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Home Home Loans Pre-qualified vs Pre-approval for Home Loans & Car Loans
With terms like pre-qualified and pre-approval often used interchangeably, borrowers can get confused about whether they mean the same thing or something totally different.
By Hanan Dervisevic on 23 Aug 2022
Fact Checked
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.
To dig into the differences between pre-qualified and pre-approval, this article will dive deep into:
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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 October 7, 2022. View disclaimer.


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 October 7, 2022. View disclaimer.
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).
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.
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.
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.
Credit checks
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?
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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Fixed New 1 year

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  • *When you purchase or refinance an eligible home loan. Apply by 30/11/22. Settle by 31/01/23. Exclusions and T&Cs Apply.
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*Comparison rates based on a loan of $30,000 for a five-year loan term. 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. The products that appear in the table above are initially sorted based on a variety of factors including the availability of a direct link to the providers website, and other commercial factors (see How we get paid). However, the comparison 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. Data may not be available for some products. This is indicated in the tables by not showing an available product for the relevant term. Terms, conditions, fees and charges may apply. The above is prepared without considering your objectives, financial situation or needs, therefore please consider its appropriateness to your circumstances. General Information and Terms and Conditions may be found on each provider’s website. Rates correct as of October 7, 2022. View disclaimer.


*Comparison rates based on a loan of $30,000 for a five-year loan term. 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. The products that appear in the table above are initially sorted based on a variety of factors including the availability of a direct link to the providers website, and other commercial factors (see How we get paid). However, the comparison 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. Data may not be available for some products. This is indicated in the tables by not showing an available product for the relevant term. Terms, conditions, fees and charges may apply. The above is prepared without considering your objectives, financial situation or needs, therefore please consider its appropriateness to your circumstances. General Information and Terms and Conditions may be found on each provider’s website. Rates correct as of October 7, 2022. View disclaimer.
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
The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered. Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site. Savings.com.au, yourmortgage.com.au, yourinvestmentpropertymag.com.au, and Performance Drive are part of the Savings Media group. In the interests of full disclosure, the Savings Media Group are associated with the Firstmac Group. To read about how Savings Media Group manages potential conflicts of interest, along with how we get paid, please visit the web site links at the bottom of this page.
Hanan joined Savings.com.au in 2022 as a finance journalist. With a keen interest in home loans, property investing, and money saving tactics, she is passionate about educating young Australians, like herself, on all things finance.
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The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered. Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site. Savings.com.au, yourmortgage.com.au, yourinvestmentpropertymag.com.au, and Performance Drive are part of the Savings Media group. In the interests of full disclosure, the Savings Media Group are associated with the Firstmac Group. Read about how Savings Media Group manages potential conflicts of interest, along with how we get paid.
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