If you’re looking at applying for a home or car loan, it’s more than likely that you’ll stumble upon these two terms.

While we can’t necessarily argue that one term is better than the other in the loan application process, pre-approval does have the upper hand on pre-qualified.

Think of it like this. Pre-qualified is like window shopping for a new couch with an approximate budget in mind. You aren’t too sure of your exact budget and don’t really know what couch you want to buy. Whereas pre-approval is when you know exactly how much you can spend and you have a great idea in mind of what you’re after.


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LenderHome LoanInterest Rate Comparison Rate* Monthly Repayment Repayment type Rate Type Offset Redraw Ongoing Fees Upfront Fees LVR Lump Sum Repayment Additional Repayments Split Loan Option TagsFeaturesLinkCompare
6.04% p.a.
6.06% p.a.
$2,408
Principal & Interest
Variable
$0
$530
70%
Featured Online ExclusiveUp To $4K Cashback
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  • $2,000 for loans up to $700,000
  • $4,000 for loans over $700,000
5.99% p.a.
5.90% p.a.
$2,396
Principal & Interest
Variable
$0
$0
80%
Featured Apply In Minutes
  • No application or ongoing fees. Annual rate discount
  • Unlimited redraws & additional repayments. LVR <80%
  • A low-rate variable home loan from a 100% online lender. Backed by the Commonwealth Bank.
6.14% p.a.
6.16% p.a.
$2,434
Principal & Interest
Variable
$0
$250
60%
Featured Unlimited Redraws
  • No annual fees - None!
  • Get fast pre-approval
  • Unlimited additional repayments free of charge
  • Redraw freely - Access your additional payments when you need them
  • Home loan specialists available today
Important Information and Comparison Rate Warning

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to be made on variables as selected and input by the user. Some products will be marked as promoted, featured or sponsored and may appear prominently in the tables regardless of their attributes. All products will list the LVR with the product and rate which are clearly published on the product provider’s website. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Rates correct as of . View disclaimer.

Which is better: pre-qualified or pre-approved?

Pre-qualified and pre-approved both have their own important part to play in the home/car buying process.

However, it can be said that pre-approval has more weight than pre-qualified as pre-approval means a borrower is one step closer to receiving a loan from a lender (but this is not an indication the loan will be successful).

What does pre-qualified mean?

Pre-qualification is a quick and easy step in a loan application that provides you with an estimate of your borrowing capacity. In other words, pre-qualification is only a general indication of how much you can borrow, that is usually obtained via a phone call or online application.

Unlike pre-approval, pre-qualification won’t appear on your credit report.

Receiving pre-qualification is great for those who are conducting preliminary research for a home or car, but aren't willing to buy right at this moment.

What does pre-approval mean?

Pre-approval (otherwise known as conditional approval) is an initial assessment from a lender that tells you exactly how much they will let you borrow based on your current financial position and also the interest rate they will offer you.

A lender will typically require the following information when applying for pre-approval:

  • Your salary and if necessary, money from investments

  • Your assets

  • Your credit card debts and other loans e.g. car

They may also conduct a credit check, at least with full pre-approval assessments.

It’s important to note that a pre-approval status does not guarantee you’ll be approved for the loan you ultimately apply for. It merely provides you with a realistic picture of what you can afford so you don’t go off searching for something that’s way out of budget.

What’s the key difference?

Think of pre-qualification as a surface-level look at your information while pre-approval, on the other hand, requires a deeper review into your documentation.

Additionally, pre-qualification gives you an estimate of your borrowing capacity while pre-approval provides a definitive answer.

Rather than considering one to be superior to the other, view both as tools to help you get started on your home/car loan journey.

Pre-qualified Pre-approval
Provides a general idea of how much you can borrow Provides a definitive answer of how much a lender will loan you and an interest rate (this does not guarantee full loan approval)
Assesses basic financial information Full assessment of finances through documentation e.g. income, savings, assets, daily living costs, etc.
Can get an answer within the same day, or even within a few minutes depending on the lender Requires the completion of a mortgage application
Usually doesn’t require a credit check Can take a few days to find out the status
Does not appear on your credit report

Credit checks

Appears on your credit report

What is the difference between pre-approved and pre-qualified for a mortgage?

In layman’s terms, mortgage pre-qualification from a lender offers a potential borrower an estimate of how much they can afford to spend on a home.

Rather than reviewing a pile of documentation as with a pre-approval, a lender will generally take you at your word about your financial situation with pre-qualification. They’ll collect basic financial information about you that you’ll likely know off the top of your head such as your income, any debt you may have, and details about your bank accounts.

While pre-qualification isn’t a requirement, it can be a helpful step in the home buying process as it can provide you with a somewhat realistic budget to stick to. This is the precise moment pre-approval comes in and takes the reign.

