What is car loan pre-approval?
Car loan pre-approval is a conditional offer from a bank to lend you a set amount for a vehicle. It’s essentially the lender saying, “we agree to finance you for a car loan up to a certain limit, subject to some final checks”.
With pre-approval, you know your borrowing limit before you start car shopping. This gives you confidence and bargaining power when negotiating with sellers.
While it’s a great starting point, pre-approval is typically only valid for 30 to 60 days and depends on final checks by the lender before full approval.
How to get car loan pre-approval
Here’s the typical process for getting pre-approved for car finance:
Contact a lender or broker
Approach a lender directly or work with a car loan broker. Provide your personal details and a general idea of the vehicle you plan to buy. Choose a lender that’s offering a competitive car loan deal (bearing in mind that not all lenders offer pre-approval).
Loan assessment and matching
The lender will verify your identity and assess your borrowing capacity based on factors like your income, expenses, debts and living situation. If you use a broker, they’ll compare multiple lenders to find options that fit your profile.
Receive conditional approval
If you meet the criteria, the lender will give you conditional approval (pre-approval). This means they agree in principle to lend you a set amount, subject to final checks once you choose a car.
Start car shopping
With pre-approval in place, you can confidently browse cars at dealerships or private sellers, knowing your budget and borrowing limit. Just make sure to lock in a sales invoice before your pre-approval expires. If buying from a dealership, be aware they may try to offer you their own dealer finance.
Borrow within your means
Phil Collard, Car Loans and Asset Finance Expert at Money.com.au
“Just because you’re approved for a certain amount doesn’t mean you should spend it all. Your borrowing capacity might be higher than what you’re comfortable allocating to a car, which can make it tempting to stretch for a more expensive model. Set a budget that feels right for you and borrow only what fits your finances.”
Phil Collard, Car Loans and Asset Finance Expert at Money.com.au
Pros and cons of pre-approved car finance
Pros
- Keeps you on budget by showing exactly how much you can borrow, reducing the risk of overspending or being upsold extras.
- Lets you estimate repayments in advance using a car loan calculator.
- Shows sellers you’re a serious buyer with a firm limit, which can strengthen your negotiating position.
- Comes with no obligation to proceed if you change your mind.
- Can help you secure a deal faster than less prepared buyers, without needing to pay a deposit while arranging finance from scratch.
Cons
- Pre-approval has an expiry date, so you’ll need to find a car within that time or re-apply.
- It’s not a guarantee – changes in your circumstances or the lender rejecting your chosen vehicle could still lead to a decline.
- Not all lenders offer pre-approval, which may limit your options and cause you to miss out on other competitive deals.
- Several pre-approval applications in a short time can leave multiple credit inquiries on your file, which may affect your credit score.
Keep in mind, your final car loan can depend on the vehicle you choose. Even if you have already been pre-approved, lenders often want to ensure the car’s value matches or exceeds the loan amount so you’re not starting off owing more than it’s worth. This protects both you and the lender from unnecessary financial risk.
What happens after you get car loan pre-approval?
Once you’ve chosen a car, it’s time to finalise your loan application. The key step is providing the lender with details of the vehicle, such as:
- Buying from a dealership: Sales invoice and proof of car insurance
- Buying from a private seller: Vehicle registration certificate and proof of car insurance
The lender will also check whether your financial or employment situation has changed since pre-approval.
To do so, they’ll typically ask for two of your most recent payslips and up to six months of bank statements. If you’re a business owner or self-employed, the lender may ask for alternative documentation, such as tax returns or BAS statements.
If everything checks out and you’re granted full approval, the lender will release the funds – often quickly, since most of the assessment has already been done.
With car loan pre-approval vs without it
Budget clarity | |
With pre-approval | Know your borrowing limit upfront |
Without pre-approval | Uncertain budget while shopping |
Negotiating power | |
With pre-approval | Seen as a serious buyer, stronger position |
Without pre-approval | Less leverage with sellers |
Loan processing time | |
With pre-approval | Faster final approval after choosing car |
Without pre-approval | Slower, as loan application starts later |
Shopping confidence | |
With pre-approval | Confidently ship within approved amount |
Without pre-approval | May risk overspending |
Obligation to borrow | |
With pre-approval | No obligation to proceed after pre-approval |
Without pre-approval | No obligation to go ahead, but it’s probably not a good idea to reach this stage unless you’re fairly sure you want to proceed |
Loan options | |
With pre-approval | Limited to lenders offering pre-approved finance |
Without pre-approval | More lender options available |
Expiry date | |
With pre-approval | Typically valid for 30–60 days |
Without pre-approval | The lender will specify when the funds need to be drawn down |
| With pre-approval | Without pre-approval | |
|---|---|---|
Budget clarity | Know your borrowing limit upfront | Uncertain budget while shopping |
Negotiating power | Seen as a serious buyer, stronger position | Less leverage with sellers |
Loan processing time | Faster final approval after choosing car | Slower, as loan application starts later |
Shopping confidence | Confidently ship within approved amount | May risk overspending |
Obligation to borrow | No obligation to proceed after pre-approval | No obligation to go ahead, but it’s probably not a good idea to reach this stage unless you’re fairly sure you want to proceed |
Loan options | Limited to lenders offering pre-approved finance | More lender options available |
Expiry date | Typically valid for 30–60 days | The lender will specify when the funds need to be drawn down |
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