Your Guide: How To Get Preapproved For A Car Loan

For those curious about how to get preapproved for a car loan, it helps to know that the process doesn’t have to be time-consuming or difficult. What’s more, if you’re planning to apply for financing to purchase a new car, you should also be aware of just how much that loan preapproval can come in handy. Let’s take a closer look at how to get preapproved for an auto loan, what lenders are looking for in credit checks, and how to make the car buying process much simpler.

What To Know About Preapproval For An Auto Loan

By securing car loan preapproval, you can pin down auto loan offers prior to purchasing a new vehicle. Obtaining an auto loan preapproval requires you to submit more information than you would with a car loan prequalification. However, armed with car loan preapprovals, and if you compare auto loans from several places, you’re effectively ensuring that you have several competitive financing offers available to you and in hand before you ever set foot in a dealership.

Arranging for auto loan preapproval provides several benefits. To begin with, you’ll know exactly just how much you can afford and won’t have to worry about whether or not you can arrange financing, because you’ve already arranged it. But on top of gaining peace of mind by participating in the process, you’ll also be able to look at more funding sources and a wider range of competitive offers before committing to any given lender. That means that you won’t need to feel obligated to go with a financial lender that the car dealership itself suggests – and may enjoy better interest rates and loan terms on your new car purchase as a result.

Important to note: Financing terms can vary widely by individual lenders. Getting a preapproved car loan can not only help you understand how much you can expect to pay in total interest and monthly payments, but also how much car that you can afford. Also, having received one or more preapproved offers, you’ll be able to bring more leverage to bear when negotiating with car dealers to make sure that you’re getting the best financial deal possible.

How Long Does Car Loan Preapproval Last?

A preapproved car loan offer is typically good for just a short period of time. Specifically, most auto loan preapprovals are valid for 30 to 60 days from the time of issuance from a lender. Keep in mind that however long your offer is good for, you are under no obligation to accept it. In fact, you may wish to decline a previous lender’s offer if in fact you find that your auto dealer can beat its terms and interest rates.

Does Getting A Preapproval Affect Your Credit Score?

Making a point to prequalify for multiple auto loans is recommended, because it provides a sense of what types of loan offers and interest rates that different lenders are willing to extend to you. Moreover, prequalifying for a number of different car loans only results in  soft inquiries on your credit and won’t produce a negative impact on your credit score.

However, getting car loan preapproval necessitates making a hard inquiry against your credit score, which can influence and impact your credit rating on a short-term basis. Noting this, you’ll only want to seek preapproval once you’re nearly ready to make a purchase.

Keep in mind, though: If you’re going to seek preapproval from multiple lenders, you can minimize the impact on your credit score by applying and making these hard inquiries within 14 – 45 days of one another. While different credit bureaus and scoring models treat inquiries differently, some credit reporting firms may consider any inquiries that are made back-to-back within this window as a single query. It’s important to understand how providers define and look at inquiry windows before you begin applying for auto loan preapproval.

Does Preapproval Mean You’ll Get Your Loan Approved

In general, if you’ve managed to pin down a preapproved car loan, you typically won’t be defined – but this isn’t necessarily the case in all circumstances.

For instance, a loan may ultimately be declined if your credit score comes in lower than anticipated or takes an unexpected hit prior to closing. Likewise, if you make a purchase that prompts your debt-to-income (DTI) ratio to become too high, you may not be able to close on the loan in the end as well.

Keep in mind that any changes to your employment status or errors made when applying may also impact your chances of actually securing the loan in time to hit the purchase table.

Car Loan Prequalification Vs. Preapproval

As above, prequalification requires only a soft credit pull whereas preapproval requires a hard credit check. On top of it, prequalification – which is generally based on limited submissions of financial and personal information – only suggests that you’re likely to be extended a loan at a specific rate.

By way of contrast, car loan preapproval means that a prospective lender has had a chance to review your credit report and more in-depth information to decide what interest rate and loan terms that you’re likely to receive. In effect, auto loan preapproval, which requires more extensive filing and credit checks, is a more likely indicator as to whether you may receive an auto loan.

Why To Get Preapproved For A Car Loan

It helps you get a sense of how much car you can afford and a better idea of how much you can expect to pay to finance a vehicle, as well as under which specific terms. Getting preapproved for a car loan also provides you with the opportunity to shop around for the best deals and rates, and on your own timetable. Stepping into a dealership with an auto loan preapproved also gives you more bargaining power.

