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How to get pre-approved for a car loan

How to get pre-approved for a car loan and save thousands of dollars

Buying a second-hand vehicle is a difficult process that comes with significant challenges along the way. But with a little bit of research and planning, most of this process can be handled with ease. Getting preapproved for a car loan is the best example of that – in just five easy steps you can ensure that you’ll get the best deal available, if not better. All you have to do is:

  • Check your credit score
  • Gather all your documents and relevant information
  • Determine how much you want to borrow
  • Shop around for the best deals
  • Pit lenders against each other to get even better deals from them

Getting preapproved for a car loan will help you stick to the budget that you’re comfortable with, secure the best possible loan terms (meaning you’ll likely save thousands of dollars), cut the time it takes to find a reliable used car and keep you safe from upsells and shady loan offers from second-hand car dealers.

Most importantly, though, a preapproval will keep your focus where it matters most – on finding a used car that’s worth the price tag.

How to get pre-approved for a car loan?

The exact process of getting pre-approved for a car loan can differ slightly from lender to lender. It can either be done online, over a phone call, or you might have to go there in person. Whatever the process looks like, you’ll benefit greatly if you follow these simple tips:

Check your credit score before anything else

The first step you should take is to check your credit score. Verifying your credit score beforehand allows you to get an understanding of what you can expect in terms of the loan’s conditions. Generally speaking, the better the credit score, the better the conditions of your future car auto financing deal.

By doing a pre-check of your credit score you also get to validate the information within and check if something is affecting your score that you can easily rectify.

You can check your credit score online for free or for a small price and doing so won’t affect your score in any way.

Get your info and documents ready

No matter which lender you’ll pick, you’ll likely need to provide them with the following:

  • Personal information. Lenders will need to know your personal information, things such as name, address, email address, social security number, and driver’s license. You might also have to put in details about your monthly housing cost (rent or mortgage payment).
  • Financial details. You’ll need to provide your annual gross income and a way to verify it’s accurate. Some lenders will also require you to name your employer and your position within the company.
  • Loan details. Simply put, how much do you want to borrow and for what period.
  • Trade-in details. If applicable, you’ll need to provide your car’s title and registration.

Determine what amount you’re looking to borrow

It’s a good idea to check what the current car market has to offer and see the prices of the models that you’re interested in. Make sure to leave room for extra fees and the unexpected. Generally, fees will set you back another 10% of the car’s value, so a margin of $2.000 to $4.000 will keep you safe.

Shop around for the best deals

A preapproval triggers a hard credit pull which will have an impact on your credit score, but the good news is that you can ask multiple lenders to send you offers in a short window of time and all their inquiries will be counted as one.

The average period that the newest credit scoring models take rate shopping into consideration is somewhere between 14 and 45 days. But even on the low end of the scale, that still gives you two weeks to ask for offers from multiple lenders so that your credit score is impacted just once. Provided that you followed the steps we listed above, and you already know how much you want to loan plus you have all your details ready, 14 days should be more than enough time to get pre-approved for a car loan by two, three, or even four lenders.

Which financial institutions offer car loans?

When looking for a car loan, you have three options at your disposal: traditional banks, credit unions, and online lenders – each comes with its own set of pros and cons.

Banks

Traditional banks are usually a great place to start, especially if you already have an account opened with one. Shoppers with great credit scores (700 and up) will find banks a reliable partner but those with poor credit scores will likely get turned down. Banks also tend to offer higher rates, so you should get a bank to preapprove you for a car loan just to have a solid benchmark moving forward.

Credit unions

They are usually able to offer better deals than banks, but there’s a catch – with credit unions you have to be a member to apply for a car loan with them. Requirements to join vary, so check out what’s available in your area and for your profession.

Online lenders

The fastest and easiest option available, online lenders will likely get you preapproved in minutes and can offer competitive rates. Just make sure you do your research beforehand to avoid scams. Choose between the more established online lenders and you can’t go wrong.

Why would you want to get pre-approved for a car loan?

For the time it takes to get preapproved and the benefits it offers, this step might have the best investment-to-rewards ratio in the entire process of buying a second-hand car.

A pre-approval typically takes just a few minutes (or a couple of days with some banks) and will almost guarantee that you’ll save hundreds, if not thousands of dollars, no matter what car you end up buying afterward. That’s because getting preapproved for a car loan will:

Keep your wants in line with your finances

It’s easy to overspend when shopping for a car. There are markups at every turn and there’s always a color or feature that will appeal to you so much that you’ll forget about sticking to a budget. On top of that, car salesmen work on a commission, so they’ll try to upsell you at every point.

A pre-approval will set a clear limit on your spending. That way, you’ll avoid shopping for monthly rates that compound to a far bigger price tag than what you’re comfortable with.

Get you the best financing deal out there

Because nothing is guaranteed when buying a used vehicle, you need to constantly look out for scams and tricks. Unfortunately, this also applies to vehicle financing. 

Most car dealers offer in-house auto financing services and they’ll try to convince you to sign in on their offer. The problem is that if you haven’t shopped around beforehand and if you don’t already have offers from two or three lenders on hand, you’ll likely get sold on less-than-perfect terms by the dealership’s financial department. Remember that second-hand car dealers make a profit from you getting financing from them and they are known to make customers focus on monthly rates instead of APR or the car’s out-the-door value. Speaking of which…

Keep your focus on the most important parts

When you’re buying a used car there are a few vital things that you should look out for. First is making sure that you won’t get into any trouble by buying a stolen or heavily damaged car. You can check for both in just a few minutes through our VIN decoder. It offers a comprehensive, easy-to-read vehicle history report where you can see if the car is reported as stolen or if it’s been damaged in the past.

