Best Egg "Pre-Approved" Loan Offer: Why Not Say "Pre-Qualified?"

Best Egg Pre-Approved Loan Offer

After all these years, I can't believe that lenders are still allowed to use this language:

"Pre-Approved"

I'm old, and I've done plenty of borrowing in my time, so I know that the phrase "you're pre-approved" is a very unethical trick lenders use to make you think that your financial background has already been vetted, and your loan application is virtually guaranteed to get a green light. I know better.

But what about the young, first-time borrower with a limited or nonexistent credit history?  They see the "pre-approved" hook, they apply, they get turned down, and the lender ends up getting something very valuable: all of the rejected borrower's most sensitive, identifying information (name, address, Social Security number, age, etc.) Not good.  Not good at all.

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OK, so here's an explainer of a mortgage "pre–approval letter," by the good folks at TheMortgageReports.com:

"...Having a pre–approval letter gives your offer a lot more clout, because the seller has solid evidence you’re qualified for a loan to purchase the home.

Realtors generally prefer a pre–approval letter over a pre–qualification letter, because a pre–approval has been vetted to prove your eligibility.

Note: getting “pre–qualified” is different from getting a “pre–approval.”

Both terms mean a lender is likely willing to loan you a certain amount of money. But Realtors generally prefer a pre–approval letter over a pre–qualification letter.

That’s because pre–qualification letters are not verified. They’re just an estimate of your budget based on a few questions.

A pre–approval letter, on the other hand, has been vetted against your credit report, bank statements, W2s, and so on. It’s an actual offer from a mortgage company to lend to you – not just an estimate.

You are NOT required to stick with the lender you use for pre–approval when you get your final mortgage. You can always choose a different lender if you find a better deal..."

And this is exactly what ALL banks should do: use the term "pre–qualified" instead of "pre-approved," and include a detailed explanation of what it means, not in tiny, eye-straining text and the end of the last page, but in bold, and right next to the first use of the term.  Amen.

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The Student Loan Dilemma

When I decided to go to college I knew that no matter where I went I was going to take out student loans. My parents didn’t have much money to pay for college and I had little to no savings for the occasion. Instead of thinking about money and how much the bill would add up, however, the school advisor was limited to helping me choose a school. After all, I was going to have a college degree in four years so what’s the difference how much my student loans added up to? While there are some kids that have a strong and dedicated desire to be something great like a doctor, lawyer, or dentist, most kids planning for college simply go to get a degree in whatever interests them by their junior year. If you plan on going to graduate school at a hard-to-get-into college then the undergraduate school may matter. If you are going to graduate with your bachelor’s and get a job, I’ve learned the institution really means nothing.

I chose to go away to school in upstate New York where most of my friends were going. I had no clue what I wanted to do but knew that I qualified to have just about everything paid for by my student loan. The majority of the loan was through a private bank while just a minute amount was funded through the government. An even smaller amount was given as a grant that I wouldn’t have to pay back. At 18 years old, I didn’t think twice. I packed up my belongings and headed off to what would become the best four years of my life.

After I graduated college, my loans totaled over $20,000. I slowly paid off the government loan which was around $3,000 and deferred payments on my private loan. Although the rate was pretty good at 4.41% I found it impossible to pay the $390.00 monthly payment with my newly acquired job. I applied for consolidations and was denied multiple times. Since the rate was good everyone I spoke to acted as though the $17,000 should be easy to get rid of. But I didn’t go to school to be a lawyer or doctor, I graduated with a degree in Psychology that I settled on after 3 years of trying to figure out what it was I wanted to do. In fact it seemed as though my college degree was more of a high school diploma and all the places I applied to could care less what I studied, only that I had the degree. Completing 4 years of college showed dedication and an aptitude for learning and that was all anyone seemed to worry about. My job was in sales and I had no idea how I was going to pay back the money I owed.

That was 8 years ago. Today my loan now totals over $19,000. The interest keeps building up and the payment remains at $390 a month, a nearly impossible amount for a person that makes $30,000 a year to afford. Now that I own a home I’m going to try the consolidation process again to see if that will help. After all, isn’t better for me to pay something rather than nothing? It would seem from the $2,000 in interest they’ve made that the answer to that is no.

While going away to college was a great experience, was it really worth the price of a new car? I could have easily got the same degree at a local community college for less than half the price and to be honest most employers could care less where the degree came from.

My answer to this dilemma is a big fat resounding yes.

While many kids may seem like they are just going to college for the sake of it, who are we to make that choice for them? I am happy I was given the chance to decide for myself and will do the same for my children someday. Limiting a child to a local community college when they have aspirations is like telling someone who wants to be a police office they can only be a security guard. Yes, many of them will fail and end up protecting the local mall anyway, but isn’t it worth it to give them a chance?

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Alternative Lending Sources

What is the proper measure for creditworthiness in this day and age?

Apparently, it is no longer simply the credit report or the verdict of one's local banking institution. There are so many individuals who fall short of traditional standards of creditworthiness that the marketplace has naturally made room for non-traditional lenders. Besides the controversial subprime mortgage lending industry that most people are by now familiar with, there is a increasung trend in person-to-person lending organizations. Websites like Prosper.com facilitate lending transactions between individuals and other single or small group benefactors. Using such a service empowers people who may not otherwise receive loan funding to finance their dreams and goals.

I am still not sure how I feel about the rise in alternative lending resources. At first glance it looks great; power to the people, right? There is no reason why deserving people should have to remain at the mercy of the big bad traditional financial institutions, right? I'm not so sure that pumping more loans into the pipeline is the answer. Then again, I am one of the few who believes that people should begin to move away from financing instead of toward it. If enough people renounced the borrowing lifestyle and stopped applying for loans, the market would respond with more competetive rates and terms. Then we wouldn't need many of these alternative lending options.

Wouldn't that be something?

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