Car loan pre-approval: How it works and why it could help you negotiate a better deal

How much fun is cruising car yards and dealerships, test-driving your favourite vehicles and exploring new features? But once you’ve landed on your ideal set of wheels, it’s not so enjoyable to quickly organise how to pay for them under pressure from an eager salesperson.

That’s why many Australians choose to get car loan pre-approval before they start car shopping. A pre-approved new or used car loan gives you a good idea of how much you may be able to borrow, which then helps you set a realistic budget.

We’ve put together this guide to explain how car loan pre-approval works, what the potential benefits are, and how you can apply for a loan – to hopefully make the whole buying experience for your dream car less demanding and more fun.

Key take-outs

• A pre-approved car loan is based on your financial position and other criteria – it helps you establish your maximum budget before choosing a car
• Pre-approval could boost your negotiating confidence as you already know your spending limit and can encourage dealers to take you more seriously
• Pre-approved loans are conditional and differ from fully approved car loans which depend on further checks and the details of the car to be purchased
• Westpac pre-approval may be available for both new and used car loans, subject to lending criteria. 

What is car loan pre-approval in Australia?

When you organise a pre-approved car loan, it establishes how much a lender might be willing to lend you to buy a vehicle – based on your financial position and other criteria. In applying for a pre-approved car loan, you may also come across industry terms such as ‘conditional approval’ and ‘approval in principle’.

Lenders go through a pre-approval process largely to establish if there’s any risk involved in lending to you. Before granting pre-approval, they’ll generally run through a checklist of questions to confirm things such as:

• Your income and employment status
• Your day-to-day living expenses
• The extent of any existing debts such as a mortgage or other loans
• Your savings and assets
• Your credit history and repayment behaviour
• The type of vehicle you’re planning to buy.

If they’re happy with the information you’ve given them, your lender may pre-approve a maximum loan amount – and provide you with an estimate of repayments. So, now you can head out shopping with a clear budget in mind.

It’s important to note that just because lenders offer pre-approval, it doesn’t mean that final approval is a given. They’ll generally conduct a few additional checks once you’ve chosen a specific vehicle.

Find out about Westpac Car Loans and apply online here

What are the benefits of getting a pre-approved car loan?

Ticking the pre-approval box puts you in a position to negotiate confidently with dealers and private sellers, and could make the whole process of buying a car faster and less stressful. But that’s not all. Pre-approval has other potential benefits too.

• Clearer budget. You’ll know roughly how much you have to spend to help avoid the risk of shopping over budget.
• Greater buying confidence. Pre-approval could strengthen your negotiating position because you already know your spending limit and finance options.
• More respect. Demonstrating that you’re not just a tyre kicker but have funds ready to spend may make dealers take you more seriously.
• Bolder negotiations. You can be bullish about walking away if you’re not getting the deal you can afford, which may convince a dealer to give you a better offer.
• Less hassling. You’ll have an excuse to avoid hearing about a dealer’s finance options – which may come with extra fees and higher interest rates – giving you more time to negotiate with them on price.
• Less stress. Pre-approval gives you greater certainty about your capacity to manage estimated repayments, which can make the overall buying process less stressful.
• Quicker getaway. Getting pre-approved should get the car into your hands faster as many of the stages to final approval will already have been completed. 

How do car loan pre-approvals work and how do I apply for one?

Applying for car loan pre-approval is generally a straightforward process. With Westpac, you can browse our car loan options, calculate repayments and start your application online

You’ll get a personalised quote by email within 5 minutes, plus notes on what else we need for pre-approval. Here’s how it works:

1. Make sure you’re eligible

To apply for a Westpac car loan, you’ll need to:

• Be 18 years old or older
• Hold a current Australian driver’s licence or learner’s permit
• Be an Australian or New Zealand citizen, an Australian permanent resident, or a non-resident or migrant with an acceptable visa with at least 1 year’s validity
• Have a fixed address in Australia
• Be receiving a regular, Australian taxable income.

As your car will be used as a guarantee for your loan, it’ll need to:

• Be for personal use only
• Be 7 years old or less at the time of application
• Be imported by the manufacturer
• Have never been written off, even if subsequently repaired
• Be comprehensively insured with Westpac shown as the financier.
   

2. Pull your documents and other information together

Things we’ll need to know about, and potentially see proof of, include:

• Your credit report (check it’s correct on the Credit Smart website before applying)
• Any debts you have, such as a home loan, other loans, and credit card balances
• Your monthly expenses, including shopping, bills, and insurance policies
• Proof of gross income
• Any assets, savings or investments you have.

If you’re not already with Westpac, we’ll also need to check some ID, such as a passport and driver’s licence.
 

