Buying a car can be a very expensive, but necessary, purchase, which is why many people choose to take out an auto loan. When you head to the dealership with the intention of taking out a loan for your new car, you’ll have very little power to negotiate with the salesperson and your credit will be run several times by the financing department in search of the best loan.
Yet and still, you’ll have no idea whether the final loan terms the dealership offers you is the best financing you can get.
Given that a car is a very important purchase, you should take the time to do a lot of research beforehand regarding the type of car you want, the average price of the specific make or model, and your financing options. Getting pre-approved for a car loan is a much better option than waiting until you get to the dealership for financing.
Most banks and credit unions will be able to help you get pre-approved for a car loan. Traditional banks such as Bank of America, Wells Fargo, Chase, and U.S. Bank are great places to start, or if you bank at a credit union, you should start there.
You also have the option of getting a pre-approved car loan with an online lender. You can get a car loan pre-approval for new or used cars with these lenders and some may even offer car loan refinancing.
The requirements and interest rates will vary depending on the lender so you’ll definitely want to shop around and compare auto loans and terms.
While the requirements to get pre-approved for a car loan will vary depending on the lender, there are a few basic requirements you need to consider.
Generally, you’ll need to provide proof of identity and residence. Realize that you’ll need to have a good credit score to qualify for a loan and typically a great credit score to obtain the advertised interest rate the lender is offering. Keep in mind that the promotional interest rates you see on lender’s websites are reserved for people with excellent credit. You can check your credit report for free annually by going to AnnualCreditReport.com. You also need to check your credit score online to see where you stand before you try to get a pre-approved car loan.
There also may be income requirements. Your application will ask you to state your gross monthly income or salary along with proof of income, like a pay stub or a copy of your tax returns if you’re self-employed. If you have other sources of income like retirement income, disability, alimony, and child support, you will need to disclose that information as well in your application. Be sure to ask your lender about income requirements ahead of time if you’re worried about this requirement because it’s important that you demonstrate you have the ability to pay the loan back in a timely manner.
Prepare your documents
- Proof of identity
- Proof of residence
- Pay stub or copy of tax returns
- Credit score
Overall, having a car loan pre-approval will simplify the car-buying process and shorten the amount of time you have to spend in the finance office. No one wants to spend an entire day at the dealership when they buy a new car, but that’s often what happens if you are expecting to finance there and they have to find you a lender and work out all the terms.
If you’re looking to buy a car in the near future, it’s highly recommended that choose to get pre-approved for a car loan. Start by shopping around to find the right lender and asking about their application, terms, interest rate offers, and requirements for the usage of the loan.