A car loan pre-approval is provided by a lender who has already assessed your financial situation and is generally willing to provide auto finance.
However, they do not yet know what car you plan to buy and are unable to complete a contract offering you the loan.
Instead, a letter of conditional approval is provided so that you know how much you can borrow and what steps are required to obtain the loan.
In this article, we will discuss the pre-approval process in detail and how you can use this to your advantage when negotiating for your new vehicle!
In This Post:
What is Car Loan Pre-Approval?
Car loan pre-approval is a preliminary loan assessment that takes place before you have selected the vehicle you want to purchase.
Once you have pre-approval you can go shopping with a degree of confidence knowing your budget and loan eligibility.
A pre-approval is not the same as an unconditional loan approval, but it does put you in a stronger position when shopping for a vehicle.
Why Get Car Loan Pre-Approval?
A pre-approval can save you time as you will know exactly what your budget is, which can also strengthen your negotiating position with those selling the vehicle.
Buying from a Dealership
Car dealerships love buyers who are pre-approved because it shows that they are serious buyers and that a speedy sale could be achieved.
It can also give you an upper hand in the negotiations if you use your budget position and speed to settle wisely.
Buying Privately
A private seller is only looking to sell one vehicle and has no obligation to you. If you are not ready to buy then will just sell to the next person who comes along.
Pre-approval will allow you to settle the sale quickly after agreeing on the price – assuming all other issues are in order.
How Pre-Approval Differs from Final Loan Approval
Pre-approval is an initial check based on your finances, credit score, and borrowing capacity.
A contract for a secured car loan cannot be finalised without details about the vehicle that is being purchased.
Does Pre-Approval Guarantee a Loan?
Obtaining pre-approval does not guarantee that your loan will be approved.
There are two main issues that could de-rail your application:
- A significant change in your financial circumstances.
- The vehicle does not meet your lender’s criteria for vehicles they are willing to hold as security (age, value, total KMs etc.).
How Long Does Pre-Approval Last?
Most pre-approvals last for 90 days. If you don’t find a car within that time, you may need to reapply.
This is to ensure your financial circumstances have not changed to the point where you may not be able to afford the loan anymore.
How to Apply for Car Loan Pre-Approval
Step 1: Submit Online Inquiry
Click the button below to start the process and get in touch with our team for a preliminary assessment.
We will be in touch shortly after to prepare for pre-approval.
Step 2: Gather Your Financial Documents
As part of the initial assessment, we will need to collect some required documents. This will include:
- A copy of your credit file.
- 90 days of bank statements (all done online) to assess income and expenses.
- Other documents depending on your circumstances (proof of employment, other debts, etc.).
This will allow our brokers to make a recommendation for what lenders suit your circumstances and will provide you a pre-approval.
Step 3: Submit Your Application
Once your application is complete it will be sent to the selected lender for assessment.
If approved, a pre-approval letter will be provided outlining how much you can borrow and what additional steps are required before you can settle the loan.
Step 4: Ready to Select your Vehicle
It is now time to look for your preferred car.
You can either head to an auto dealership or have the car you want sourced by us here at Gusto Finance if you know the make and model you want.
Benefits of Getting Pre-Approved
Know Your Budget
A lender will have already determined your maximum borrowings based on the financial information provided.
This can often be very different to what someone thinks they can afford. The lender assesses income differently to what your real expenses are with various adjustments and buffers used.
The pre-approval lets you know exactly where you stand.
Stronger Negotiation Power with Car Vendors
A pre-approved buyer is a serious buyer and a chance to make a fast sale!
This gives you plenty of negotiating power. There are plenty of cars for sale out there, why would you buy this one if you can’t get a great deal?
Avoiding Credit File Surprises
Unless you are tracking your credit score, you may not be aware of what your credit file actually says about you.
It can be helpful to have this looked at by a professional before applying for a car loan.
This is what a broker does as part of the preliminary assessment so we can address any issues before seeking the pre-approval.
Saving Time and Disappointment
The last thing you want is to fall in love with a car only to find out that it is out of reach at the last minute.
You can save yourself the emotional strain and the time wasted by only shopping within your budget and the lender’s criteria.
Where to Get Pre-Approved for a Car Loan
Most lenders offer a pre-approval for car loans. However, to get the best result in the shortest time then a broker can match you with the lender best suited to your needs.
At Gusto Finance we have access to over 40 lenders and can get you a great result fast! Click the button below to get our team started working for you.
Conclusion
Obtaining pre-approval for your car loan allows you to shop for your new vehicle with confidence and extra negotiating power.
Most importantly, you have a strong indicator of the outcome you want and will be able to get the transaction done fast!
Click here to find out what happens after your car loan pre-approval.
