If you’re buying a car and financing the purchase, it’s much less stressful with a pre-approved car loan. Here’s all you need to know about this highly recommended auto loan feature.
What it means when you’re pre-approved for a car loan
Car loan pre-approval means you can apply for finance before you shop for your new ride. The lender then tells you how much money you qualify for, plus other important related information. This allows you to find a car that suits the loan rather than the other way around. So, how is this a game-changer?
It’s no secret that shopping for a car with cash on hand means you have more power to negotiate. While a pre-approved car loan isn’t the same as hard currency, it’s the next best thing to have when faced with an ambitious salesperson.
Benefits of car loan pre-approval
In a nutshell, getting pre-approved for a car loan means you can benefit from the following:
- A boost in negotiating power. Car buyers with pre-approved loans are more likely to get better deals. For instance, if the dealer wants to offer you finance, they’ll have to beat the offer you already have. Or, if they try to pile on add-ons like extended warranties and paint protection, it’s easier to decline since you have a clearer budget to stick to.
- Potential time savings. Finding a loan that suits the car you have in mind can be difficult. You’ll spend more time shopping for the car plus the loan. With pre-approval, narrowing down your options is a breeze. For instance, you can use a price filter to find the best match if you’re buying your new wheels online.
- A better car shopping experience, overall. Besides helping you get your new ride sooner, so you can pay it off slowly, a pre-approved car loan improves the car buying experience in many ways. Overall, you’ll have the confidence and knowledge to make a better decision since you’ll be in control right from the start.
Applying for a pre-approved car loan
You can get a pre-approved car loan from most Aussie lenders with these few simple steps:
Dig up your credit report
Australians can look up their credit report for free once a year via sites like My Credit File. When you apply for a car loan, the lender will also access the same information. If you get your hands on your credit report first, you can fix any incorrect listings that might hold your application back or net you a higher interest rate.
This is done by contacting the relevant credit reporting agency, so they can investigate any issues and update your information.
Compare car loans
It’s important to compare factors like interest rates, fees, loan terms, and borrowing limits. Using an online car finance comparison website can help you streamline this process. You’ll be able to find banks, credit unions, and online lenders that offer car loan pre-approval in one place.
Remember, not all Australian lenders offer pre-approval, so confirm with the lender before applying.
If you aren’t using the car to secure the loan, you can also compare unsecured personal loans. Although you may not get the most competitive rate or borrow as much as you like, this loan type may have a faster turnaround.
Get your information and paperwork in order
Credit approval is conditional on whether you meet the lender’s requirements. Generally, here’s what you need to present your best face forward when borrowing:
- Be at least 18 years of age
- Have a regular income
- Have a good credit rating and a clean credit history
- Provide contact, income, and identification details
- Provide your ID, driver’s licence, bank statements, and other documents
Apply and go car shopping
Some lenders let you pre-qualify without carrying out a hard credit check. This allows you to apply for multiple offers without it affecting your credit score. Even when you go car shopping, having more finance options also provides more flexibility, whether you’re buying from a private seller, car dealership, or auction.
Since pre-approvals can take as long as three months to expire, you’ll have ample time to explore your car buying options.
Finalise the process
Pre-approval isn’t a guarantee that you’ll get finance for your car. It only confirms that you’re eligible for the loan. After finding the vehicle you want to purchase, you’ll still have to contact the lender to get final approval. They’ll want additional details about you, the car, and the seller before they can process the transfer.
However, the lender reserves the right to deny you credit if your circumstances have changed significantly after the application. For instance, if your income or credit score has reduced drastically, they may doubt your ability to service the loan. In the same vein, you’re also not obligated to finalise the application when offered pre-approval.