Prequalified vs Preapproved: What’s the Difference?

Thinking about taking out a loan or credit card? You might not know it, but you can actually check your borrowing power before submitting an application. That’s where prequalification and preapproval come in—they give you an idea of what you might qualify for without impacting your credit score.

Knowing how these options work can help you plan ahead and avoid surprises. Let’s break them down so you can choose the best approach for your situation.

What is prequalification?

Prequalification is like window shopping for a loan or other financial product. You can browse the rates and terms of different lenders before settling on the right fit. Prequalification gives you an estimate of how much you can borrow without filling out a full loan application. Some lenders let you prequalify by sharing basic financial details, like your income and debts, while others send prequalified offers automatically based on your credit history—without you having to do anything.

Prequalification usually involves a soft credit inquiry, so there’s no impact on your credit score. But it’s important to remember that it’s not a guarantee of approval. If you decide to apply, the lender will take a closer look at your finances before making a final decision. At OneMain, it only takes a few minutes to check for prequalified available offers—and checking won't impact your credit score.

What is preapproval?

Preapproval is often the next step after prequalification, but the process can vary by lender. In some cases, preapproval and prequalification mean roughly the same thing: offering an estimate of what you might qualify for. However, some lenders treat preapproval as a more detailed review, requiring additional financial documents before providing a loan offer.

Think of it like house hunting—you’ve browsed a few options, found the one you love, and now you're ready to make an offer.

If a lender treats preapproval as a separate step, you’ll typically need to provide financial documents such as pay stubs, tax returns and bank statements. However, the timing of these requirements can vary. Some lenders may request these documents during prequalification, while others wait until the preapproval stage.

Additionally, a hard credit inquiry—which may temporarily lower your credit score—can occur at different points in the process, depending on the lender’s policies.¹

Once preapproved, the lender usually provides a borrowing amount and interest rate. Some lenders may allow you to lock in this offer for a set period, but if it expires, you may need to restart the process.

Prequalification vs preapproval

While both options sound similar, sometimes there are differences between them. Here’s a brief overview of how prequalification typically differs from preapproval.

Prequalification

• Usually used when you are starting to think about borrowing
• May involve a soft credit check or no credit check at all
• You provide estimate of your income
• Provides an estimate of how much you might qualify for
• No loan or credit application required
• Can take just a few minutes to receive

Preapproval

• Commonly used when you're ready to make a purchase
• May involve a hard credit check, which can temporarily lower your credit score
• Can be a conditional loan offer but doesn’t guarantee approval
• Requires proof of your income
• Requires a loan or credit application
• Timing of conditional offer may vary depending on the lender

Preapproval	Prequalification
Used when you're ready to make a purchase	Typically used when you are starting to think about borrowing
Can involve a hard credit check, which can temporarily lower your credit score	May involve a soft credit check or no credit check at all
Lender requires proof of your income	You provide estimate of your income
Provides a conditional loan offer but doesn’t guarantee approval	Provides an estimate of how much you may qualify for
Requires a loan or credit application	No loan or credit application required
Timing of conditional offer may vary depending on lender	Can take just a few minutes to receive

Should I get prequalified and preapproved?

Whether you get prequalified or preapproved depends on what your lender offers and the type of loan you need. Prequalification gives you a quick estimate of how much you can borrow, which can be helpful for personal loans or credit cards.

However, preapproval is more important for larger purchases like a home or car since it provides a clearer picture of your possible loan amount, terms and approval chances. If your lender offers preapproval, it can strengthen your negotiating power with the seller and help speed up the loan process.

Remember, prequalification and preapproval are not guarantees—you’ll still need to complete a formal application to see if you’ll be approved.

How to increase your chances of getting prequalified and preapproved

There are steps you can take to help boost the likelihood that a lender will prequalify or preapprove you for your ideal loan, including:

• Maintaining good credit: Pay your bills on time, reduce the amount of debt you have and only apply for new credit when necessary to keep your credit score in good shape.

• Finding a cosigner: A cosigner can be a trustworthy friend or family member with good to excellent credit who helps you qualify for a loan but will also be responsible if you default.

• Maintaining a stable income: Whether it’s through a traditional full-time job or self-employment, it’s important to have a consistent income because it shows lenders that you’ll have the means to repay what you borrow.

• Being mindful of how much you attempt to borrow: While it may be tempting to ask for a larger loan than you actually need, requesting more than you can afford to repay may hurt your chances of prequalification or preapproval. Lenders compare your requested loan amount to your income, and if the loan amount is too high, they may see it as a risk and decline your application.

Get one step closer to your financial goals

Once you understand what it means to get prequalified and preapproved, you can take these extra steps to help simplify the loan process and make smart decisions on your financial journey—no matter where the road takes you.

Sources:

1. Hard Inquiry: Definition, How it Works, Impact on Credit Score, https://www.investopedia.com/terms/h/hard-inquiry.asp