Why Should You Get a Pre-Approved Car Loan and Where to Find One
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.
What is a pre-approved car loan?
A pre-approved car loan is just what it sounds like. You can get approved from a bank or credit union to borrow up to a certain amount before you even go to a car lot and start shopping for your new car and not the other way around.
Sometimes your lender may even provide you with a check or coupon of the pre-approved amount so you can take it to the car dealership and pay for your car just like cash.
You can often take your pre-approval anywhere you wish to buy a car at so you’ll have plenty of flexibility when shopping.
Where can I get pre-approved for a car loan?
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 offers and terms.
Requirements for car loan pre-approval
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.
Shopping with a pre-approved auto loan
Once you get pre-approved for a car loan, you’ll be able to start shopping for a car that meets your needs and preferences. Your lender will give you a total amount that you can spend along with the interest rate and repayment terms for your loan.
Your lender may also have a list of approved dealerships that you can buy a car from, but many lenders will let you purchase your car from anywhere. If your lender doesn’t have any rules about the purchase location, you’ll usually receive a check for the maximum loan amount that you can spend, which you can use just like cash to purchase your car. If your lender has a list of approved dealerships, when you find a car you want, the dealer will get in touch with your lender to make payment arrangements.
If you want to buy a used car, there may be stricter requirements when you have a car loan pre-approval. First, your lender may require that you only purchase your used car from their list of reputable dealerships, which means you can’t go with a private seller. If you want to purchase a car from a private seller, you may need to take out a personal loan from your bank or an online lender.
Second, there may be restrictions on the age of the car and the mileage. It helps to know whether you’re going to buy a used or new car before you start the pre-approval process so you can ask your lender about the processes that are specific to either of these purchase options.
Benefits of auto loan pre-approval
- Getting pre-approved is often the best option when you’re trying to finance a car because it can help you get a lower interest rate on your loan, which can save you money over the life of your repayment term. High-interest car loans are like a double-edged sword because while your car is depreciating in value as you use it, you also have to spend several years paying back your loan.
- Another benefit of getting a lower interest rate when you get a pre-approved car loan is that you can use it to negotiate if you purchase your car from a dealership. If the dealership wants to finance your car, they’ll need to provide a better rate than your pre-approval.
- Getting an auto loan pre-approval also helps you know how much you can afford to spend before you even start shopping for a car so you can stick to your budget. If the salesperson tries to sell you a newer, more expensive car, you can feel more confident about declining the offer because you know how much you can comfortably spend and what your interest rate will be on your loan.
- When you bring a pre-approved check or coupon to the dealership, you can negotiate the price of the car more effectively because you’ll be acting as a cash buyer who can take their business elsewhere if your requirements are not met.
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.