Getting preapproval allows you to negotiate more effectively, and get the best interest rate. It helps you set a realistic budget because it tells you how much you can borrow, and at what interest rate.
It is important to keep in mind that getting preapproved does not mean you can buy any car at that price. You will need to consider taxes and fees, which can be estimated by adding 10%. Any down payment and trade-in will also help offset the amount.
There are many benefits to getting preapproved. These include protection from financial mark-ups, bolstering your negotiating position, and getting better rates while avoiding upsells.
Compared to car dealerships, it is easier to get car loan preapproval from banks, credit unions, or online loan providers. Read on to learn why and how to get preapproved for a car loan.
Is It Better to Get Preapproved for a Car Loan at a Bank?
Car dealerships are notorious for their high interest rates. Banks, credit unions, and online lenders usually offer better terms. Thus, it’s better to get preapproval from them.
Before heading to the car dealership, you should first seek to get preapproved. This way, you’ll have a good idea on the possible interest offers, as well as your chances of getting approved for a loan. You’ll also have time to address any issue that comes up.
A car preapproval can save you from potential stress and unnecessary spending. This is because you’ll be equipped with the knowledge of exactly how much you can afford to buy a car, although there’s no assurance you’ll get the vehicle you want.
Credit Score Necessary to Get Pre-approved for a Car Loan
So, how much should be your credit score when searching for car loan preapproval?
Minimum Credit Score for Car Loan Preapproval
A credit score of at least 600 is usually enough to get a traditional car loan. The minimum required score to finance a vehicle, however, will depend on the lender. In case your score is not high enough or is subprime, you can consider getting a car loan for individuals with bad credit.
Does Preapproval Negatively Affect Your Credit?
Prescreening, prequalification, and preapproval for car financing involves a soft credit pull or soft inquiry on your credit standing, but has no bearing on your credit score, although it may reflect on your credit records.
How Far In Advance Should You Get Preapproved for a Car Loan?
After choosing the best offer from the preapproval notices you received from your shortlisted lenders, you can start shopping for a car in dealerships. A car loan preapproval is valid usually for 30 to 60 days, so you must not wait more than that time to do your car shopping.
Ideally, you should get preapproval from at least 3 lenders to allow you to choose the most favorable rate. Make sure to file all your preapproval applications within a span of 2 weeks. This way, all inquiries on your credit within the 14-day period will only count as one.
What Do You Need to Get Preapproved for a Car Loan?
To get car loan preapproval, you need to prepare the required information and documents, including your full name, driver’s license, Social Security number, residence, annual income, and your employer (including contact information). You must also indicate the amount and loan terms you want to prequalify for.
5 Step: How to Get Preapproved for a Car Loan?
We’ve outlined the step-by-step guide to make securing preapproval easy for you:
Step 1 - Assess your finances, and determine the car you intend to buy..
Determine the type of car and the amount of loan you can afford to pay for. Even if you can afford the car you want with a loan, if you are not confident about making regular payments, you should consider finding other options.
Step 2 - Prepare a shortlist of prospective lenders.
Find reputable banks, credit unions, and online lenders that offer car loan preapproval. Make a shortlist based on online reviews and recommendations from people you know, and compare rates.
Step 3 - Gather the required documents and information.
Prepare the documents required by your prospective lenders, which may include proofs of income and residence, your employer, the make and model of the car you intend to buy (and whether it’s new or used), the amount and terms you’re applying for, and trade-in info, among others.
Step 4 - Submit Preapproval Applications.
Applying for preapproval may be similar to regular loan applications, depending on the lender. Submission may be personal or online. Make sure to submit all your applications within a span of 14 days.
Step 5 - Wait for approval of your applications.
On average, the entire approval process may take 7 to 10 days, but may be shorter, depending on the lender. Ideally, you need preapproval from at least 3 lenders to allow you to choose the best offer. You can visit car dealerships once you have several car loan preapproval notices.
What To Consider Before Getting Preapproved for a Car Loan
Consider the following when seeking car loan preapproval:
- Preapproval Facts – The process involves a hard credit pull, where lenders thoroughly review your credit report and information to determine the loan amount and terms to preapprove. Even after preapproval, your loan application may be denied due to negative changes in your credit rating, job changes, or appraisal issues.
- What to Avoid during the Mortgage Approval Process – Lenders base preapproval offers on the evaluation of your income, assets, credit, and debts. Thus, during the process, DON’T apply for new debt, miss loan and credit card payments, change jobs, or make major purchases.
- Informing Dealerships of Your Preapproved Status – It’s best to keep mum about your preapproved status to car dealerships – at least until the final price of the vehicle is settled. You can start discussing financing options after the selling price is agreed upon.
Getting preapproved for a car loan offers many benefits that can help make your car buying process easier, more efficient, and cost-effective. It also gives you some leeway in price negotiations, and allows you to get the best rates.
The tips in this post will help you go through the preapproval process successfully. Don’t hesitate to leave a comment below for feedback or if you have your own tips to share.