Compare Pre-Approved Car Loan Rates

What is a pre-approved car loan?

A pre-approved car loan is a car loan you've been conditionally approved to borrow up to a certain amount prior to purchasing a car. Before granting pre-approval, the lender will likely need to assess your credit rating, liabilities and income.

Entering a car dealership with a pre-approved car loan can help speed up the buying process - both you and the dealer have a more specific idea of how much you have to spend.

It's important to remember pre-approval isn't necessarily a guarantee. You'll still have to contact the lender after the purchase (whether that's online, over the phone or in a branch) to settle the loan.

What are the benefits of pre-approved car finance?

A fixed budget, stronger negotiating position and avoiding dealer finance are a few of the potential advantages to car loan pre-approval.

Fixed budget

Pre-approval for a car loan up to a certain amount can provide a more accurate sense of what price range you should be looking at for your new ride. You'll be able to narrow down your search which can make it simpler to compare your options.

Stronger negotiating position

Having pre-approval can also be an advantage at the car dealership. A buyer that walks in with only a vague idea how much they are willing to pay might find a commission-hungry dealer nudging them towards the higher end of the range. Pre-approval and a fixed budget is a good way to avoid manipulation. If you've been approved for a loan up to $20,000, you'll know to ignore the lure of a brand new $40,000 Mazda.

Avoid being ripped off on dealer finance

Car dealerships often have in-house financing options available to buyers. This isn't always a blanket avoid - you might find dealer finance that leaves you better off than your options from conventional lenders. However, it's often rife with traps and subtle ways that mean you aren't doing quite as well out of the deal as you thought.

Julian Finch of Finch Financial Services says it's easy for dealers to use financial jargon to confuse buyers.

"Car dealers never talk rates with you, they talk repayments. These can be manipulated by guaranteed buy back values, balloons on the finance offer, the changeover price of the car, the value of your trade in the price of the new purchase, etc," he told Savings.com.au.

Why pre-approval is important

"As consumers, we shop around for discounts on our groceries, our new lounge or TV. When we are buying a house, we get pre-approval on a mortgage so we are prepared with a a budget. This is all sensible behaviour. So it begs the question: why don't we take the same care when financing a new or used car?

Walking into a car yard with your finance pre-approved means you have more time to spend negotiating the best price on your vehicle with all the features you want. You become a cash buyer."

Julian Finch, Managing Director of Finch Financial Services

What are the drawbacks of car loan pre-approval?

Pre-approval for a car loan can sometimes limit your finance options, as well as the range of vehicles you can buy. It also generally isn't indefinite and can expire, which can also create issues.

Not available for every lender

Since not every lender offers it, chasing pre-approval on a car loan could mean you ignore some of your options. There's a huge range of car loan products on the Australian market, from all sorts of different providers. Some lenders may not have a pre-approval process in place - but that doesn't necessarily mean their products are any less competitive.

Can limit your choice of vehicle

Pre-approval can also limit your choice of vehicle. Lenders may have restrictions on what type of vehicle you are approved to use the loan to buy. Sometimes cars over a certain age won't be eligible, so you might need to rule out some second hand gems.

Recorded as a credit event

Car loan pre-approval will likely be recorded on your credit history and could impact your score. Since lenders run a credit check before granting pre-approval, this is recorded as a credit event - and a 'hard' credit event which means it could affect your score. In practice, a single pre-approval probably won't damage your credit too much, but firing off applications all over the place might have an adverse impact.

Should you get pre-approved for a car loan?

Car loan pre-approval isn't an absolute necessity, but it can give you a better idea of your budget and could ease the negotiating process. If your lender pre-approves you up to a certain amount, you know it's probably a waste of time to look at vehicles that will be substantially more expensive than this.

Not all lenders offer pre-approval - and there might be restrictions on the kind of car you can buy.

How do I get pre-approved for a car loan?

Lenders generally try to make applications as easy as possible, so it's normally pretty straightforward to apply for pre-approval. Nevertheless, it's worth doing the following to expedite the process:

• Check your credit score: Lenders use your credit score to gage your trustworthiness as a borrower. A dodgy credit history could seriously hurt your application so it's worth checking beforehand to avoid any nasty surprises.

• Get all your supporting documents together: Documents could include 100 points of ID (Driver's license, passport etc.), recent pay slips, a copy of your bank statements, your current employment status, any other assets and liabilities you might have (like shares, other loans or credit card debts) and more.

• Compare a wide range of lenders: Before jumping into applying, you should definitely compare a range of different lenders on their interest rates, fees and other loan features like balloon payments or repayment flexibility. As we touched on above, firing off lots of different pre-approval applications can hurt your credit score so it's worth narrowing your search beforehand.

Conditional car loan approval

Pre-approval is generally a conditional approval - the loan is not guaranteed. Before formally approving the loan and releasing the funds, your lender will usually check your credit history and financial circumstances again. You'll probably also need to detail the specific vehicle you will be using the loan to buy, which the lender will also assess.

Unconditional approval

Unconditional approval for the car loan only happens after the sale has been finalised and a final credit assessment. This is generally a green light for your lender to release the money.

Bad credit

If you have a bad credit history, you might need to produce more documents before being granted pre-approval. This could include more in-depth information about your spending habits, including income and expenses.

Borrowers with poor credit might still be able to get a car loan, but the interest rate is likely to be higher.

Car loan broker

If you aren't comfortable navigating your own way through the car loan market, you could hire a car loan broker to get you pre-approved.

"A good broker will find the best deal for you. They will also make sure you understand your finance contract and you have been made aware of all the costs associated with it," Mr Finch explained.

What happens after a pre-approval?

Once you've been pre-approved, it's time to go out and actually buy a new car. This might be through a dealership, auction or a private seller - you'll just need to let your lender know the details.

They will then do a final assessment of the purchase, and give you final approval, at which point you'll need to sign and finalise the loan contract. Once this is done, the lender will pay the funds to the dealership or seller directly, provided it is within the limits of the pre-approval conditions.

If you buy a car that's outside the pre-approved limit, you may need to complete an entirely new application.

Loan declined after pre-approval

Pre-approval isn't a guarantee. There are a number of reasons why a lender might reject you after the fact. Some of the more common reasons include:

• The car you're buying is outside the pre-approved range

• There's a change in your personal circumstances, such as a reduced wage, a lost job, large expenditure on certain things (like gambling), multiple other credit applications in the meantime, etc.

• Interest rates have risen during the pre-approval period, pushing the assessment rate beyond your proven capacity to repay the loan

• The lender might have modified its lending policy in the meantime, so you'll have to be re-assessed under the new terms.

You generally shouldn't immediately re-apply for a loan without figuring out why you were rejected. A rejected loan application can negatively impact your credit history, so you don't want to apply again and have rejections start to stack up.

Make sure you contact the lender to find out why your loan was rejected. If it's for something minor like a change of loan terms, then you might be able to reapply. If it's for a major reason, like a change in your income or higher interest rates, then you might need to find a different lender.