Buying a car, while exciting, can be a stressful time when it comes to organising your finances. Getting pre-approval for your car loan could take the pressure off, help you negotiate with the car dealer and keep you aware of your budget limitations.
So, what is car loan pre-approval, which lenders offer it and how do you get it? Let’s break it down.
What is car loan pre-approval?
A car loan pre-approval is when your lender agrees to give you a loan to buy a car before you buy it. Similar to other loan application processes, the lender will evaluate your financial circumstances to ascertain how much you can afford to borrow.
A pre-approval can give you a better idea of your price range before you walk into the car dealership or jump online. It could also stop you from spending more than you can afford.
It’s important to note that a pre-approval doesn’t mean the loan is a guarantee.
This is because the lender has granted you conditional approval, where you are accepted for a loan up to a certain amount.
However, your lender may not accept the loan for all vehicle types and once you know what you want to buy, you will have to resubmit a car loan application.
Unconditional approval is the next step after your loan has been successfully reviewed. It means the lender is prepared to give you a loan for a specific amount for a specific vehicle.
Car loan pre-approvals are valid for a limited time, generally ranging from one to three months.
Given this time limit, it’s better to have done some research and be ready to start the car hunt as soon as you have the pre-approval.
Car loans with pre-approval available
Below is a snapshot of car loans on Canstar’s database with pre-approval available before a full application is made.
The table below displays a snapshot of car loans with pre-approval available on Canstar’s database, with links to providers’ websites. This table is sorted by the advertised interest rate (lowest to highest), then by provider name (alphabetically).
Source: Canstar. Based on car loans available for $20,000 paid over five years in NSW. Read the Comparison Rate Warning.
How do I get pre-approved for a car loan (in five easy steps)?
You can apply online to see if you are eligible for pre-approval on your car loan.
It’s worth comparing your options first to find the right loan, interest rate, flexibility in repayments and lender for you. You can expect the application process will be similar to taking out a regular car loan.
So, here’s what you need to do:
- Check your credit rating before you put in an application. Your credit rating or credit score is a numerical score that shows lenders how trustworthy your reputation is as a borrower.
- Gather all the necessary documents and personal details for a loan application. This could include proof of identity (100 points of ID) and proof of your ability to make repayments (through income, assets and liabilities such as credit cards or other loans).
- Compare your options to get a good deal that suits your financial situation. With over 250 car loans on our database, we can help you there.
- Get in touch with the lender you wish to apply for pre-approval with. Note, as well as checking your credit score, the lender may wish to get in touch with your employer, past finance lenders or previous property manager to verify the information you provided.
- Once you’re pre-approved, start shopping around for your dream car.
Pros and cons of car loan pre-approval
As with any financial decision, a car loan pre-approval has benefits and drawbacks. Here are some of the pros and cons:
Pros of car loan pre-approval
- Boosts your bargaining power because you know how much you can borrow.
- Helps you understand your price range.
- Can prevent you from being pushed into spending more than you can afford.
- Removes the need to negotiate loan terms with a car salesperson.
Cons of car loan pre-approval
- It is only valid for a limited time.
- Not all lenders offer pre-approval for car loans, so you’ll need to do some research.
Overall, a pre-approval can be a useful way of ensuring you have the money to buy a car. It also can boost your confidence in negotiating the asking price and help you determine what you can afford.