When it comes to student loans, the terms "preapproved" and "prequalified" are often interchanged. However, this is incorrect. The only thing they have in common is that they are both involved in the student loan application process. Aside from that, these words are totally dissimilar.
What is Prequalification?
Prequalification is a rough estimation of how much money you may be able to borrow. centered on a largely informal assessment of your financial situation.
This is the first step in getting a loan approved. It entails providing the lender with details about your overall financial situation, including your revenue, assets, credit, and debt. The lender examines all of your information and provides you with an estimation of how much you may be able to borrow.
Prequalification may be completed entirely over the phone or by email. The procedure varies from one lender to the next. You are not required to pay any fees in order to obtain this calculation.
It's important to keep in mind that this is just a guess. It's not the maximum amount you'll be able to borrow. After the pre-approval process, you'll get a firm response on how much you can borrow. So, if going through the prequalification process doesn't guarantee a loan bid, why bother? Prequalification is beneficial in other respects as well. It gives you an estimate of how much you might borrow and at what interest rate. This enables you to measure the loan's expense more accurately and prepare your finances accordingly. If you are unable to obtain prequalification due to bad credit, you should begin taking measures to improve your situation.
What is Preapproval?
The second phase in the loan approval process is preapproval. It's a more thorough examination of your finances.
The lender may want to see documentation relating to your properties, wages, jobs, and debts in order to get preapproved. The lender would then preapprove you for a particular loan sum based on their appraisal.
During this stage of the operation, the lender will run a hard credit check on you. This credit check is a crucial part of the preapproval procedure. Obtaining previously unseen details on your credit report can have an impact on whether or not you are preapproved. It would also have an effect on the sum of money you are preapproved for.
Prequalification and Preapproval Highlights:-
Let's take a look at the most important features of prequalification and preapproval.
- Based on the details you provide to the lender, this is an estimation of how much you may be able to borrow.
- The procedure can be completed online.
- There is no charge for this service.
- It doesn't have the same weight as preapproval.
- Gives you a clearer understanding of the loan size you'd be eligible for
- According to a thorough credit and financial background check.
- Financial statements must be submitted.
- Requires a hard credit check.
- Processing fees can apply.