You’ve probably heard of the preapproval if you were in the market for mortgages. But when talking about $800 personal loans and higher, fewer people are aware of the fact than a preapproval is a vital part of the application process.
- 1 What Is Preapproval
- 2 When Will I Know If I’m Preapproved or Not?
- 3 How Does the Preapproval Work?
- 4 How Long Does the Review for a Preapproval Take?
- 5 What Are the Benefits of Preapproval on a Personal Loan
- 6 The Difference Between Conditional Approval and Preapproval
- 7 The Difference Between Prequalification and Preapproval
- 8 How Do Lenders Know Who Qualifies for a Preapproval Offer?
- 9 What Do You Need to Submit a Preapproval Application
- 10 How to Avoid Getting Denied for a Loan
- 11 Beware of the Preapproval Scam
- 12 In Conclusion
What Is Preapproval
When a provider gives out an unofficial offer on a loan, pending full approval, it is called preapproval. It remains valid for several months, and even though getting a preapproval doesn’t mean you’ll necessarily qualify, but it can uncover some other important information for you:
- whether or not you have met the eligibility requirements for a loan;
- what amount, rates and terms you can count on.
Contrary to the popular belief, you can get preapproval on virtually any type of loan, including personal, car loans and mortgages.
When Will I Know If I’m Preapproved or Not?
A lender will most likely notify you of preapproval when they are willing to consider you for a personal loan. Depending on your credit score and financial situation you’ll either get a preapproval or be denied. If it’s the latter, try visiting Bad Credit Loans in Alabama to get the payday loan you need. If the former is the case, a provider will contact you to get the last details figured out and decide if you’re officially approved. It means, even with a preapproval you still might not get the loan.
Some people that haven’t considered taking out a loan before might get an unsolicited offer from a provider through either email or traditional mail.
How Does the Preapproval Work?
There’s a couple of steps you need to take in order to be preapproved by a lender of choice:
- Fill in the application for a preliminary loan
- Wait for the lender to review it
- Get a preapproval or a denial
Easy enough, right? But what’s next, after you get preapproved? Well, a lender then will contact you to confirm the info you have put down in the application, so make sure it is valid and accurate. After that, it may take a couple of days for a lender to fully underwrite your application. When you get an official approval – make sure to review the contract carefully and don’t sign it until everything is clear and seems good for you.
How Long Does the Review for a Preapproval Take?
If you’re applying online, say for a $1,200 loan you might receive a preapproval within minutes. Don’t get excited just yet though, it only means that you may qualify for a loan, as your application was reviewed by a software and not an actual lender.
If you received a letter with preapproval from the lender and are certain that you want to apply for a given loan, just follow the instructions provided to you in the said letter.
What Are the Benefits of Preapproval on a Personal Loan
If you got preapproved it might boost your confidence while you’re making a choice between different loans. Also, you will know how much the loan will cost, what amount you can count on borrowing and what terms the lender might have, so you will be able to make a more informed decision which is very important and will influence your financial situation.
The Difference Between Conditional Approval and Preapproval
Let’s get things straight and clear for you to understand what each term means and when it’s used correctly.
- Preapproval is a quick read-through of your application to find out if your credit history, income, and other relevant details may qualify you for the lender’s criteria.
- Conditional approval is given to applicants who are most likely going to be approved but first need to provide an underwriting team more information. It can pay stubs, bills, the record of employment, etc.
Sometimes the above terms get confused not only by clients but by providers also and used interchangeably. If you’re not sure what your lender means, contact them and ask directly to avoid any misunderstanding.
The Difference Between Prequalification and Preapproval
Well, this one is tough because most providers usually use these terms in place of one another. In some cases, however, prequalification might mean that you meet the basic requirements of the particular lender to be eligible for a specific loan. Preapproval, in contrast, gives you an idea of rates, terms, and the loan amount you can qualify for.
How Do Lenders Know Who Qualifies for a Preapproval Offer?
Most banks and loan providers have a significant amount of information on their clients they can use to promote products, so if you’ve received an unsolicited offer that is what most likely happened. If you did apply for a loan online or otherwise, a lender performs a soft pull on your credit and then an underwriting software will decide if you’ll be able to afford a particular loan based on the information available.
What Do You Need to Submit a Preapproval Application
To get started on applying for an online loan gather the following info so you can fill out the application quickly and accurately:
- your full name, the date of birth, Social Security number and contact details like address, phone number, and email;
- detailed information on your employment history and current income;
- other financial details like expenses and debts you have.
If the information you’ve provided is inaccurate or missing details, a lender won’t be able to preapprove you, so make sure you put everything down correctly.
How to Avoid Getting Denied for a Loan
First, think about the reason you’ve received a denial. Here are the most common ones:
- the documentation validating your income is missing or incorrect
- your credit score is too low
- you don’t meet other eligibility criteria
There’s no way to avoid being rejected other than filling out the application correctly and making sure to reflect your ability to pay off the loan. If your credit score is bad or your debt-to-income ratio is too high, work on that first. Visit Bad Credit Loans in Alaska to get started on building your credit score.
Even if you’ve received a preapproval before doesn’t mean nothing has changed and you will again, so check your info twice.
Beware of the Preapproval Scam
It probably goes without saying, but there are lots of unreputable lenders or full-on scam artists who send out fake preapproval letters to unsuspecting people and lure them in with seemingly good offers.
Always check the information about your lender of choice, including their license to operate in a particular state, and feedback from other clients. It might just save you a lot of financial trouble.
Getting a preapproval is a good call in order to make an informed decision regarding the lender and the type of loan you want to take out. However, the process has its intricacies so don’t forget to do your research and know what and who you’re dealing with to avoid scammers and unpleasant situations.
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