Unlike offering you a ‘somewhat realistic’ budget or borrowing ‘estimate,’ pre-approval is when a lender tells you the exact amount they will lend you to buy a home.

To gain pre-approval, a lender will undertake an in-depth review of your current finances and likely perform a credit check. If you’re pre-approved, you’ll receive a pre-approval letter which is an offer to lend you a specific amount (this is not a final commitment).

When trying to find your dream home, there are so many options on the market that it can be difficult to choose ‘the one.’ With a home loan pre-approval, you can at least narrow your search to properties that fall in your budget.

While a pre-approval is a valuable step in the home buying process, it is not a requirement. But why miss out when it can make life just that little bit easier?

What is the difference between preapproved and prequalified for a car loan?

If you’re on the hunt to buy a brand new shiny car, having pre-approval in your back pocket can be a huge advantage.

So, what does it mean to have pre-approval for a car loan? Let’s take a look.

Car loan pre-approval is when a lender reviews your financial circumstances (your credit rating, liabilities, and assets) and determines how much you can afford to borrow. They agree, in principle, to lend you a certain amount of money to buy a car.

A huge benefit to a pre-approved car loan is your negotiating power. When the time comes to talk price with the salesperson, you know exactly how much you can spend which means you can bargain with confidence. On the flip side of the coin, you also know your budget limitations, so if the salesperson won’t meet you halfway you’ll know to walk away and find something else.

Two important points to remember. Car loan pre-approval is only valid for a limited time (1 to 3 months) and again, is not a guarantee you will receive the final loan.

See Also: Compare car loans that offer pre-approval


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In the market for a new car? The table below features car loans with some of the lowest interest rates on the market.

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LenderCar LoanInterest Rate Comparison Rate* Monthly Repayment Interest Type Vehicle Type Maximum Vehicle Age Ongoing Fee Upfront Fee Total Repayment Early Repayment Instant Approval Online Application TagsFeaturesLinkCompare
6.24% p.a.
7.36% p.a.
$583
Variable
New
1 year
$8
$400
$35,000
Featured
  • Available for purchasing new and demo vehicles
  • $5,000 to $150,000 loan amount
  • Redraw facility available up to $5000/day
  • Required: Good credit history, stable employment history. Aus citizenship or PR.
6.57% p.a.
7.19% p.a.
$588
Fixed
New
No Max
$0
$250
$35,278
Loan amounts from $2k to $75k
  • Available for any new motorised vehicle
  • No ongoing or early exit fees
  • 1-7 years loan terms. Pay monthly, fortnightly, or weekly
  • Get quick decision. Funds in 24 hrs if approved
6.99% p.a.
8.11% p.a.
$594
Fixed
New
1 year
$8
$400
$35,634
Approval within 24 hoursEarly payout available
  • Required: Good credit history, stable employment history. Aus citizenship or PR.
Important Information and Comparison Rate Warning

All products with a link to a product provider’s website have a commercial marketing relationship between us and these providers. These products may appear prominently and first within the search tables regardless of their attributes and may include products marked as promoted, featured or sponsored. The link to a product provider’s website will allow you to get more information or apply for the product. By de-selecting “Show online partners only” additional non-commercialised products may be displayed and re-sorted at the top of the table. For more information on how we’ve selected these “Sponsored”, “Featured” and “Promoted” products, the products we compare, how we make money, and other important information about our service, please click here.

The comparison rates in this table are based on a loan of $30,000 and a term of 5 years unless indicated otherwise. The comparison rates for car loans and secured personal loans for the relevant amounts and terms are for secured loans unless indicated otherwise. The comparison rates for unsecured personal loans are applicable for unsecured loans only. WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. Comparison rates are not calculated for revolving credit products.

Monthly repayment figures are estimates only, exclude fees and are based on the advertised rate for the term and for the loan amount entered. Actual repayments will depend on your individual circumstances and interest rate changes. Rates correct as of . View disclaimer.

Savings.com.au’s two cents

Buying a car or home, while exciting, can require a bit (or a lot) of effort when it comes to organising your finances.

You don’t want to go in blind, choosing the perfect car or house to only find out that you can’t afford to borrow that much money from your lender.

The best way to be prepared (and avoid disappointment down the line) when you begin your hunt for your dream home/car is to get pre-qualified or pre-approved. Now that you know the differences between the two and what they mean for you in the loan process, you’ll be able to make an informed choice on which is best to apply for in your situation.

If you’re 100% ready to get the show on the road and get a loan, then pre-approval is the way to go.

Or, if you’re just looking at shopping around and aren’t too sure whether you want to commit to a loan now or in the near future, pre-qualification is a good way to start.

Image by William Fortunato via Pexels





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