Been holding out to buy a car once post-lockdown? Well, it may be time to think about getting pre-approved for a car loan.
Not only could this speed up the process of buying a new or used vehicle, it can give you the peace of mind that you have already been approved for lending from a car loan provider.
Plus, it can give you a better idea of what car prices you can go for as well as how far you need to go if it comes to negotiating the price.
But what is car loan pre-approval?
Car loan pre-approval is when a lender conditionally agrees to loan you money before you purchase a vehicle.
Note the word ‘conditionally’. This means that the loan isn’t set in stone, rather the lender sets conditions in order to fully approve the loan for the purchase of a car. Conditions may include things like loan limits and vehicle types.
It’s also important to remember that pre-approvals only last for a certain amount of time before they expire – in Australia that’s usually around one to three months.
So with this in mind, if you are planning to go car shopping post-lockdown it may be a good idea to have a look online and see what’s available within your price range right now. That way you will have done your research and won’t waste time once you’ve been pre-approved.
Do pre-approvals affect credit score?
Like all lending, pre-approvals can impact your credit score. The golden rule when applying for a loan or pre-approval is not to make multiple applications at once. Other lenders and tax reporting agencies may see this as a negative.
Remember, to be granted pre-approval on a car loan you need to have a healthy credit rating as it gives a potential lender the indication that you are a trustworthy borrower. So if your credit score isn’t looking good right now, it may be worth focusing on repairing it by paying off your current debts, before seeking out more forms of credit.
So wait, does pre-approval guarantee a car loan?
As mentioned, in the case where a borrower receives pre-approval, there is no guarantee of a car loan.
Some of the reasons someone may not receive lending after pre-approval:
- The pre-approval period has expired
- The car they are looking to purchase is too expensive (above the pre-approved loan amount)
- The lender doesn’t cover a particular vehicle type
How do I apply for car loan pre-approval?
First off, you’ll have to find a lender that offers pre-approval, as not all of them do.
Once you have, like a normal car loan application, the lender will assess your finances and check over things like your credit history, transaction and savings accounts as well as your employment status. That way, the lender will be able to determine how much they think you can afford to repay over the life of the loan.
If you receive pre-approval on a car loan, you will then be provided with funds to make a vehicle purchase.
Ready to start comparing car loans? Have a look at these options or head to our car loan hub for even more!