Car loan pre-approval sets your ceiling, not your rate

Car loan pre-approval is worth having, just not for the reason dealers imply. Westpac’s version is conditional, typically holds for about a month, and can still be declined. What it really buys you is a number to negotiate against.

What does car loan pre-approval actually commit you to?

Nothing, on your side. Pre-approval, which Westpac labels conditional approval, is a lender’s estimate of what it might be prepared to advance you towards a vehicle. You’re not obliged to draw down a cent of it.

The document itself lists four things, according to Westpac: the most you can borrow, the term, what the monthly repayments are likely to be, and the date it stops being valid. That last one is the line buyers skip.

The lender isn’t locked in either. Westpac is blunt that conditional approval doesn’t make the final answer a formality, and that it can still fall over if your money situation shifts, if the car you pick doesn’t qualify, or if something you’ve stated can’t be checked. Conditional means conditional.

So treat the figure as a ceiling, not a cheque. Westpac car loans run from $10,000 to $130,000 over one to seven years, while a CommBank secured car loan, meaning one where the car itself is the lender’s collateral, starts at $4,000 and tops out at $120,000 across the same spread of terms. Being approved near the top of a range is not a reason to spend there.

How long does pre-approval last, and will it hurt your credit report?

About a month in most cases, while the application behind it lingers for years. Westpac puts the usual shelf life of its conditional approval at 30 days, with some movement either way depending on you and the car you’re chasing.

Your credit file has a longer memory. The Office of the Australian Information Commissioner says an enquiry sits there, visible to the next lender who looks, for 5 years.

One enquiry is not a black mark. Four in a fortnight, as you shop lenders, reads as four applications to whoever looks next. For context, the OAIC puts repayment history at 2 years on file, defaults and court judgments at 5 years, financial hardship information at 1 year, and a serious credit infringement at 7 years. Enquiries sit at the mild end of that list, but they aren’t invisible.

The process itself is quick. Westpac says an indicative quote lands within 5 minutes and a decision generally arrives by email inside 2 business days, so long as the paperwork is ready: your credit report, what you still owe on loans and cards, your monthly spending, proof of gross income, and a list of savings or assets.

If the approval runs out before you’ve found a car, you may need to apply again or hand over updated figures, and Westpac suggests ringing first to ask whether it can be extended instead. That is a phone call, not a second credit enquiry, so make it before you fill in another form.

Is dealer finance worse than a bank loan?

Not automatically, and the main reason it used to be has been illegal since 2018. Under ASIC’s flex commission ban, in force from 1 November 2018, it is the lender and not the yard that decides what rate you’re offered.

A dealer can still discount, but only in your direction. Pushing the rate up to collect a fatter commission is off the table, and ASIC warned that lenders ignoring the ban face penalties reaching $420,000 per breach.

Danielle Press, then a commissioner at ASIC, said of the old arrangement: “We found that flex commissions resulted in consumers paying very high interest rates on their car loans.”

What’s left is a straight comparison problem. Dealer finance is fast and occasionally the cheapest thing on the table, but you can’t know that unless you’re holding a rival offer. Pre-approval is the rival offer.

The car has to qualify as well, and the rules differ. A vehicle put up as security for a Westpac car loan can be no more than 7 years old when you apply. CommBank stretches that to ten years, but also wants the car clear of any existing finance and insured for damage to the vehicle itself, not just third-party cover. That middle condition is why you should run a PPSR check for money owing on a used car before any deposit changes hands.

Why should you compare on the comparison rate instead of the advertised rate?

Because the advertised rate leaves the fees out, and the gap is bigger than most buyers assume. As ASIC explains, Part 10 of the National Credit Code makes lenders publish a comparison rate alongside advertised fixed-term credit meant for personal or household use, a requirement that exists precisely because the headline number can’t stand on its own.

A comparison rate bundles the interest rate together with most fees and charges. ASIC says it leaves out government charges, along with anything that only bites in particular situations, early repayment fees being the obvious one.

The difference shows up immediately. CommBank’s representative comparison figure of 10.18 per cent per annum sits 1.39 percentage points clear of the 8.79 per cent it advertises, measured against a $30,000 loan held over 5 years. Westpac advertises fixed rates spanning 6.49 per cent to 12.99 per cent, while its comparison figures stretch from 7.90 to 14.34 per cent.

Loan	Advertised rate (p.a.)	Comparison rate (p.a.)	Establishment fee	Monthly fee
Westpac car loan (petrol, diesel, LPG)	6.49% to 12.99%	7.90% to 14.34%	$250	$15
CommBank secured car loan	6.79% to 11.29%	8.20% to 12.65%	$250	$15
CommBank secured, energy-efficient vehicle	6.49% to 8.49%	7.90% to 9.88%	$250	$15

Those fees are most of the gap. Westpac adds a $250 lending establishment fee to the loan amount, charges $15 a month in account fees, and takes a $175 prepayment fee if you choose a term beyond 2 years then clear the debt inside the first 2 years, waived if you refinance into another Westpac personal loan. CommBank asks the same $250 to set up the loan and the same $15 each month to service it. That prepayment fee is exactly the sort of conditional charge a comparison rate ignores, so if you plan to pay the loan out early, price it separately.

One caveat from ASIC: the comparison rate ranks loans on cost alone, and says nothing about features that might make a dearer loan the better fit. An eligible energy-efficient vehicle is the clearest case of cost and feature moving together, since CommBank drops those to between 6.49 and 8.49 per cent, with comparison figures between 7.90 and 9.88 per cent.

When should you get pre-approved?

Once you have a budget and a shortlist, and before you set foot in a dealership. Applying any earlier burns the window, because Westpac’s 30 days starts whether or not you’ve decided what you’re buying.

Pre-approval is best for buyers shopping privately or at auction, where there’s no finance desk between you and the seller and the money has to be ready on the day. At a dealership its value is narrower but still real: it gives you a rate and a repayment figure to hold the finance manager’s offer against.

Before you apply at all, check whether a loan is even the right structure. If your employer offers salary packaging, work out whether a novated lease or buying outright costs you less first, because the answer changes the budget you’d be seeking approval for.

Then keep it simple. Pick one or two lenders rather than five, get the paperwork together before you start the form, and judge what comes back on the comparison rate and the fee schedule rather than the rate in the advertisement. Pre-approval won’t get you a better car. It will stop you agreeing to a worse loan.