What is a car loan pre-approval? And how to get it. – Forbes Consultant

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A car loan pre-approval is a conditional approval in which a lender states that they are willing to extend the financing, up to a certain price, to help you buy a car.

With this pre-approval, you can buy car loans with a loan amount on hand so you have a better idea of ​​your price and dealerships know you are better prepared to buy. Without pre-approval, even if you find a great car, you may not get the best deal on a loan.

Default vs. Car Loan Pre-approval

Approval for a car loan starts with the default, if available. Default and pre-approval are similar, but not interchangeable.

Default: This is the first step in providing your personal credit and financial information to a lender without triggering a rigorous credit check. A lender will either deny you or accept your details, proceeding with a pre-approval. If your information is accepted, you will see what your proposed terms might be, including the amount you can borrow and the interest rate. It’s not an agreement to finance a loan, but it is a step in that direction.

Pre-approval: Pre-approval is an approved loan application. You will complete an application, activate a tough credit check to verify your credit information, and view loan information to share with potential dealers. The lender will make an offer letter for a certain amount that will take about 90 days, unless something drastic changes your credit, such as applying for a home loan or credit card during this time.

How to get pre-approval for an auto loan

Having a pre-approval at your disposal allows you to get into a dealership and get the car you want without the overhead or stress of having to bargain at the dealership for funding. Instead, it can sometimes help you negotiate better financing terms with the dealership (more on that below). You can get pre-approval from:

  1. Check your credit. Before completing an application, check your credit score and correct any errors or edit ways to improve your score, if necessary. The better your credit score, the better your chances of securing a car loan pre-approval and getting the lowest interest rate available.
  2. Gather your documents. In general, the lender will ask for your legal identity, such as a driver’s license. verification of employment and income status; your current expenses and debts; and your credit history. You can speed up the pre-approval process by having this information ready before you apply. You may need to include recent tax documents, W2 employer, bank statements or other forms of verification.
  3. Compare lenders. You can apply for a loan pre-approval several times over a period of 14 days and this will only cause a tough search on your credit report because the credit bureaus will identify it as an interest rate purchase when it comes to purchasing the same product. Fill out a few applications so you can compare offers, both online and from your personal banking provider. If you already have a vehicle in mind, you can include it in your pre-approval application.
  4. Head to the dealership. With the best pre-approval letter on hand, you can go to a dealership to browse vehicles that fit your budget. Once you find a car, you can fill out a loan application. Keep in mind that some lenders have restrictions on which vehicles they will finance and which they will not. Before completing a pre-approval, you should be aware of these restrictions, which are usually based on the age and mileage of a vehicle.

How to buy a car after pre-approval

With pre-approval at hand, you know exactly how many cars you can afford. Before heading to a dealership, you may want to explore cars in your given price range by searching the internet. Many dealerships list stocks on their websites, giving you the opportunity to see cars and prices from home.

Once you see which car is right for your budget and needs, you can turn to a dealership for a test drive. If you are not a buyer in person, you could skip the dealer visit completely and buy your car entirely online.

Once you find the best app, your car dealer will take you to a CFO. Keep in mind that there is room for some changes before you finish financing and remove the batch with your new car. For example, your terms may change from three to five years, which may give you a different interest rate than stated in your pre-approval.

Tips for negotiating using a car loan pre-approval

Your pre-approval letter not only provides proof to the car dealer that you can get financing, but also helps you negotiate better with the dealership finance office to take advantage of any add-ons or reduce hidden costs such as:

  • Extended terms: Your dealership can offer you a longer-term loan for which you have been approved, so that you can reduce your monthly payments by allocating the most. This means that you will probably pay more interest during the life of the loan, but you do not have to accept the offer.
  • Reduce the interest rate: Most agencies work with many lenders in their finance department and can actually buy prices for you. Sometimes, that means they can offer you a lower rate than you originally had in your pre-approval terms.
  • Expensive cars: Some dealerships may want to ask you to buy a more expensive car than you can afford, based on your pre-approval limit. Remember, your letter states the amount for which you have been pre-approved and you can tell the dealership that it is your fixed amount or work with them to negotiate a better deal for you.

Even if you do not have the option of financing in the dealership, it is always good to ask what they can offer. You do not need to commit to the dealer’s offer or even the lender who offered the initial pre-approval if you find a better deal.

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