Car loans take about one to two days on average to process until you get approval. This can be influenced by a few factors such as your credit history, providing enough documentation in a timely manner, verifying your identity, and your details of citizenship or permanent residency. Some lenders may advertise “sixty second approvals” or “overnight approvals” – while this is possible, it also depends on how quickly a borrower submits their documentation. Bad credit customers may need to wait a bit longer, as a lender may ask for additional documentation.
A range of factors can slow down or speed up your car loan approval as we explain in this guide
The steps in a car loan application and what slows it down
The first step in any car loan application is to apply. This requires an applicant to submit basic details about themselves such as name, address, phone number, email address, and other contact information.
At this step, the lender may ask some pre-qualification questions to determine a borrower’s eligibility. This may ask if the borrower is an Australian citizen or resident, over the age of 18, if they are employed, and estimates of income and expenditure. If the applicant has satisfied these requirements, they must consent to a formal credit check.
The delay occurs if the applicant takes more time to complete the online form.
This part of the application allows a lender to make a formal credit inquiry into the borrower to determine their creditworthiness. In most cases, government ID is required to proceed – a drivers’ licence, passport, etc. Credit checks, when conducted online are instant. This part of the process can be slowed down by an applicant taking more time to submit their ID.
At this stage, the applicant may be conditionally approved for a selection of loans. For other customers, they may need to submit further documentation.
At this stage, your lender may insist on additional documentation or checking to verify your financial situation. If you pass the first eligibility criteria, lenders will need to conduct further checks on your residential history, employment history, and so on. Bad credit customers may experience delays as lenders double check with employers, landlords, to ensure your information is correct.
Some lenders may transfer the money into your bank account which you then pass on to the dealer.
What’s more common is the car dealer will send transfer documentation to your lender to complete the purchase.
In this case, the dealer will release your car for pick-up once the loan is settled or they gain confirmation that the funds transfer is in progress.
Some lenders may have cut-off times for processing. They may guarantee a quick turnaround time, depending on a few factors. You may have to apply in the morning or before a certain time (2 pm for example) to ensure the lender has time to process your application – provided you don’t need to supply additional documentation.
The other common delay in car loan approvals is being slow to provide information on the car you want to buy. This is needed especially in used or vintage car buying scenarios when an independent or manual valuation is required to determine the risk involved with financing the vehicle (which influences your approval or interest rate.)
Figure out if you are eligible for a loan before applying. This can avoid you going through a process and finding out you are unable to proceed further.
The pre-approval process works in much the same way as a normal car loan. You apply with a lender, submit your documents, and wait for processing. Instead of the funds coming through straight away, you’re given something called “in-principle” approval or conditional approval at this stage.
Car loan pre-approval also gives you a definite price ceiling, which enhances your negotiation position with dealers. They will have to match the amount your loan is pre-approved for, or you’ll be forced to look elsewhere.
Pre-approvals last for at least 30 days, though they can be extended for up to 90 days in some cases. This window gives you an opportunity to find the car you want and agree to purchase.
When the buyer contacts the lender to announce they have found a car they wish to purchase, their conditional approval then moves into “unconditional approval” and that funds are ready to be released.
Your lender then releases funds to you to pass on to your dealer or to your dealer or seller directly to settle the transaction.
Secured car loans are a type of loan where your car is tied to the value of the loan as collateral. You will need to go through a conditional approval process and find a car to purchase before the funds are released to you or your dealer.
Unsecured car loans are a type of personal loan where funds may be released directly into your bank account before you find a car to purchase. These are often the quickest type of loan as unconditional approval is granted immediately.
Chattel mortgages and hire purchases are business loans and may require additional documentation and proof you are using a car for business purposes before gaining unconditional approval. Delays can occur in determining eligibility.
Novated leases are an arrangement between an employee, employer, and car dealer. This lease agreement sacrifices some of the employee salary to lease a new car. This is often used to lower an employee’s taxable income. At the end of the lease, the employee has an option to purchase the vehicle outright. This can take the most amount of time due to the number of parties involved.
Car leases are formal hire arrangements where a customer leases a car for a set period and pays a monthly repayment. Since the customer does not own the car, they do not have to pay for insurance, registration, and other expenses such as scheduled servicing. At the end of the lease the customer can hand the car back, opt for a new lease with a new car, or pay out the residual value and own the car outright. The time to process a lease is on par with a secured car loan.
Bad credit car loans are secured car loans that may have higher than usual interest rates due to the risk profile of the prospective borrower. These often take a bit longer to process than other loans due to more documentation and verification required.