What does being pre-approved for car finance mean?

When you’re first setting out on your car finance journey, getting pre-approved is often the first milestone you’ll hit.

Being pre-approved offers extra reassurance. It’s that warm fuzzy feeling of knowing that a lender has assessed your initial eligibility and decided they might be able to offer you a loan.

In car finance, pre-approval is typically based on both the information you provided on your application form and the results of a soft credit check. The soft check will give the lender an insight into your financial history, but it won’t be listed on your credit report and shouldn’t impact your credit score.

Depending on how the lender works, your pre-approval could also give you details on how much you might be able to borrow, what interest rate you’ll have, and how long your loan term could be. This can be helpful if you’re comparing quotes from a few different providers and can give you a confidence-boost when heading out car shopping.

Information is power. The more you know, the more likely it is that you’ll make the decision that’s right for you.

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How does car finance pre-approval work?

First things first, the prospective lender or car finance broker will need to collect some information from you. They’ll usually use these details to double-check you meet their initial eligibility criteria and to carry out a soft credit check.

A pre-approval will usually be based details from your application form including:

Your personal details like your name and date of birth
Your address history
Your employment status and income
The amount you’d like to borrow

Performing a soft credit check too will help the lender understand whether you’ve been a responsible borrower in the past and how much debt you already have.

If all your information ticks the right boxes, the lender might be happy to offer you a pre-approval. They’ll also often be able to tell you how much you could borrow, the APR, and the repayment term.
Your pre-approval should also include any terms and conditions that might apply such as any annual mileage restrictions or limits on the type of car you can buy.

Once you’re pre-approved, you can use these details to compare quotes from different lenders or head into your local dealership with a fixed budget in mind.

Does pre-approval guarantee car finance?

Pre-approval is a great first step in your car finance journey – and it’s a good sign that you’ll likely qualify for a loan – but it’s not a guarantee.

Double-check your paperwork. You’ll probably find words like ‘subject to final approval’ listed somewhere. That’s because things can always change depending on the car you choose and the further checks the lender needs to carry out.

These extra steps are designed to make sure the loan is right for you. You’ll usually need to provide documents that prove who you are, how much you earn, and where you live. A hard credit check will also take place so the lender can get a full picture of your past payment history.

Can anyone get pre-approved for car finance?

Not only is pre-approval not a guarantee of qualifying for car finance, it’s also not automatically given to anyone who applies.

While certain requirements do apply to all UK lenders – only offering loans to over 18s for example – each one also has their own eligibility criteria.

Your ability to be pre-approved for car finance will depend on whether your individual circumstances and credit history meet those criteria.

Don’t panic if you’re rejected by one lender, that doesn’t mean it’s the end of the road. In fact, there are several lenders who specialise in helping people with a range of different circumstances, even those with bad credit.

Pre-approval vs. final approval: what's the difference?

If pre-approval is the first step in getting car finance, final approval means you’ve crossed the finish line.

Before you can get to that stage, the lender will likely dive into your finances in detail. They need to be sure that you can afford the loan and that it’s right for your circumstances. That means looking at your past payment history, affordability, and income.

The car you’ve chosen will also play a part. Some lenders won’t offer finance for a car that’s over 10 years old or has more than 100,000 miles on the clock, for example. Or you might have been pre-approved for a £10,000 loan but the car you’ve set your heart on would mean you need to borrow £15,000 instead.

A hard credit check will also take place. This will be recorded on your credit report for up to two years. Keep in mind that having too many hard credit checks on your report in a short time can negatively impact your credit score and make it harder for you to qualify for a loan in the future.

Once the final approval is in place and you’re happy with all the details, you can sign on the dotted line and pick up the keys to your new wheels!

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Do pre-approvals for car finance affect your credit score?

Before you click submit on an application for car finance, it’s worth checking whether a soft or hard credit check will be used to assess your eligibility.

At this initial stage, a soft credit check is more common. You’ll be able to see that it’s taken place on your credit report, but it won’t be visible to other lenders and shouldn’t affect your credit score in any way.

In contrast, a hard credit check takes things to the next level. It might allow lenders to assess your eligibility more accurately, but it will be listed on your credit report and visible to other lenders for up to two years. As having several hard credit checks in a short time can impact your credit score, you might want to be cautious before applying with a lender or car finance broker that goes straight to the hard search stage.

What are the benefits of getting pre-approved?

Speed up the process

Once you’ve got an initial approval, you can usually move forward faster as the lender will already have a good idea of who you are and how you’ll act as a borrower.

Enjoy greater peace of mind

With pre-approval, you don’t have to worry about that anxious wait at the car dealership. While there are no guarantees, you can feel relatively confident that you’ll qualify for a loan

Get clarity and compare your options

Most pre-approvals will detail the amount you could borrow, the loan term length, and the interest rate. This means you have the information you need to compare your options, understand what your monthly repayments might look like, and decide how much you can spend on a new car.

Get bargaining power

With a pre-approval in your back pocket, you may have more bargaining power at the dealership than someone who hasn’t yet progressed to this stage. The dealer may feel reassured that you’re a serious buyer and you’re just a few steps away from securing a final approval.

FAQs about pre-approved car finance:

Can pre-approval improve my credit score?

If your pre-approval only requires a soft credit check it shouldn’t affect your credit score in any way. That means it won’t improve it, but perhaps more importantly, it won’t harm it either. It’s only if a hard credit check takes place that your credit score might be impacted.

What documents and details are needed for the pre-approval process?

Most lenders will require some personal details so they can perform a soft credit check and potentially offer you a pre-approval.

These details can include:

Personal information like your name and date of birth
Three years’ address history
Your current employment status and monthly income after tax
The amount you’d like to borrow

You may also need to provide some documents to progress to the next stage including:

Proof of ID – usually a passport or full UK driving licence
Proof of address – such as recent utility bills or a Council tax statement
Proof of income – such as bank statements or payslips

Will pre-approval guarantee lower interest rates?

While pre-approval can give you more clarity and peace of mind in the car finance process, it doesn’t come with any special treatment. Your interest rate will always depend on the lender that approves you, your individual circumstances, and your financial history. While your credit score isn’t the only factor that’s considered, generally speaking, the higher your score, the lower the interest rate you’ll be offered.

Can I get pre-approved with a low credit score?

There are lots of reasons why your credit score might need some TLC. If you’ve missed payments in the past or been financially linked to someone who has fallen behind with their debts, you might have bad credit.

The good news is that having a low credit score doesn’t mean you need to give up on getting pre-approved for car finance. It can be harder to find a loan, but it’s certainly not impossible. In fact, there are lenders who specialise in helping people with poor credit scores find affordable car finance.