When you have loan pre-approval it means you have been pre-approved by a certain lender for a certain type of loan up to a certain dollar amount. There are various types of loan pre-approval, from car loan pre-approval to home loan pre-approval, depending on what you are looking to finance.
The purpose behind gaining car or home loan pre-approval is to let you buy with confidence, so you know that when you make a purchase, you have the finance to back that purchase up. For example, if you have pre-approval on a loan, you can buy the car or property knowing that you will be granted a loan to cover the cost.
Apart from allowing you to buy with confidence, pre-approval also lets you know your purchase boundaries. If you get home loan pre-approval up to a certain amount and you go to auction to purchase a property, you will know your buying limits, which should prevent you from buying a property that you can’t afford.
There is also the fact that it can speed up the mortgage application process, so when you decide on a property, you can access your home loan faster. It can also show vendors and real estate agents that you are serious about doing a deal, which could make negotiations easier.
How it works
While many lenders offer loan pre-approval, some do not. Those that offer pre-approval will vary in their pre-approval process. Some may provide online approvals within a few minutes, whereas some will require a large amount of paperwork and a background check.
This is something to be aware of when applying for loan pre-approval. If the lender offers pre-approval within a few minutes, it could be that their credit assessment team has not seen your application, and the loan pre-approval may not be set in stone.
If you want to buy with confidence, it’s important to know that you can rely on your pre-approval. Be aware of what the lender is asking for, and ask for the pre-approval in writing. By going through a broker, this pre-approval process can be made much easier, as the broker can offer valuable advice on what you will need from your pre-approval and how to go about getting it.
What to look out for
Once you have loan pre-approval, check how long it is valid for. Again, this will vary according to the lender, but it could be anywhere between three and six months. It’s also worth thinking about other factors that may affect your pre-approval and the resulting loan.
If the lender decides you have paid too much for the property, your loan application may be rejected despite your loan pre-approval. It could also be rejected if market interest rates have changed significantly since your pre-approval was granted, or if your personal circumstances have changed, for example, if you have a new job.
Again, if you go through a broker, your broker should be able to offer advice on this. If you choose to go it alone, make sure you do your homework and read all the small print.
If you want somewhere to start, try using some of our loan calculators like the How Much Can I Borrow, Complete Loan Comparison or Basic Loan Repayments calculators here.
Of course if you have any questions, we’re here to help.
Lend Me – Car & Home Loan Brokers – Perth, Western Australia