Car Loan Approval

How Car Loans Work

The terms of the loan contract dictate that the financier will give the money to the customer so that they can buy the car that they want. In return the customer agrees to pay the finance company a regular payment which includes interest at the nominated rate and also any other fees.

The manner in which a car loan proceeds from here differs slightly depending on whether you chose an unsecured car loan or a secured car loan. If you have chosen a secured car loan then the financer takes an interest in the car, which means that they have the right to sell the car if you have trouble repaying the loan. Also any difference between what they sell it for and your loan amount, plus any reasonable selling and legal costs, must be paid by the customer.

If you have chosen an unsecured car loan then you still own the car even if you get into trouble with your repayments. This does not mean, however, that you can simply default on the loan, because the finance company can start legal proceedings against you in order to recover the money (unless of course you have decalred yourself bankrupt).

When the loan amount is competely paid back to the lender then the car loan contract is finished. If the financer is using the car as security for the loan then they will withdraw their interest in the vehicle and the car will officially belong to the customer.

Steps For Car Loan Approval

There are a number of procedural steps that have to be undertaken in order for the approval of your car loan to be finialized. These steps are the same for nearly all of the car loan lenders currently operating in the market :

1. The first step that you should do is to get a copy of your credit history. This is so that you know exactly what the lender will be judging your application on. Sometimes there may be something on the report that you don't even know about or have completely forgotten about. If there is a bad mark on your report then you should try to get it removed if it was an error, or come up with a good explanation to give to the lender for each and every negative entry.
2. You don't need to know the exact car that you want to buy, but you should at the stage have done a little bit of car research and know what type of car you want and roughly how much you will need to borrow to be able to afford one.
3. The next thing to do is to do a little bit of research and find the loan product that is right for your needs. Do you want a secured car loan with a lower interest rate or an unsecured one? What are the lender's interest rates, conditions and policies?
4. Next you can either apply for the car loan online, over the phone or in person. At this stage you will need to provide a lot of basic personal details.
5. Then you will need to provide to the lending company comprehensive information about your personal financial situation, including assets, liabilities, savings, living expenses and wages.
6. You will need to be ready to send the lender copies of all relevant documents that prove that the information that you gave them is correct.
7. Finally you need to sign and then return the loan contract documentation to the finance company.
8. Lastly you can have fun going shopping and actually selecting the exact car that you want. You will even have more bargaining power with the car dealers because you already have your car loan pre-approved.

Common Reasons for Rejected Loan Approvals

Most of the applications that are made for car loans in Australia are approved without any problems. However, there are a number of reasons why your car loan might be rejected. In order to prevent this from happening it is a good idea to understand the most common reasons for loan approval rejections and then tailor your particular application to make sure that these issues are addressed.

• You are too young or have no credit history. In this case you may need to use a guarantor to get the loan.
• Your Credit History is either poor or you have some bad marks on it.
• Unstable employment where you don't work regular hours or have not worked in the same job for long enough.
• Your current income (less living expenses) is not enough to make the loan repayments.
• You either do not have enough assets or the security of the car itself is not enough to cover the loan.
• Your current debt level is already too high.
• You have previously filed for bankruptcy.

How Long does Car Loan Approval Take

Approval of a car loan can take anywhere from a few hours right through to a number of days. The length of time that it takes will depend on how comprehensive the information provided is and whether or not that information makes you a high or low risk customer. After your car loan is approved and signed the lender will generally pay the supplier of the car directly within 1 or 2 days time.

Differences Between Car Loan Lenders

Many of the car loan lenders in Australia are very similiar, however there are a few important differences that you should be aware of.

1. There are lots of differences, as well as pros and cons, between types of lenders. Bank lenders have competitive rates but aren't as convenient, finance brokers should be able to get you a great deal but you need to check how they are paid and dealership finance is convenient but not the best rates going around. So make sure that you choose the one that is most appropriate for your needs.
2. Be aware that many banks and finance companies offer a low rate of interest but fail to mention all of the ongoing fees and charges.
3. Lots of car loan lenders price differently. For example banks rarely give a discount off their advertised rate and take longer to provide pre approval for the loan. Whilst other lenders will give a discount based on the amount being borrowed or the age of the car.
4. No-one thinks that they are going to have trouble paying back their loan, but it is always a good idea to check the lenders policy on repossession of the vehicle, as it can vary signifcantly from one lender to another.
5. You will find that only some lenders have the ability or desire to loan you money if you have a poor credit history or are self employed.
6. Some lenders have written into the fine print of the contract some form of 'balloon payment'. This is where you pay less throughout the course of the loan but then have to make a substantial final payment at the end of the loan term. This scenario may be good for people with good investment sense but may come as a surprise to others.

If there is some loan terminology or abbreviation that you are unsure about the meaning off then you can check out the car loan terminology page, which has a detailed explaination about some of the more confusing aspects of getting a car loan.

More Car Loan Information :

1. Car Loan Types
2. How To Get Car Loans
3. Car Loan Application
4. Car Loan Approval
5. Help With Car Loans Repayments
6. Car Loan Terminology