Pre-qualified vs pre-approved: Understanding the difference

When searching for any type of loan, you may face confusing terminology, like pre-qualified vs. pre-approved. Creditors use those terms to describe candidates who may be a good fit for loan products but haven't gone through the entire application process. While they sound similar, there are some key differences between both terms you should know.

What is pre-qualification?

If you're pre-qualified for a loan, it means the lender gathered some basic information about your financial circumstances and decided you meet the general approval qualification for its product, which may be a loan, credit card, or mortgage. 

Pre-qualification can vary across providers. Some lenders access limited credit history through a soft credit check or by asking you to submit information about your household income and employment history. But pre-qualification doesn’t mean the lender has reviewed everything it needs to grant you credit. It's just a general statement that you may fulfill the creditor's requirements. Before the lender moves forward, it needs more details from you.

Some lenders send pre-qualification notices with no input whatsoever from you. For instance, you may receive an unsolicited email from your bank encouraging you to apply for a credit card you're pre-qualified for or a letter in your mailbox from a local mortgage lender.

If you decide to take action on a pre-qualified lending offer, you'll go through the creditor's formal application process, which can end in approval or denial.

What is pre-approval?

Think of pre-approval as a step up from pre-qualification. In a pre-approval, the creditor evaluates most of the information it needs to grant you credit. That can include anything from your credit score to your employment status. But pre-approval isn’t a guarantee you'll receive the loan. A creditor can still deny funding once it gets your complete application.

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Pre-approval usually happens when you approach a lender for financing on a major purchase, like a house or car. The lender may ask to check your credit or verify your income. Those initial checks form the basis for pre-approval. 

Some people use pre-approvals to compare interest rates when buying a house or car. Comparison shopping with auto or mortgage pre-approvals can help you get a loan with favorable financing terms — ultimately saving you money. 

Pre-approved vs. pre-qualified: Key differences

While pre-qualification and pre-approval sound similar, there are some differences. Here's what you need to know.

Information requirements

Pre-qualification can happen without you agreeing to a credit check or submitting any information about your earnings or employment status. Creditors may use the pre-qualification process to encourage you to apply for a loan, even when you're not looking for one. 

In a pre-approval, you may provide some information to the lender and agree to a credit check. The creditor may request some details from you about your income or employment depending on its pre-approval requirements.

Process for loans and credit cards

Pre-qualification can occur with any loan, from mortgages to student loans and credit cards. You may receive pre-qualified financing offers when you least expect them and when you're not in the market for financing. You might consider pre-qualification more like the creditor’s marketing outreach rather than a genuine offer for funding. 

The pre-approval process is more comprehensive. You'll encounter it more often when buying high-value items, like a house or car. Occasionally, a credit card company may send you a notice of pre-approval for a card, but it doesn't mean you're any more likely to get a credit card than you would if you were pre-qualified. 

Impact on credit score

Many lenders pre-qualify credit products based on a soft credit inquiry, which doesn't impact your credit score. That’s different from a pre-approval, which can include a hard credit pull. A hard pull can drop your score by a few points. A lender can’t arbitrarily do a hard credit pull without your consent, so you’ll only encounter it during the preapproval process.

Time frames

A pre-qualification typically requires little to no effort on your part. A lender may send you a pre-qualification letter out of the blue, and if you decide to act on it, you'll go through an application process.

Pre-approval begins when you seek financing. To grant a pre-approval, the lender may ask that you complete a preliminary application and agree to a credit check. Depending on the lender's processes, this can happen quickly or take a few days. 

Which option is right for you?

So, which is better — pre-approval or pre-qualification? 

It depends on your needs. If you're hoping to secure a new home or vehicle, getting pre-approved for a loan means you're more likely to get financing when it comes time to seal the deal. In other words, if you're considering a pre-approval vs. pre-qualified mortgage, a pre-approval letter means more in the purchasing process. It can also shorten the time it takes to buy a house. 

A pre-qualification suggests you may be qualified for financing based on the creditor's initial check of your circumstances, but it offers no guarantee. The lender may require you to submit additional information before approving or denying the loan.

Pre-approved vs. pre-qualified FAQs

Does pre-qualified mean you will be approved?

Not necessarily. Being pre-qualified means you meet the creditor's basic criteria for financing. But it doesn’t guarantee approval. Your lender will likely ask for more info before deciding whether to grant you financing.

Can I switch from pre-qualified to pre-approved?

It depends on the lender and what you're applying for. Creditors typically offer pre-approval for major purchases you're considering, such as a house or vehicle.

Can I be denied a mortgage after being pre-approved?

Yes. While mortgage lenders may offer you pre-approved financing based on your loan application, they can reject the loan if you don't meet their comprehensive financing requirements. If you're denied a traditional mortgage, you may qualify for other nontraditional financing types, such as a family opportunity mortgage. 

Explore more personal finance content for the whole family

You've learned the difference between pre-approval and pre-qualification — go, you 🏆 Why stop there? Greenlight's learning center offers lots of educational content to help you build and flex your financial literacy muscles. You can learn more about common financial topics, including how to save, spend, and budget.

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¹Greenlight is a financial technology company, not a bank. The Greenlight app facilitates banking services through Community Federal Savings Bank (CFSB), Member FDIC.

²Greenlight Max and Infinity families can earn 1% cash back on spending monthly. To qualify, the Primary Account must be in Good Standing and have a verified ACH funding account. See Greenlight Terms of Service for details. Subject to change at any time.

³Greenlight Core families can earn 2% per annum, Greenlight Max families can earn 3% per annum, and Greenlight Infinity families can earn 5% per annum on an average daily savings balance of up to $5,000 per family. To qualify, the Primary Account must be in Good Standing and have a verified ACH funding account. See Greenlight Terms of Service for details. Subject to change at any time.