What Does Being Pre-Approved For Car Finance Mean?
One aspect of car finance that may seem unclear and vague is the "pre-approval" stage. What does this term mean and how might it help you in your search for the right car finance?
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, how it works, and the benefits it provides 👍
Got a specific question? Why not jump to:
- What does pre-approved mean?
- What are the benefits of getting pre-approved?
- How to get pre-approved car finance
What does pre-approved mean?
In car finance, getting pre-approved means that a lender has preliminarily reviewed your credit profile and feels confident you could qualify for a loan.
It's a process that happens before you pick out a specific car.
Essentially, the lender is saying, "Based on your financial background, we're confident we can lend you this much money, at these terms."
Pre-approval is not a guarantee of a car loan, but it's a solid indication of the amount and terms you're likely to receive.
This means that the majority of the time, when pre-approved, you will be able to take out the loan for the amount and rate they’ve offered. However, it is important to note that this offer will be subject to further checks such as verifying your income, fraud reviews or checking your identity.
Pre-approval is typically based on your credit score, income, and other factors that help lenders build a picture of how likely or not you are able to repay a loan agreement.
This preliminary step gives you a clearer picture of how likely you are to be approved, and what you can expect to pay.
What are the benefits of getting pre-approved?
Getting pre-approved before you apply for hire purchase finance or PCP, gives you a range of benefits.
Here’s a rundown of just some of the reasons pre-approval can be beneficial:
Simplifying the experience
With pre-approval, you know with more certainty what you can afford. It also gives the lender a lot of initial information, simplifying the application process if you choose to go ahead.
It narrows down your options too, giving you an idea of which cars match your budget.
This really streamlines the experience, making it easier to get the finance you need.
Faster loan processing
Since much of the financial vetting is already done, pre-approval can speed up the final loan approval process.
This leads to a quicker and smoother purchase experience.
Budgeting and financial planning
Understanding your loan terms ahead of time helps you better plan your finances and budget.
You’ll be able to consider the car payments in relation to other monthly expenses.
You can also get a general idea of what it may cost by using an online car loan calculator.
More car finance guides
- HP vs PCP: Which is Right For Me?
- What is Hire Purchase (HP) finance?
- Hire Purchase vs Leasing: Which is Better?
- How Does Personal Contract Purchase (PCP) Finance Work?
How to get pre-approved car finance
To get pre-approved for car finance, start by reviewing your credit report to ensure there are no errors.
Then, compare lenders and submit a pre-approval application. This typically includes providing information about your income, employment, and existing debts.
Most lenders perform a soft credit check during pre-approval, which doesn't impact your credit score.
For this reason, it’s advisable to get pre-approvals from multiple lenders to compare the best rates and terms.
Once you have your pre-approval, you can confidently start shopping for a car within your approved budget.
Get pre-approved car finance with Carmoola
At Carmoola, we know how daunting it can be applying for car finance. That’s why we offer a simple and fast pre-approval process through an application using just your smartphone and driving licence.
This ensures that your credit rating remains unaffected, while providing you with a clear idea of your potential loan amount and terms.
Most drivers who apply for pre-approval end up getting accepted and it takes the guesswork out of how much you’ll receive.
Apply for a hire purchase car loan with Carmoola today by downloading our user-friendly app.
Getting the funds that you need to purchase a new car has never been easier 😎
Disclaimer - Your pre-approved budget is the amount we will be able to lend to you once we've verified all your information. This figure is subject to further checks and doesn't mean you're guaranteed to be accepted.
FAQs About Pre-Approved Car Finance:
How can I apply for pre-approved car finance?
Simply head to your chosen finance provider's website or location, fill out an application with your details, and wait for their response. With some providers like Carmoola, the process can be done entirely digitally, using our trusted app.
Can pre-approval enhance my credit score?
Pre-approval itself doesn't enhance your credit score. However, consistently making timely repayments once you've secured your finance can positively impact your score.
What documents are needed for the pre-approval process?
Typically, you'll need proof of income (like pay slips), proof of identity (e.g., driver's licence or passport), and proof of residence. Some lenders might require additional documents, so it's always a good idea to check their criteria first.
Will pre-approval guarantee lower interest rates?
Pre-approval lets you know the loan amount and terms you're likely to qualify for, but the interest rate will be determined by various factors. They include your credit score and the lender's specific lending criteria.
Why should I consider pre-approved car finance?
Pre-approved finance gives you an edge when searching for a car, as you already know your budget. It also speeds up the process since a chunk of the paperwork is sorted out beforehand.
Can I get pre-approved with a low credit score?
While a higher credit score improves chances of pre-approval, many lenders, including some online platforms, have options tailored for lower scores. It's worth shopping around and discussing your situation with potential lenders.
