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Pre-approval car loans: How do they work?
February 24, 2021●
4 minute read●
Time for a car upgrade? If you’ve decided it’s time for a new car, you may be looking into your finance options. If you don’t have thousands of dollars to spare ready to fund this massive expense, you may choose to take out a car loan. Finding pre-approval car loans may seem like an easy, fast option to get into your new vehicle in no time. So, what is a pre-approval car loan and how can you get one?
What is pre-approval for car loan?
Car loan pre-approval is an ‘in principle’ approval wherein your lender agrees to provide you with a loan before you purchase a vehicle. Similarly to other loans, the lender will conduct an assessment to decide how much you can afford to borrow. This can be great to give you an idea of what you can realistically spend, and therefore limits your search to vehicles within your price range.
‘Pre-approved car loans’ does not mean that the money is transferred to you before you purchase the vehicle. It just means that if you were to choose to purchase a vehicle within your approved price range, you will not need to wait to be assessed as it has already been done.
Car loan pre-approvals are typically only valid for one to three months, depending on the lender. Given this short timeframe, having an idea of what car you would like to purchase can make things less stressful.
How do car loan pre-approvals work?
If you choose to apply for a pre-approval car loan, you must consent to a financial assessment so that the lender can decide how much you can be pre-approved for. This will likely include a credit check, supplying employment or financial information, and other personal documentation to verify your identity.
You are not given the money immediately; you are given conditional approval or pre-approval for a certain amount to finance the purchase of a car.
Pros and cons of car loan pre-approval
As with any form of finance, there are pros and cons that should be considered.
Pros of pre-approval car loan
- You understand your price range so you can make an offer on a car with certainty and confidence
- It can give you clarity when being pushed to spend more than you can afford
- It can remove the hassle of negotiating loan terms with a salesperson as your terms are already sorted
Cons of car loan pre-approvals
- It is only valid for a short timeframe
- Not all lenders offer pre-approvals, so it will require research
- The lender will conduct a credit check, which will show up on your credit report. If you don’t get your pre-approval and need to reapply elsewhere, multiple loan applications can be viewed negatively by lenders
How to improve your chances of pre-approval for car loan
Check your credit history
You can access a free copy of your credit report once a year. You can use this opportunity to check your report for any errors or inconsistencies and have these amended before you go to a lender to apply for finance.
Collect your supporting documents
Payslips, financial statements, employment documents and identifying documents will all be helpful in your application for approval.
Shortlist the car you want
Have a shortlist of cars you want. Since you have limited time to purchase your vehicle, it will make things a whole lot easier once you have your conditional loan approval.
Apply for loan pre-approval from a lender or broker
With your shortlist and documents ready, approach a broker or lender to see what options are available to you in terms of loan pre-approval.
Other than pre-approval, what else should I look out for?
Most pre-approved car loans are very similar to post-approved (car loans approved after your purchase) in that you can opt for a fixed or variable interest rate. If you get a fixed interest rate, the interest will remain the same throughout the life of your loan; a variable rate will fluctuate based on the market.
You may be able to choose between a secured car loan and an unsecured car loan. Most lenders will offer secured car loans for car purchases as they are usually expensive. The more money that is lent to a borrower, the more risk is involved for the lender. Secured car loans often come with lower interest and better terms. You can negotiate your loan terms, which can usually vary from 2 to 7-years. You may wish to look into things like balloon payments/lump-sum payments to pay less over the life of your loan; however, you should calculate whether this is beneficial or if it will end up costing you more in the long run.
Jacaranda Finance car loans
At Jacaranda Finance, we offer competitive car loans form $5,000 to $35,000. Our repayment terms are flexible, from 1 to 4 years depending on how much you borrow, so you can repay your loan comfortably.
While we cannot offer pre-approved car loans, we are very fast when processing our applications. If you apply within our business hours, we could get back to you within the same day you apply. We are an online lender, meaning that everything from your application to your loan repayments is handled completely online. There is no need to stress about paperwork and long phone calls; at Jacaranda, we keep things simple and straightforward.
Written by Jacaranda Team