Pre-Approval

Pre approval of a loan describes a situation whereby the loan applicant has received a commitment to obtain a loan, prior to the selection of the specific loan collateral. It is useful for the borrower who prefers to negotiate for the purchase of a particular product with the comfort of knowing that they are qualified for financing. In general, an applicant will provide the lender, at time of credit application, with a general description of the type of collateral that they are considering for purchase. This would include collateral type, age and approximate cost. The lender will issue a pre-approval, which becomes a formal loan commitment upon selection and approval of the collateral being purchased.