What Does Pre-Approved Car Finance Mean?
The routes to getting finance are wide-ranging, and there isn't a one-size-fits-all approach. That's a good thing, of course, because everyone's needs and budgets are different. One aspect of financing you may not have previously considered is the "pre-approval" stage. Getting a pre-approved loan can be helpful for many reasons, including providing more transparency over how much you can borrow. Here, we look at the meaning of pre-approved car finance and how it can help.
What Does Pre-Approved Mean?
So are you wondering what pre-approval actually means? A pre-approved loan typically refers to a financial offer or arrangement where you have conditional approval for a loan, credit card, mortgage and, of course, car finance.
The validation process for pre-approved loans involves checking your creditworthiness, income and other factors to determine if you meet the lender's criteria. If you satisfy the requirements, the lender will likely issue a pre-approval loan offer indicating the terms and conditions of a potential loan.
It's good to note that pre-approval doesn't always guarantee that you'll be approved for car finance, as the lender may conduct further due diligence and review specific financial information before making a final decision. However, it can indicate whether you're likely to be approved for finance, giving you more clarity in the process.
What Are the Benefits of Getting Pre-Approved for Car Finance?
Better Bargaining Power
With pre-approval, you know exactly how much you can afford to spend on a car, which can give you better bargaining power when negotiating the price of the vehicle.
It can also help streamline the car-buying process by reducing time spent on loan applications and approvals. Once you've been pre-approved, you can focus on finding the car you want without worrying about financing.
Knowing how much you can borrow makes it easier to budget for your car purchase, as it gives you a clear understanding of the monthly payments, interest rates and repayment terms. This can help you plan your finances more effectively and avoid surprises later on. Read more about car finance affordability here.
Better Interest Rates
Pre-approval may help you secure a better interest rate on your car loan. Lenders are sometimes more likely to offer lower rates to pre-approved customers because they have often been deemed creditworthy.
Buying a car is an exciting time, but it may have the odd stressful moment here and there. You have more clarity with pre-approval, from knowing your car finance eligibility to understanding how much you have to play with when it comes to funds for a new vehicle.
How Can You Improve Your Chances of Getting Pre-Approved for Car Finance?
Check Your Credit Score
Lenders typically evaluate your credit score when considering loan applications. You can improve pre-approval chances by ensuring your credit score is as high as possible. If your score is low, take steps to improve your credit score, like paying off outstanding debts, disputing any errors on your credit report and making payments on time.
Have a Stable Income
Showcasing that you have a regular, stable income lets lenders know you're more dependable and can afford the monthly repayments with no issues. A stable job with a regular income can definitely improve your chances of pre-approval.
Different lenders have their own pre-approval requirements, interest rates and repayment terms. Researching lenders beforehand can help you find the best match for your financial situation and improve your chances of getting pre-approval for car finance.
Avoid Applying For Too Many Loans
Applying for too many loans in a short period may negatively impact your credit score and reduce the chances of pre-approval. Only apply for loans you are seriously considering that match your financial needs.
Does Pre-Approval Hurt My Credit?
Applying for pre-approval for car finance may impact your credit score, but the effect is typically minimal and short-lived. Most pre-approval lenders perform a soft credit check that doesn't leave a mark on your report. The hard search usually comes after the pre-approval stage when you want to proceed with the application for car finance.
In any case, it's a good idea to do your research and apply for pre-approval only with lenders that match your financial situation and needs. This can help you avoid unnecessary enquiries on your credit report and improve the chance of being approved for financing with favourable terms and conditions.
What Else Do I Need to Know About Pre-Approval
Pre-approval is not a guarantee of financing, although it can improve your approval chances. Lenders may still require additional documentation or verification before finalising your loan. It's also worth considering these other important factors:
Terms and Conditions May Change
The terms and conditions of pre-approval are typically based on the information available at the time of the application. If your financial situation changes, the lender may adjust the terms or even withdraw the pre-approval offer.
There May Be an Expiration Date
Pre-approval offers may have an expiration date, after which the lender requires you to reapply for financing. Check the expiration date and follow up with the lender if you need more time.
Shop Around for Pre-Approval Offers
It's a good idea to shop around and compare pre-approval offers from different lenders to find the best deal. Doing so can help you save money on interest and fees and improve your chances of getting approved for financing.
Save For a Deposit
A deposit can lower the amount you need to borrow and improve your chances of pre-approval. Saving for a deposit also shows lenders that you have some capital to put into the car.
Calculate Your Budget
It's worth calculating your budget before the pre-approval stage, as you'll better understand your financial needs.
Pre-approved car finance can give you a better idea of how much you can borrow. You can then take that information and decide if it's worth going through with a full application before buying your next vehicle. At Carmoola, you can see if you're pre-approved in minutes after answering a few simple questions. Check it out for yourself and see how much you can borrow.