Second, you need to make sure that you know what you’re paying for. Even if the car is not a complete lemon, you can still overpay. It takes a little time and effort to see the exact condition that the car is in – usually a mix of a reliable car history check and an inspection by a certified mechanic will do the trick.

Third, you should always, always… always negotiate the price of a second-hand car. And the more time and energy you have to spare on this negotiation, the lower your final expense will be. Securing a car loan before reaching the dealership will give your mind more space to focus on the final price of the car and on checking that no skeletons are hiding in its past.

Cut the time it takes to choose a car and get you access to the best offers

If you walk into a second-hand car dealership with a pre-approval in your hand, you’re viewed as a “cash buyer”. The dealers will know that you are serious about buying a car and that you can afford one, instantly.

This will have them juggle their best offers to secure a sale. You can also be very strict and clear with what you want out of the deal. Most salesmen will try to sell you a car that’s more expensive than your original maximum limit. They do it by selling you on a monthly installment, not the out-the-door value of the vehicle. A pre-approval will cut all that dancing immediately.

Just say “This is how much I can afford, and these are the best terms I was offered for my auto financing. Do you have a car for me at this price? And can you do better in terms of the car loan?”. It’s that simple to make the salesmen work for you, not against you.

What is the difference between pre-qualified and pre-approved?

The two terms are often used interchangeably, even by lenders, which can be very confusing. That being said, there are major differences between getting pre-qualified and pre-approved for a car loan.

Getting pre-qualified is generally faster and requires less information. It also doesn’t trigger a hard credit pull, so it likely won’t affect your credit score. The downside is that a prequalification only offers you a ballpark idea of what you can expect to get in terms of APR and it doesn’t guarantee a car loan.

A preapproval is based on information from the borrower plus that obtained from credit bureaus, so it does trigger a hard credit inquiry which will slightly affect your credit score (by 5 points). In turn, a preapproval almost guarantees that you’ll get a car loan under the same conditions – the APR is not likely to change, nor is the maximum credited amount. Just be aware that all lenders have certain criteria for the collateral (the car that you’ll buy) that need to be met to finance a loan, and that criteria almost always includes the car’s age.

A simple way to think about the difference between getting prequalified and preapproved for a car loan is to consider them as dating Vs being engaged. If getting a loan is like getting married, a done deal, then prequalifying for a car loan is like dating – less guarantees on the lender’s side, less hassle on your part, and preapproval is like getting engaged – a far more serious step, just before signing the final contract.

A glance at the differences between being prequalified and preapproved for a car loan, according to XXX, a short description goes here:



Prequalifying for a car loan


Preapproval for a car loan


An estimation of APR and loan amount


You’ll likely get the same terms if you decide to go ahead with the loan


Soft credit pull, likely won’t affect your score


Triggers a hard credit pull which will affect your credit score 


Loan terms can change when you apply


APR is almost guaranteed (if the car that you choose will meet the lender’s criteria)

How to use your preapproval for a car loan to your advantage

Getting preapproved for a car loan is always a process that will work in your favor, no matter what your strategy is going to look like after. That being said, here are a few tips for a car loan pre-approval to serve your interests best:

  • Shop around to find the best vehicle financing offer for your needs. If you get preapproved by multiple lenders in a 14-day window, your credit score will be deducted just 5 points.
  • Pit lenders against each other to get a better deal. You should ask for at least 3 offers to begin with. Then take the best offer you received and show it to the lender that has the second-best car financing deal. Ask them if they can do any better, and if so, now take their offer and show it to the lender that was your original first choice and see if you can get an even better deal out of them. It takes 2 to 3 days to pit lenders against each other but in the end, it can save you hundreds if not thousands of dollars.
  • Before you visit any car dealers, make sure to print out the best financing offer that you have. Securing a car loan before going to the dealership and having proof of it, transforms you into a “cash buyer”. This means that you’ll get any car seller’s attention, and they’ll know that they can’t upsell you or run ridiculous markups when it comes to auto financing.
  • Lower the out-the-door price. A preapproval cuts through all the glib tactics of second-hand car salesmen and allows you to focus on what really matters – getting a solid, reliable used car for a great price.
  • Ask the dealer’s financial department if they can offer you better car loan terms. Don’t focus on monthly payments, focus on APR instead – ask for a lower interest rate or, if they can only match the best interest rate you were offered elsewhere, ask for free premiums such as an extended warranty or even free scheduled maintenance checks.

FAQs

How far in advance should I get pre-approved for a car loan?

Most car loan preapprovals are valid for a period of between 30 to 90 days, so you should aim for getting preapproved just before you’re ready to start actively shopping for a used car. If you already have a good understanding of your maximum budget and the type of car that you can buy within that budget, then you should have no problem securing a second-hand car within 30 to 60 days.

Can you prequalify for a car loan?

Of course. Getting pre-qualified is a simpler and faster process than getting preapproved for a car loan. Just remember that prequalification offers you a broad, ballpark idea of the terms of your future loan, with anything from the original offer up for change.

How do you get pre-approved for a car loan without affecting your credit?

The short answer is that you can’t. Getting preapproved for a car loan will automatically trigger a hard pull of your credit score but the good news is that you can ask multiple offers from multiple lenders within a 14-day window and all their inquiries will count as one. Therefore, with a little planning, you can have 3 or 4 offers in front of you and your credit score will lose just 5 points. 

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