What is car loan pre-approval?
Car loan pre-approval is conditional agreement from a lender to lend you a certain amount of money to buy a car. The lender is essentially agreeing to give you a car loan but holds off on approving it in full and releasing the funds until you have found a car to buy.
Pre-approval is only valid for a set period of time and is subject to final checks by the lender.
To get your car loan pre-approved, you’ll need to make an initial application with the lender.
It’s generally similar to the process for applying for full approval. The lender will want to know about your income, expenses, other debts and they will usually do an initial credit check. They do this to work out how much you can afford to borrow.
If the lender is happy with your application for pre-approval, they will agree (in writing) that you can borrow up to that amount.
To get full approval, you’ll need to find a car to buy before the pre-approval expires and pass some final lender checks.
How do I get car loan pre-approval?
Compare lenders
Then pick the one that’s offering you the best car loan deal (bearning in mind that not all lenders offer pre-approval).
Check you're eligible
Generally you must be over 18 years old, an Australian citizen or permanent resident, have a regular income.
Make an application with the lender
You’ll be asked to prove your identity and provide information about your finances.
Provide supporting documents
Like payslips and banks statements. If you're not able to provide the standard documents, l, you could consider a low doc car loan.
Then, all that's left to do is wait to find out if your application is pre-approved. This can be the same day in many cases.
What happens after you get car loan pre-approval?
After you get car loan pre-approval, you can go car shopping with your budget locked in.
When you find a car, all you’ll need to finalise your loan application. The main thing here is giving the lender details of the car you want to buy.
- If you’re buying with a dealer, you’ll need to provide a sales invoice.
- If you’re buying from a private seller, the lender will typically ask to see a registration certificate for the vehicle.
They’ll also check if any of your financial or employment circumstances have changed since you were pre-approved.
If you’re given full approval, the lender will release the loan funds. This can happen fast, as the lender has already done a lot of the work in processing your loan.
What are the benefits of having car loan pre-approval?
You might be thinking ‘why would I bother getting pre-approval for a car loan?’
I can just apply in full when I know what car I want to buy.
Here are some reasons why applying for pre-approval can be well worth it.
1
Helps you set (and stick to) a budget
Pre-approval lets you know how much you can get approved for with a lender. Having this figure in mind means you won't: waste time looking at vehicles outside your price range, or be tempted by the inevitable upselling of extras and upgrades.
2
Find a better deal
When you’re at the car dealership, you’ll have a million other things on your mind. Without pre-approved finance, you could be talked into expensive dealer finance. See for yourself how much difference your car loan interest rate can make to your regular repayments and overall costs using our car loan calculator.
3
Gives you negotiating power
Having pre-approval tells the car seller two things: 1. You’re a serious buyer. 2. You have a top budget that won’t budge. The seller won't want a serious buyer with finance lined up to walk away. They may even be prepared to lower their asking price to match your pre-approved amount.
4
There’s no obligation
Pre-approval is a limited time agreement from a lender. But there’s no obligation on your part to actually go through with the loan if for any reason you ultimately decide not to.
5
Makes the process faster
Cars are in very high demand right now. Having your finance pre-approved could help you seal a deal ahead of less prepared buyers. If it’s a private sale, being able to get the loan finalised quickly could mean you avoid any awkward and potentially risky arrangements. Like needing to pay a deposit to secure the sale while you make your finance application from scratch and wait for it to be processed.
Are there any downsides to car loan pre-approval?
If you’re considering pre-approval, you should know about the potential downsides too.
It’s time limited As soon as you get pre-approval from a lender, the clock is ticking. Your pre-approval will include an expiry date (plus the other loan terms and conditions). If you don’t find a car to buy and apply for full approval in time, you’ll need to start again.
It’s not a guarantee of approval If your circumstances change or the lender is not prepared to accept the vehicle you plan to buy as security for the loan, your application could still be declined.
Not all lenders offer pre-approval You may also find that seeking pre-approval limits your options. Only some lenders offer car loan pre-approval so you may miss out on other options if you decide that getting pre-approval is the best option for you overall.
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