Pre-Qualification

AAA

DEFINITION of 'Pre-Qualification'

An initial evaluation of the credit worthiness of a potential borrower that is used to determine the estimated amount that the person can afford to borrow. Pre-qualification is a relatively simple and quick process of examining the potential borrower's income and expenses in order to generate an estimated borrowing range that they would likely be able to repay to the lender.

INVESTOPEDIA EXPLAINS 'Pre-Qualification'

It is important to note that the pre-qualification amount is not a guaranteed amount that would be receive from a financial institution if you applied for a loan but is simply an estimate, which can be used to gain an idea on what a person can afford to purchase. The pre-qualification process doesn't include a more thorough look into the credit worthiness of the borrower, such as accessing your credit report or score.

Pre-approval is a more in-depth assessment of the amount that a person can afford to borrow and is done by a financial institution that will state the maximum amount that it would lend to the borrower.

RELATED TERMS
  1. Credit Score

    A statistically derived numeric expression of a person's creditworthiness ...
  2. Credit Report

    A detailed report of an individual's credit history prepared ...
  3. Loan

    The act of giving money, property or other material goods to ...
  4. FICO Score

    A type of credit score that makes up a substantial portion of ...
  5. Pre-Approval

    An evaluation of a potential borrower by a lender that determines ...
  6. Never Pay Strategy

    A colloquial term used to describe an individual who opens a ...
RELATED FAQS
  1. Why is it beneficial to innovate financial models and techniques used in quantitative ...

    The majority of consumers use credit cards at some point during their lifetimes to finance major purchases, earn rewards ... Read Full Answer >>
  2. How can I use quantitative analysis to evaluate investment decisions if I don't have ...

    While there are a few legitimate companies advertising that they can consolidate credit card debt, most are illegitimate ... Read Full Answer >>
  3. What are some common models that practitioners use in quantitative analysis of equity ...

    Credit cards can be a helpful component in reaching a financial goal or financing some of life's bigger expenses. Carrying ... Read Full Answer >>
  4. What are some reasons banks deny applications for checking accounts?

    Consumers and businesses use credit to finance major purchases or emergency expenses that exceed regular cash flow. Credit ... Read Full Answer >>
  5. What are the differences between debit cards and credit cards?

    Debit cards and credit cards work in similar ways. Both carry the logo of a major credit card company, such as Visa or MasterCard, ... Read Full Answer >>
  6. Is the prime rate in the US different from the federal funds rate?

    Although the prime rate and the federal funds rate are closely tied to one another, their base rates differ based on market ... Read Full Answer >>
Related Articles
  1. Credit & Loans

    4 Steps To Attaining A Mortgage

    It starts with knowing your choices as well as your price range. We show you how to get there.
  2. Credit & Loans

    The Importance Of Your Credit Rating

    A great starting point for learning what a credit score is, how it is calculated and why it is so important.
  3. Budgeting

    Mortgages: How Much Can You Afford?

    Answering this means number-crunching as well as factoring in other considerations and expenses.
  4. Options & Futures

    Pre-Qualified Vs. Pre-Approved - What's The Difference?

    These terms may sound the same, but they mean very different things for home buyers.
  5. Personal Finance

    5 Times Cash Rewards Credit Cards Come In Handy

    Using a credit card with cash rewards during emergencies can help you get through tough times, buy you time to pay off costs and even reap a cash reward.
  6. Credit & Loans

    American Express's Main Competition

    American Express competes with Visa, MasterCard, and Discover Financial Services in the credit card space. It also competes with banks to draw consumers.
  7. Credit & Loans

    Credit Cards That Will Get You First Class Flights

    It's getting harder and harder to be upgraded to first or business class on airlines. Here are some credit cards that may help you get those premium seats.
  8. Forex Fundamentals

    Bitcoin Transactions Vs. Credit Card Transactions

    We provide an overview of the differences between bitcoin and credit card transactions, and the advantages of using one over the other.
  9. Credit & Loans

    Top Credit Cards For The Ultra Rich

    Only a few people qualify for these elite cards. The question is, are the lush perks big bucks can buy you worth the cost?
  10. Credit & Loans

    The Pros & Cons Of Personal Loans vs. Credit Cards

    One is not like the other. We help you decide where to borrow money from.

You May Also Like

Hot Definitions
  1. Net Worth

    The amount by which assets exceed liabilities. Net worth is a concept applicable to individuals and businesses as a key measure ...
  2. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  3. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  4. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  5. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
  6. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
Trading Center