Credit 101: The Difference in Pre-Approved vs. Pre-Qualified
When buying a home, applying for a credit card, or applying for a car loan, you will usually be listed as either pre-approved or pre-qualified. Though these words have similar meanings, they do not mean the same thing.
When a financial institution says you are pre-qualified, it does not mean you have been officially approved for the loan. Instead, it means you have been pre-qualified for a certain amount of money t based on the information you have provided.
For example, a mortgage lender may say you are pre-qualified for a mortgage between $500,000 and $700,000 based on your income. However, even as you start house hunting with the given estimate in mind, there are many other factors, such as your credit score, that could affect the actual amount you are approved for.
Unlike with an estimate given when pre-qualified, when you are pre-approved for a loan, it means the financial institution is offering a specific amount that they are willing to lend to you. Furthermore, when you’re preapproved, the repayment period and interest rate are also disclosed; whereas this information is not available if you’re prequalified.
Suppose a soon-to-be homeowner got preapproved for a $600,000 mortgage loan. With this information, the potential homeowner knows what houses to look for that fit the budget.
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