How to Get Pre-Approved for a Car Loan

When consumers receive pre-approvals on loans for new or used cars, they not only lock in interest rates but also gain negotiating power at the dealership. The process for pre-approved car loans is straightforward and lets buyers know before they step foot in a showroom how much car they can afford and precisely how much they'll have to budget each month for payments. Depending on their credit, consumers can find lower-cost loans by comparing lender offers before they go to the dealership.

How Pre-Approval Works

A pre-approved vehicle loan application is evaluated by financial underwriters who review the borrower's application, credit scores, credit history, verification of pre-tax income, and their debt-to-income ratio. The pre-approved loan amount should include sufficient funds to cover the purchase along with unexpected new car costs such as dealer installed options, destination charges, registration fees, extended warranties, and sales tax. With that in mind, consumers with pre-approvals can shop freely for the vehicle they can afford based on the total cost of the loan – not on their monthly payments.

Pre-approved car loans come with an expiration date. Consumers typically have up to 30 days from the date of approval to present their loan checks to sellers. The dealer takes it from there, working with the lender to complete the transaction. In evaluating loan offers, car shoppers should examine if the loan comes with pre-payment privileges if they decide to pay the loan off before the length of the term. They should also inquire about early-discharge penalties (on total projected interest) if they pay off the loan ahead of schedule.

Leverage in the Showroom

With check in hand from a lender, car buyers can base their purchase on the total cost of getting the car out of the dealership, rather than haggling over interest rates, terms, and down payments. Pre-approval can also slash the amount of time that dealerships consume in up-selling the add-on features of the vehicle and in making excruciating pitches from the finance and insurance (F&I) department to add items out of the budget range. (The lender may require applicants to secure a full coverage insurance policy on the new vehicle.) Be a smart shopper. After-market add-ons provide a source of additional income at the dealership – up to as much as 30 percent of the total cost.

Meeting Conditions for Pre-approvals

One of the first steps in applying is checking your credit score for free at LendingTree. Applicants with scores below 680 may have to accept sub-prime vehicle loans. Check credit reports for inaccuracies that can compromise the score. For consumers who may not meet the credit or debt-to-income requirements, paying off debts such as credit cards and previous loans can improve their chances for pre-approval.

For pre-approved loans for buying used vehicles, check the requirements from each competing lender. There may be restrictions on the vehicle age and mileage. Lenders may also require applicants to use approved dealers.

LendingTree's Auto Loan Calculator can give consumers an accurate estimate of monthly payments based on the total loan amount, interest rate, and term.

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