You Can Set Your Price Range

Securing auto loan preapproval allows you to determine and set your car-buying budget up-front. As part of these calculations, you can weigh both the overall purchase price of the vehicle and monthly payments. Knowing these numbers not only saves you time and potential disappointment. It also equips you with the tools that you need to make sure that you’re getting the best possible deal on your new vehicle.

You Can Get Better Loan Terms

Lending is a competitive industry, with car loans available from multiple funding sources and providers, all of whom will offer individual buyers varying interest rates and terms. Shopping around via the car loan preapproval process allows you to get a better sense of which offers are most compelling. You can also use better offers as a source of leverage through which to negotiate with preferred lenders to see if they can meet or beat these terms.

You Can Improve Your Negotiation Power

Armed with offers from various lenders, you can give dealerships (who are typically inclined to push their own funding sources on car buyers) the chance to meet or beat these rates. Alternately, given multiple offers in hand, you can elect not to finance through the dealer and pick a third-party lender entirely. In general, walking onto a lot with car loan preapproval can strengthen your negotiating position, help you speed up the car buying process, and avoid unnecessary add-ons when buying a car at a dealership.

How To Get Preapproved For An Auto Loan in 6 Steps

To obtain a car loan, you’ll need to submit certain personal and financial information and apply with a lender such as a bank, credit union, or online financial institution in hopes of getting preapproved for a new car or used car.

1. Start saving for a down payment: Saving up extra cash to help put a larger down payment on buying a car can help you buy a more luxury vehicle, or secure better terms on your loan for a lower-priced option. Benefits of submitting a larger down payment can also help you secure a smaller loan amount and shorter loan term as well. Long story short: Learning how to save for a car is important.
2. Check your credit report: You should also check your credit report and score for any errors before applying. Your credit score provides a snapshot of your overall credit health to lenders, and how much of a potential risk that you might represent. As a result, it’s important to make sure it’s in as good shape as possible before applying for auto loan preapproval.
3. Strengthen your credit score: A lower credit score or less timely history of payment can limit your auto loan options or lead to less advantageous loan terms and interest rates. You may wish to pay off, open, or close varying lines of credit and/or reconcile any discrepancies on your credit report prior to applying for car loan preapproval. Often, securing a co-signer or becoming a secondary user on another party’s account (for example, a parent’s or loved one’s credit card) for a certain period of time can help boost your perceived creditworthiness as well. In any event, a minimum amount of credit score is required to buy a car – you should know your preferred lender’s requirements.
4. Gather your documents and information: Take a little time out to gather any necessary documents such as your Social Security number, driver’s license, and pay stubs that lenders will typically require. Having these documents in hand and at the ready can save you from time-consuming follow-up questions, or having to retrieve additional documentation that could have been submitted at the start.
5. Compare car loan terms from several lenders: Remember that no two given lenders or offers are created equally alike. It’s important to weigh your options and consider offers from multiple financial providers before committing as a borrower to any given institution. You’ll generally want to consider potential offers from three or more providers before making any decisions here.
6. Submit your preapproval application: You’ll then apply and submit for preapproval via phone, in-person or through your chosen lending provider’s website. Note that the preapproval application process will vary by individual lender, so be sure to research and understand the process of applying prior to making your submission. If you have questions, contact the financial institution directly.

The Bottom Line: A Preapproved Auto Loan Can Make Car Shopping Easier

Pinning down preapproval on a car loan is a highly recommended step. That’s because, although it can impact your credit score in the short term, the process of doing so ultimately makes buying a new vehicle easier on a long-term basis. In effect, securing car loan preapproval allows you to get a better sense of how much car that you can afford, under what terms, and how much financing that your new auto will take.

Because the car loan preapproval process effectively allows you to shop around to see what terms, conditions, and interest rates that different lenders will offer you, it also allows you to get a better deal. Equipped with a preapproved auto loan, you can essentially walk into a car dealership with far greater bargaining power – and without the pressure of worrying about if you should accept the dealership’s own financing offers.

Of course, if you’re preparing to apply for an auto loan, you’ll also want to take a detailed look at your credit history and any possible areas for improvement before a lender does. Download the Rocket Money^SM app now to get a better sense of what potential lenders are seeing – and where you can strengthen your credit score if needed today!