Pre-approval for loans is a form of refinancing where you will be given an approval for your loan before you sign on any papers. In the lending industry, the approval is nothing but a pre-qualified request for a mortgage or loan of some value range. The pre-approval is given based on your credit scores, income information and other personal information. The lenders have a list of their approved applicants to whom they do not give the approval. These individuals are also called the rejected applicants. When you get a pre-approval for a mortgage or loan, the lenders consider you as one of the rejected applicants, as you have not proven your ability to pay.
The purpose of this type of financing is not only to speed up the approval process, but also to protect both the lender and the borrower. There is a possibility of default if the borrower goes in for a pre-approval and defaults on the deal. This type of arrangement also saves the lender from incurring further losses and is a win-win situation for both parties.
However, there are instances when a pre-approval is a misnomer. Sometimes a pre-approval simply means that the application has been sent back for corrections and further processing. Lenders are wary about giving out pre-approval to loans to applicants who are in arrears or who have CCJs pending against them. In such cases, it is obvious that something is amiss. Hence, the pre-approval should not be misused to hasten the approval of the loan.
Another possible pitfall for lenders when it comes to pre-approval is overuse. When a pre-approval is given out, it is not uncommon for the applicant to take the money in advance of submitting the complete set of documents. This may be because the person does not have proper awareness of the legal formalities involved in the loan application. Such borrowers try to pay a little extra fee for the loan which they get from their supposed lender as an added on service. When the loan is finally sanctioned, they realize too late that they have been overcharged or that the loan is not suitable for their individual needs.
To avoid such scenarios, lenders give more value to genuine pre approval quotes. It is not unusual for an applicant to submit a fake application to enhance his chances of getting the loan. Lenders are well aware of this trick and check for such discrepancies before sanctioning the application. Therefore, it is advisable to submit genuine details only. Make sure your application form contains all the accurate information required by the lender.
If you have applied for a secured loan, then you should be prepared to provide some form of collateral to the lender. However, the approval does not mean you can do away with any form of collateral. This is especially true if you are looking forward to get a home mortgage loan. For such individuals, the approval serves as an ideal platform to convince the lender of your sound financial condition without having to put up collateral. However, those who want to borrow an unsecured form of loan will have to be extra careful in this regard.
You will have to convince the lender of your ability to pay off the loan in time. This is a difficult task and you might have to employ additional tactics to make your point across. To make the matter worse for yourself, your application might get rejected because of late payments or missed payments.
Once again, the approval does not ensure that you will be granted the loan. Only after thorough analysis of your finances, the lender can decide whether you will be granted the loan or not. The pre-approval does not eliminate the hassle of the application process. You will still have to complete the other documents required by the lender. However, your application will be placed in the queue based on urgency. This makes things much more exciting and makes the entire process a pleasant one.