When a bank or a financial institution gives you a commitment for loan approval, it is termed as getting pre-qualification for loan. Loan pre-qualification puts you in a better position to get a loan approval.
What is included in Loan Prequalification?
When you decide to go in for pre-qualification, you should be aware about it features. Here is a look at what these are:
– Loan prequalification is basically an oral commitment from the lender to you for loan approval.
– Assurance given by lender is based a rough check of your financial papers. No verification is done into your actual financial situation at this point
– Prequalification happens before you have applied for a loan
– You can apply for loan prequalification not just by going in person to the lender, but also through phone and internet.
Benefits in Loan Pre-qualification
There are many advantages in pre-qualifying for a loan. You get an oral commitment from the bank, which can help you to get the actual loan approval faster. There is not much paperwork involved in this application. You don’t have to pay anything to pre-qualify.
Points to keep in mind before going for a pre-qualify
When you go in for loan prequalification, you have to be prepared on certain points. Though a lender will be fine with giving you a large loan amount, you must be financially strong to replay the amount. Find out what is the monthly instalment on loan with interest for the loan type you wish to take. You also need to make yourself aware of others sources of expenses such as loan processing charges, closing costs, commission to real estate agent and so on.
Information to pre-qualify
When you decide to pre-qualify, you need to provide certain types of information to the lender. Here is a look at what they are:
- The amount of money you get by way of income, which can be on a daily, monthly or yearly basis. This is important as the lender will want to know how much of disposable income you have with you, after you have complete paying your debts.
- The yearly tax expenditure information must be kept ready.
- Information on your employment history till present is important. You need to get ready information on employment period with the companies that you have worked with so far.
- You need to get ready details about the assets that you own, such as your vehicle or perhaps some land investment that you have made.
- You credit report is very important as it shows you ability to repay a loan. So, you have to have this ready.
- Details of your monthly expenditures is important fro the lender to determine your financial security and ability to repay the loan.
- Mention the addresses of the places where you stay and also where you have lived for the past three years, to show you stability in applying for a loan.
- In case, you had undergone a bankruptcy or foreclosure problem earlier, your lender will want to know about it.
- Your current bank balance in various bank accounts.
Disadvantages of Pre-Qualifying
There are some drawbacks in prequalifying for a loan and as someone opting for loan prequalification, you should be aware of them.
The amount of money for which you get a pre-qualification may not be correct, as the lender only skims your financial papers. You may need more than what you have prequalified for and this means when you actually apply, you should be prepared to pay a higher monthly loan repayments. Pre-qualifying for a loan does not guarantee that you will get the loan. It is only an oral commitment from the lender.
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