Q: Is there any reason to get preapproved for a loan?
A: For a large purchase, such as a home or car, having that preapproval in hand before you start shopping is crucial. A preapproval is a written letter from a lender specifying how large of a loan you will be eligible for. The letter will also detail your estimated interest rate on the loan.
Here are some other key advantages of getting a preapproval:
1.) You’ll know what you can afford
Having this information in hand will simplify your search. It will also help you avoid disappointment later. Be sure to calculate other monthly costs, such as property taxes, home insurance and increased auto insurance rates when determining the amount of money you’ll need to shell out each month.
2.) Don’t get taken for a ride
When you’re unsure about how much you can spend on a car, the dealer will capitalize on your uncertainty by trying to sell you a car that barely skims the maximum amount you’ve told them you can afford.
They may also focus only on a monthly amount you can afford. They’ll then try to inflate the payment with unnecessary charges and fees only because they fit within your named payment amount.
In contrast, when you show the dealer your preapproval letter, they will have to show you cars with price tags that fit within your loan amount.
3.) Be taken seriously
A car dealer will take you more seriously when you walk in with a preapproval. Having that information in hand shows you’re ready to buy. When purchasing a home, a realtor will be able to assist you more efficiently when you know exactly how much house you can afford. They’ll also give you better service since you’re showing that you’re serious about buying a home. In fact, many realtors will only work with buyers who’ve obtained a preapproval.
4.) Know you have financing you can trust
When you show up at the car dealership with a preapproval from your credit union, you know the deal is in your best interest. Many dealers have access to several financing options and they’re almost always going to offer you options that are in their own wallet’s best interests.
5.) Purchase your dream home
A preapproval helps you stand out from the pack. If you’re house-hunting in a competitive market, having your preapproval will give you a leg up on bidding wars. A seller will be more eager to work with someone who’s already started the mortgage process.
In the market for a new home or car? Don’t forget to call, click, or stop by SIU Credit Union to hear about our fantastic rates on mortgage and auto loans!
Your Turn: Based on your own experience, why do you think it’s important to get preapproved for a loan? Share your thoughts with us in the comments!