When you’re shopping for a car, your lender may offer to get you pre-approved for a loan. This can be a helpful way to know how much you can afford to spend on a car, but it’s important to understand the pros and cons of pre-approval before you agree.
Pro: You’ll Know How Much You Can Afford
One of the biggest benefits of pre-approval is that it gives you a clear idea of how much you can afford to spend on a car. This can help you narrow down your options and avoid cars that are outside of your budget. You’ll also have more confidence when shopping around, as you’ll have a set limit in mind of how much you can spend.
Con: You May Be Tempted to Spend More Than You Need To
If you’re not careful, pre-approval can also tempt you to spend more money than you can afford. It’s important to remember that just because you’re approved for a certain loan amount, doesn’t mean you have to spend that much. Stick to your budget and don’t let the pre-approval push you into a higher price range.
Pro: It Can Speed Up the Car-Buying Process
If you find a car you want to buy and you’re pre-approved for a loan, the car-buying process can move much faster. This can be a big benefit if you’re trying to buy a car quickly. Keep in mind though that your pre-approval period only lasts for 90 days, so if it takes you longer than that to find a car, you’ll need to get re-approved.
Con: The Terms May Not Be Ideal
When you’re pre-approved for a loan, the lender will give you terms based on their current rates and policies. This means that the interest rate and other terms of your loan may not be as favourable as they could be if you applied for a loan after finding a car.
Pro: You May Qualify for a Lower Interest Rate
If you have good credit, you may be able to qualify for a lower interest rate when you get car finance pre-approval, meaning you might be able to save some money over the life of the loan.
Con: You May Not Qualify for the Best Loan Terms
Even if you have good credit, there’s no guarantee that you’ll qualify for the best loan terms when you’re pre-approved. If you’re not happy with the terms of your pre-approval, you can always shop around for a better deal.
All things considered, pre-approval for a car loan can be a helpful tool, but it’s important to understand the pros and cons before you agree to it. Be sure to keep the above points in mind so you can make the best decision for your needs.