3. Apply online

• Applications generally take 10-15 minutes if you have the above details handy.
• We’ll get back to you with a quote within 5 minutes.
   

4. Receive pre-approval faster, if you’re eligible,
At Westpac, we call pre-approval ‘conditional approval’, and you’ll generally hear back from us by email within 2 business days. Your conditional approval will outline:

• Your maximum borrowing limit and loan term
• An estimate of your monthly repayments
• The expiry date of the conditional approval.
   

5. Go shopping for your car!
 

6. Request final approval
After you let us know about the car you’ve chosen, we’ll do a final credit assessment and quickly check things such as:

• Purchase price (including on road costs if new)
• How old it is (if it’s not new)
• Mileage and condition of the vehicle
• Whether the car is eligible (as detailed above).

If all’s well, we’ll then finalise the loan documents, ask you to review and accept the contract, then transfer the funds to your preferred account. That’s it! Enjoy your new car.

How long does car loan pre-approval last?

The pre-approval period can vary depending on the lender and loan type. At Westpac, Conditional approval is usually valid for 30 days, though the exact timeframe may depend on your circumstances and the vehicle selected.

If your conditional approval expires before you make a purchase, you may need to reapply or provide updated financial information – but before you do that, call us and we’ll see what we can do about an extension.

Can I get a pre-approved loan for a used car?

Yes, you can buy a used car using a Westpac Car Loan if it’s eligible and we approve your application. Our assessment will be based on the vehicle type, age, condition and odometer reading.

Other lenders may impose restrictions on lending for private sales versus dealerships – so it pays to do your homework on who offers what before spending time applying for a loan.

What’s the difference between pre-approved car loans and fully approved car loans?

Does pre-approval guarantee full approval? No, here’s how they differ:

• Pre-approved loan: Pre-approved car finance is based on the information provided at the time of the application, pending the additional checks and vehicle details required for a formal agreement. That’s why Westpac calls it ‘conditional approval’.
• Fully approved loan: A loan is fully approved when the lender has received all the information, made an assessment, agreed to fund the purchase, and provides a contract to sign.
  
  Full approval may be impacted if your financial circumstances change, the vehicle you want is ineligible, or information provided cannot be verified. 

Tips for improving your chances of car loan pre-approval

If you’re planning to apply for a car loan, here are some steps that may improve your chances of getting approval:

• Save some of the money required, to demonstrate to the lender that you have good financial habits.
• Pull together paperwork that shows you have a stable income.
• Improve your credit score by reducing debts including credit card balances, clearing unpaid bills, and avoiding unnecessary applications for credit.
• Avoid taking on additional debt after you’ve applied for the loan.
• Gain a good understanding of your lender’s vehicle eligibility rules up front.

What credit score do I need for car loan pre-approval?

Having a higher credit rating may increase your chances of getting approval for a car loan and could potentially help you access more competitive interest rates. However, lenders tend not to publicly specify a minimum credit score for car loan pre-approval as so many factors are involved – with some carrying more weight than others.

These factors may include your credit history, income, stability of your job or self-employment, current debts, monthly living expenses, personal circumstances and overall financial wellbeing.

Do pre-approved loans affect your credit score?

When seeking the right car loan, it’s best not to submit applications to multiple lenders for car finance pre-approval in a short space of time, as they may impact your credit score. Much depends on the type of inquiry performed by the lenders.

Some conduct what’s called a ‘soft credit inquiry’, which generally doesn’t affect your score. However, others may submit a ‘hard credit inquiry’, which can potentially temporarily affect your credit rating.

Researching the lending market in advance of applying, and establishing where the best deals are, should help you avoid the need to make multiple applications.

How can I get a better deal on my car?

Once you’ve got pre-approval and know how much you have to spend, good negotiating skills could help you get the best value for money. Here are some tips.

• Research the market. Go online to establish new car costs (including on-road costs) and used car values for comparable vehicles.
• Avoid weekend shopping. Browse early in the week and later in the day, as there'll be less competition for the attention of salespeople in car dealerships and yards. This will help you negotiate in a more relaxed atmosphere.
• Push for extras. If you’re close to an agreement – and your budget – see what else a dealer can throw in to sweeten the deal.
• Be ready to walk away. If you haven’t quite got the price below your pre-approved sum, heading steadfastly for the door may be enough to prompt a dealer to make a better offer.

In summary

For many of us, gaining car loan pre-approval could provide a reassuring certainty as you head out in search of a car. It gives you a realistic budget to help you negotiate more confidently, helping reduce pressure during the buying process.

When researching the car loan market, whether you’re looking at a Westpac Car Loan, finance through another lender, or talking to a car loan broker, a little homework generally pays dividends. Carefully compare loan features, interest rates, and any establishment fees, early repayment fees, and balloon payments, to help you make a more informed decision.