You have probably received thousands of calls from so and so banks by now that offer you pre-approved loans. Not only you but the same experience was witnessed by me, my neighbor, your family and everyone around us. The fancy phrase ‘pre-approved’ loan sounds bit melodious isn’t it? Who does not want to enjoy a hassle free loan? You can buy your dream car or finally can build your dream home. But it is not that much easy as we think it is. Let’s have a look at it.

What is pre-approval of loan?

First of all, the concept of pre-approved loan must be understood. Generally the pre-approved loans are no different from the general home loan or personal loans. The only difference is you might face fewer procedures than the general loan process.

Now the pre-approved loan concept can be of two types: one is the general one and the other is the mortgage one.

General pre-approved loans:

A pre-approved car loan can help you get your dream car!

When we talk about the general pre-approved loan it means that whatever loan you are asking for is already approved and you don’t need to run from one counter to another to get your papers done. This can happen if you have a clear credit history. Typically it happens for every loan, be it a pre-approved or not, if the debtor has a clean and clear credit track record then it is much easier to get another loan. So in that case consider the pre-approved loan as one of the marketing strategy for the banks.
Sometimes your bank surprises you by offering pre-approved loans when you don’t have any previous loans to make history or track records. This happens because of your banking transaction history. If you have a stable transaction record through your accounts, then the bank can offer you a pre-approved loan. But in either case you have to go through the verification process however it won’t be that much long as in case of other loans.

Mortgage pre-approved loans:

In case of mortgage loans, if your lender offers you a pre-approved loan then it will be easier for you to find your dream house within your budget. By the time you get the loan you can easily buy / build your house immediately. Here as well you need to go through the verification process. Again the process is not as long as the other home or car loans.

Is it required?

Loans are subjective. Be it a pre-approved or others, if you don’t need it then don’t ask for it. If your lender / bank offer you pre-approved loan in easy terms or anything that is lucrative to you, think twice before you go for it. You must know that pre-approved loans are loans only and eventually you have to repay it back. If you have a requirement of loan then only go for next step like how much to take, what is the interest rate, the time of repay and so on.


Less Time Consuming: When your bank is giving you pre-approved loans that mean most of the process is done by your bank on behalf of you. The prolonged process that involves in any kind of loan will not bother you in this case.

Chances of getting lower interest rates: In case of pre-approved loans the interest rate you will be offered might have been lower than the usual market rate. As I mentioned that if you have clear credit history then your bank offers you pre-approved loans, so the possibility of getting lower interest rate is more.

Possibility of Bargaining: If you have a pre-approved loan facility then you have the power to bargain with your seller. Sellers have special feeling for the committed buyers and it is easy to negotiate with them in terms of price and such.


Need to Repay: Pre-approved loans are fun but it is after all a loan and you have to repay it back today, tomorrow or after 10 years.
Documents are needed: If you are thinking that your loan is pre-approved and so that you don’t need any documents then my friend you are terribly wrong here. Anyway you need pile of documents before you get the loan sanctioned.

What are the costs involved in Pre-approved loans?

Apart from the cons I have mentioned, there are some hidden costs that are involved in pre-approved loans. The explicit cost that one must bear is the pre-approval processing fee charged by the banks. Other than that there are some explicit costs involved here as well.

Often you will find that once you are agreed to pre-approved home loans, you will be asked again for car loans, personal loans and what not afterwards. The reason is the lender knows that if you have bought a house, you might need to work on interior, you might need a car or for something else. This will actually increase the burden of loans. Even if you don’t take them, you are still left with a loan that you must have paid.

Types of Pre-approved loans

Pre-approved loans with personal loan:

Sometimes your bank offers you pre-approved loans along with your personal loan. This is kind of self-required loans. The lender assumed that if you are spending some credited money on personal stuff, then you might need a car loan to upgrade your vehicle.

Suggestion from lender

This is purely marketing strategy by the lender. The bank often tells you about how you can increase your credit limit with less hassle. This is the trap they set to drag you into the pre-approval loan story.

Financing Bad-Credit

This is interesting and risky as hell. Some of the bad-lenders offer this kind of pre-approved loans to the bad-creditors to finance their current loans. But this isn’t worth as it may cost you more than anything else.

Is pre-approved and pre-qualified same? 

These two sound similar but not same though. The pre-qualification of loan does not guarantee you loan. It is the initial stage of applying for loan. You present all your documents to the lender and if they are convinced then you can apply for the loan.

The next stage is pre-approved loans where you need to pay application fees, then go through documentation and verification and if your lender gets convinced fully you will get a possibility to get the loan. It takes place mostly in mortgage markets.