequalification can vary depending on the situation. It may involve sharing basic information about your financial situation, such as your annual income, monthly housing payment and savings. For some pre-qualifications, lenders will check your credit through a soft inquiry—the type of inquiry that doesn’t impact your credit scores.
Once you’re prequalified, you can choose to apply and undergo a complete review process. The review may require you to submit official documents, rather than estimates, and agree to a hard credit inquiry, which can impact your credit scores.
Getting prequalified doesn’t guarantee an approval. But if you’re able to apply for prequalification with a soft inquiry (or no inquiry), it’s generally a good idea. If you get denied at this stage, you’ll know you can move on and avoid the hard inquiry.
What Does It Mean to Be Preapproved?
Getting preapproved may be a better indication that you’ll get approved for a loan or card—but it depends on the process. For example, if you’re preapproved for a credit card online, the card issuer may be using preapproval and prequalified to mean the same thing.
Additionally, you may have received preapproval offers for loans or credit cards by mail, phone or email. These prescreened offers generally mean you appeared on a credit reporting agency’s list of consumers that meet a creditor’s criteria, and have been sent a firm offer of credit as a result.
If you respond to the offer and apply, the creditor must offer you the same terms as in the mailing. But those terms may have a range, and you won’t know your exact offer until you apply and agree to a hard inquiry.
Whether you applied or received an unsolicited offer saying you’re preapproved, there’s still no guarantee you’ll get approved—especially if factors like your income, collateral or credit history have recently changed.
Mortgage preapprovals, however, are a contrast to preapproval for other types of credit and can involve a fairly complex application and review process. You may need to submit tax returns, proof of income and bank statements and agree to a credit check. The mortgage could take some time to review and verify these documents, and they may then offer you a loan preapproval letter that’s good for several months.
Data is for informational purposes only – please contact your lender for more information.
Source: Information shared from Experian