Pre-qualified vs pre-approved: Which personal loan option should you choose? | Mint

The phrases “pre-qualified” and “pre-approved” are commonly used in the context of personal finance, especially when applying for personal loans. Despite their apparent similarities, they are actually separate steps in the loan application process. Making educated borrowing decisions requires an understanding of the subtle differences between these concepts.

What does pre-qualification mean?

A lender tests a borrower’s initial data on the pre-qualification level in order to check how much the borrower is qualified for. The process would normally include:

What does pre-approved mean?

Pre-approval is used to accelerate the actual approval process by establishing the credit history and willingness of the borrower to proceed with the loan application. A process involved under this umbrella is:

Which one to consider?

1. Pre-qualification: If you’re just starting to think about borrowing a personal loan and you’d like to know what loan amounts and term lengths are available without affecting your credit score, this is the place for you.
2. Pre-approved: When you are prepared to proceed with a loan application and prefer to receive a formal offer from the lender, you have serious borrowing intent.

Before proceeding with a loan application pre-qualification allows you to evaluate potential eligibility without inflicting major credit score damage. Pre-approval requires thorough examination of your case which gives you a conditional loan offer.

In conclusion, borrowers achieve better market financing success by understanding these distinct financial evaluation processes to ensure their activities align with prepared plans and financial targets. Always remember the associated interest rates and fees with personal loans as it uplifts the total cost of repayment.

(Note: Raising a loan comes with its own risks. So, due caution is advised)