Why would you get a loan pre-approval?
Written on the 8 July 2019 by Nathan Drew, Fox Finance Group
Loan pre-approvals are on the rise!
Whether you are buying a car, caravan or even buying your new home it can be an exciting yet daunting time. Over their lifetime, most Australian's apply for between 4 to 5 large loans to make their big-ticket purchases throughout their whole lives.
There is a lot to be said for having the peace of mind of knowing exactly what you are up for before you go and commit to any large ticket purchase. Needless to say, being able to go out shopping with a loan pre-approval also puts the bargaining power back in your hands. It's as good as negotiating a cash deal.
Applying for a loan isn't something that most people are used to doing day to day, and if it's been a little while since you applied for your last loan, a lot has probably changed in the way of what lenders are offering the best deal and what the banks are looking for from you.
Taking the time to speak with someone who does do this every day makes sense. In our business we are now seeing more and more customers calling us who simply want a loan pre-approval before they head out shopping for that new car, boat or new home.
So how does it work?
What is a loan pre-approval?
A loan pre-approval means that a lender has agreed, in principle, to lend you an amount of money for you to go and make your purchase. This pre-approval sits in place but hasn't proceeded to a full or final approval. It allows you to know your maximum available funds so you can narrow your search, negotiate with more certainty, and even bid on that new house at auction with more.
A pre-approval is a valuable step to take to ensure that you stay in control of your purchasing decision and can go along way to making the process a lot easier for yourself and your partner if you are looking at a joint loan.
What are the benefits of a loan pre-approval?
Let's use buying a house and an example. If you're looking to purchase a house but you're not sure how much you can spend, it's difficult to know where to begin. You might find a property that seems perfect, but you have no idea whether it's a realistic option for your budget.
If a lender pre-approves you for a loan, they will do so for a specific amount, so you can focus your house hunting on the properties you can afford. Which might mean that you have to forget about that extra bedroom and pool for now, but the whole process will be a lot easier. It also means that, if you're bidding at an auction, you'll have a maximum bid to keep in mind, so you don't go and blow your budget or commit to a contract that you can't fulfil.
Pre-approval can also make you a more attractive buyer to a potential seller, as it indicates that you're serious about purchasing the property and that your offer is less likely to be withdrawn due to a lack of financing. As mentioned previously, having a pre-approval in place can put the bargaining power back in your hands.
What are the drawbacks with having a loan pre-approval?
There aren't any great drawbacks to obtaining a single pre-approval but making a number of loan enquiries at the same time or trying to have several loan pre-approvals set up in a short period can potentially harm your ability to borrow.
Pre-approvals will be visible on your credit file as a loan enquiry and having a number of enquiries in quick succession and with multiple lenders might create the impression that you're financially unstable. Learn more about what lenders think of your credit file.
While this shouldn't discourage you from seeking pre-approval, it does mean that making sure that you speak with your experienced Finance Broker that knows what each lender is looking for is a good idea. Why is it a good idea to do this? Ideally you only want to make one application for pre-approval with the right lender that is best suited to your needs. This is what a good Finance Broker will do. Learn more about what the difference is between speaking with a Finance Broker Vs going straight to your bank.
Does having a loan pre-approval mean that my loan will definitely go ahead?
No. While pre-approval means that you're more likely to have a loan approved, it doesn't provide an iron-clad guarantee. The following factors, among others, can affect whether a loan for which you've been pre-approved proceeds to final approval:
Changes to your personal circumstances
Changes to government regulations
A negative valuation of the property of vehicle
However, if your circumstances have not changed significantly and the property or vehicle is acceptable by the chosen lender, your chances of obtaining final approval following a pre-approval are very good.
Having a pre-approval set in place is a free service that we provide to our customers, and you are under no obligation to proceed if you decide that the loan pre-approval offer made to you is not for you.
If you have any questions, speak with the team on 1300 665 906 and they can step you through the details.
Author: Nathan Drew, Fox Finance Group
About: CEO - Fox Finance Group