When it comes to financing vehicles, you want to do everything you can to stay in control of the negotiations. One way to gain an edge when buying a vehicle is to apply for a car loan pre-approval. Pre-approval for a car loan requires only a little extra time before buying a car. It ensures that you have a solid idea of what you can spend and the interest rates and terms that will most likely be offered to you.
What is car loan pre-approval?
Car loan pre-approval is the ability to get approval for a loan of a certain amount before buying a car. It means that the potential lender has examined the credit history, the application and the required documents and is willing to give you a formal offer. Simply put, it is approved for a car loan before it is accompanied by the vehicle.
The default is different from the pre-approval, although the terms are used intermittently from time to time. When you qualify for a loan, the lender only performs a simple credit check and approval is not guaranteed until you have submitted the full application. Pre-approval for a car loan gives you the added security of having a formal loan offer without the pressure of choosing a vehicle right away.
How to get pre-approval for a car loan
You can get a car loan pre-approval by going to online lenders, banks or credit unions. Although the process is slightly different from the lender, the steps are similar.
Step 1. Organize the necessary documents
Gather the following documents before you begin your search.
- Personal information such as your name, social security number, driver’s license, contact details and home address.
- Income, including your employer, contact information and your annual income.
- The amount you want to finance and the preferred car loan term.
- Information about the age and mileage of the vehicle if you are buying a used one.
- Transaction information, if any.
Step 2. Shop for loan options
Just as you would be shopping for your vehicle, you need to compare lenders. Your interest rates are determined by your credit history and a combination of other factors – all of which vary to some degree depending on the lender. See the Bankrate winners for best car loans to start your search.
To get the most favorable prices, fill out applications with many lenders. Please note that pre-approval applications will temporarily reduce your credit score if they require a hard credit investigation. It is best to submit all applications within two weeks so that they count as just one survey.
Step 3. Apply for pre-approval
Depending on the lender, the application process will be similar to that of a standard full loan application. It can probably be completed online and it will be quite simple.
Some lenders have requirements on credit score or vehicle age and mileage, so look for details on lender websites before applying.
Benefits of car loan pre-approval
There are many benefits to car loan pre-approval, including putting yourself in the driver’s seat when it comes to negotiating the best deal and getting the most competitive interest rates available.
Dealerships can feel overwhelming and the car buying process itself can be daunting. Entering this process with a hand offer gives an extra level of comfort and convenience. It also prevents you from having to do math on the side to calculate possible monthly payments. Instead of worrying about finding vehicle financing, you can focus choosing the right vehicle for you and your lifestyle.
Protection against unnecessary additives
Many times, marketers will push for their own financing or focus on monthly payments – something that can create buyers with long-term loan terms and bad interest rates. Coming with a pre-approval you already know that you have a competitive interest rate and a fixed number for what you can afford. This can make it much easier to say no additional add-ons or guarantees offered when the time comes to sign the documents.
Better understanding of expected costs
The actual cost of owning a vehicle tends be higher than expected for first time buyers. Having a fixed number for what you can borrow will ease your budget and keep your expectations constant when shopping. It is suggested to you calculate various possible car loans in advance so you know the amount you can easily borrow.
Stronger bargaining power
While dealership financing may be a good idea for some drivers, pre-approval means you will not be forced to use the vendor-suggested financing options. Dealers will also see your commitment to own a vehicle and will likely do so. willing to negotiate to get your business. They may even be able to offer a more competitive interest rate than their network of lenders.
While it is a good idea to wait until you apply for pre-approval until you decide to buy a vehicle, the offer is not decided. Most lenders will give you time to decide if the loan is right for you. Use the pre-approval status as a lever in the negotiations to reach the best deal and know that you can leave if your conditions are not met.