Pre-Approved Car Loan
When buying a car, you want to do everything necessary to be in charge of negotiations. Applying for an auto loan pre-approval is one way of having an advantage when purchasing a car. This article will walk you through what this type of loan entails and how to get a loan for a car.
What is a pre-approved car loan
A pre-approved car loan is pretty much the same as a standard car loan. The only difference is that a lender wants some proof that you have good credit and availability of funds before they’ll even consider granting you one.
How to get pre-approved for a car loan
Are you asking yourself, how can I get pre-approved for a car loan? Don’t worry. The following steps will detail all the necessary information to get a pre-approved car loan.
Gather your documents
The first step to being pre-approved for a car loan is to gather the documents you’ll need to apply for it. You can apply for pre-approval through several financial institutions, including banks, online lenders, and credit unions. Whichever option you choose, there are essential documents you need at hand, including:
- Personal information, such as I.D., home address, contact information, driver’s license, and Social Security Number.
- Proof of income, including your employer’s information.
- Trade-in information, where applicable.
Check your credit score
Your credit rating usually determines the interest rate for the car loan you are applying for. Since the pre-approval process affects credit ratings, knowing your score helps you determine the car loan rates you can expect from lenders and detect any issues that might deter your loan application process.
There are three main national credit bureaus where you can get free credit reports; transunion, Experian, and Equifax. Each agency might have a different score for your credit, but you can access credit reports from all three bureaus at annualcreditreport.com.
Look for alternatives
Similar to how you shop around for a car, it’s also prudent to compare lenders. Since lenders may have different specifications, shopping around might help you find more beneficial loan terms and a more favorable interest rate. To maximize your chances of getting the best deal, fill out multiple applications for different lenders.
It is crucial to note that hard inquiries in pre-approval applications may briefly reduce your credit score. As such, you should try to finalize all applications within two weeks for them to count as a single inquiry.
Apply for the pre-approved loan
The application process is usually similar to a normal full loan application, but it depends on the lender. You can submit your application in person or visit the lenders’ websites. Submitting online can be risky, and you must research the most reputable lenders before submitting your application.
Whichever option you prefer to submit your application, you are expected to spend at least 15 minutes finalizing each application. The pre-approval application process is extended for some lenders compared to others, and some may inquire about vehicle mileage, age, and minimum credit score.
What are the benefits of a pre-approved loan
There are various benefits you can get from pre-approved car loans. These benefits include;
Much needed leverage
Knowing how much you will be approved for and your monthly payment on the loan, you can head into the dealership confidently. You will have a great idea of what you can afford, and if the dealer tries to push you into something more expensive than you can afford for monthly payments, you will know that it’s not a good deal.
This gives you bargaining power in case something is wrong with the car or something else needs to be fixed. If you are given a figure considerably higher than your pre-approved rate, you will know why and be in a position to address the problem.
You don’t have to buy the car you see at the first dealership, and you don’t have to buy it at that price. If your budget changes and you can afford it, you feel comfortable with the monthly payment, or something else comes along that you like better, you can always walk away from the deal at that moment. Since you will still have the pre-approval in place, you have the chance to go out and shop around for a better deal.
Flexibility also extends to the finance contract. If your credit score changes or you make a mistake in your paperwork, you can always pay it off early or ask for a loan modification. This helps ensure that you will always get a good deal and that your loan is based upon your situation at the time of signing, not before.
Protection against redundant add-ons
Some dealers focus on monthly payments or push for their financing. This sets buyers up with bad interest rates and long loan terms. When you go to the dealership with pre-approval, you already know your budget and have a competitive interest rate. As such, it is easy to refuse any additional warranties or add-ons that might be offered to you when signing off paperwork.
Knowledge is the key to financial freedom, and knowing how to get a car loan is vital. Getting a pre-approved loan for a car will help you formulate a budget and save money and time.