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What does 'approved in principle' mean? Car finance approval

‘Approved in principle’ is the initial stage of approval for car finance, before you go ahead with hard credit checks

Car finance

'Approved in principle' meaning

Getting ‘approved in principle’ on your finance application means that you’ve been initially accepted for car finance based on your application and soft credit check. Also known as ‘provisional approval’, getting principally approved means a lender has indicated that it may be able to offer you car finance.

After this approval, you’ll have to go through the final checks to make sure you’re the perfect fit and match the lender’s requirements.

A hard credit check will usually be carried out that will take a look at your affordability If the lender sees that you’re a good fit after these final checks, you’ll usually be approved for car finance.

What’s the difference between ‘approved in principle’ and actual approval?

If you’ve been approved in principle for car finance, this will have been based on details like the last three years of your address history, your employment information, and your personal details.

This will help lenders decide if they’ll be able to give you a car finance arrangement, offering you provisional approval. This does not mean that you’re guaranteed to be accepted for car finance.

An actual car finance approval comes later when the lender has information that can be provided by a hard credit check. This information will include any debt you currently have and your history of repaying loans, helping them make a final decision on whether you can be offered car finance.

Getting approved in principle is a great sign, but don’t get too attached to your perfect car until you’ve had that final approval.

What if I don’t get approved in principle for car finance?

Don’t stress if you don’t get approved for finance at the first stage – it won’t show up on your credit score or have any long-lasting effects. There are a few things you might consider doing to increase your chances of being approved next time:

1) Take some time and improve your credit score

This could be as simple as checking all of the details on your credit report are correct or registering on the electoral roll, or you might need to spend some time paying off old debts. This will make you more attractive to lenders in the long run.

2) Offer a larger deposit

The less money a finance company will be lending, the happier it’ll be to accept you for the loan. If you can pay off a larger chunk of your car with the initial deposit, it might feel more comfortable giving you that approval. This way, you’ll owe the car finance company less and will feel like less of a risk.

3) Ask for a smaller loan

We know cars are a passion for some people and you really can get your heart fixed on one model, but you could increase your chances of getting approved by opting for a cheaper option.

Maybe you could switch from that super-fancy trim level to something mid-range, or choose a different model entirely. Asking for a smaller amount of car finance will likely improve your chances of getting approved.

Will I be approved for car finance?

You won’t know if you’ll be accepted for car finance until after you’ve passed both the initial and final checks, but getting approved in principle is a good sign.

There are online credit checkers you can use that will give you a run-through of your credit history, so you can use these to get an idea of how you’ll look to lenders.

If you have a poor credit history (this can be from unpaid debts and outstanding finance, or maybe you’re just getting started and don’t have much credit history at all) then it’s a good idea to take some time to build this up.

It’s also important to remember that hard credit checks can hurt your credit score, so it’s a good idea to only get these when necessary.

To get approved in principle for car finance, you won’t have to undergo a hard credit check. Once you get that first approval, double-check that you’re happy with the car finance deal before going ahead with the next stage and the hard credit check.

This will help prevent building up too many checks on your credit report.

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