When considering purchasing a car, one of the most important steps is to get preapproved for an auto loan. With a car loan preapproval, you can feel confident that you are eligible for a loan and have already vetted potential lenders, allowing you to focus on finding the right car for your needs instead of spending time and energy searching for financing options.
What is a Car Loan Preapproval?
A car loan preapproval is a process by which a potential car buyer’s creditworthiness is evaluated and their eligibility for financing a car loan is determined.
This is typically done by the car buyer submitting their personal information and financial records to the lender, who assesses this information and makes a decision about whether to approve or deny the car loan request based on several factors. This includes the buyer’s credit score, overall financial standing, and current debt load.
If the car loan preapproval is granted, it indicates that the borrower has been found to be a creditworthy borrower who is likely to make regular payments on the car loan they applied for. Providing a car loan to a buyer is a liability for the lender. Gauging the risk involved in approving a car loan is an important step for a dealership or other auto lender.
A car loan preapproval can provide peace of mind for car buyers as they shop around for their vehicle, since it strengthens their ability to move forward with financing once they’ve found the right car for them.
Prequalified vs. Preapproved
There are two main terms used in car financing that can be confusing to first-time car buyers: prequalified and preapproved.
A prequalification indicates that your credit score and income are sufficient for you to obtain an auto loan, but it does not guarantee approval for a specific loan amount or car model.
A preapproval is more concrete, as it means that the financial institution has already reviewed your credit score and income and determined that you are eligible to borrow a specific amount up front.
These preapprovals can indicate either fixed or variable interest rates, so it is important to review all the terms of your preapproved car loan carefully before deciding whether or not to move forward with a particular lender.
Ultimately, which type of car loan you select will depend largely on your own situation and preferences. But by understanding both prequalified and preapproved car loans ahead of time, you can be sure that you are making the right decision for your needs and lifestyle.
How to Get Preapproved for a Car Loan
There are a few different places you can go to get preapproved for a loan.
- Bank or Credit Union
Starting your car loan online has become an increasingly easy and effective approach! That’s why we’re here, to help take some of the legwork out of car buying at match you to the best dealership to fit your unique situation.
Find a dealer that can work with your needs and budget.
Once you’ve gotten to where you’re going to get your preapproval, the process is largely the same.
- Basic information – You will need to provide certain basic information about yourself, such as your income and credit score. You may be required to submit documentation supporting your income and financial history in order to have your application preapproved.
- Credit pull – Your potential lender will pull your credit report and give you an estimate of how much they’re willing to lend you. For a full preapproval, this is often a hard inquiry and may impact your credit score.
- Determine your budget – Knowing your potential approval amount, think about what you’d be comfortable spending within that range. Be sure to consider related costs like auto insurance, gas, and maintenance.
- Find your car – Once you have that information, you can start shopping for cars within your budget.
Keep in mind that getting preapproved for a loan doesn’t guarantee that you’ll get approved when you officially apply for financing through the dealership. But it’s a good starting point and it will help you stay within your budget.
Overall, car loan preapproval is an invaluable tool that can help streamline the car-buying process and make it easier to find the right car at an affordable price. It can help you set a comfortable budget, get protection from dealer markups, allow you to better negotiate, lock in your rate, and avoid dealer upsells.
Getting Preapproved with Bad Credit
If you are looking to get preapproved for a car loan with bad credit, there are several things that you will need to consider.
Firstly, it is important to work with a reputable lender who specializes in subprime lending. This will ensure that you can qualify for the loan that you need, even if your credit score isn’t the best. Our dealer network partners have specialized not only in assisting bad credit car buyers, but in matching the right buyers to the right dealerships.
Additionally, it is essential to have a solid understanding of your financial situation and budget so that you can evaluate which types of cars are within your price range.
By taking these steps, you will be able to successfully navigate the often-complex process of getting preapproved for bad credit car loans.
Auto Loan Preapproval Requirements & Documents
Before beginning the process of applying for an auto loan preapproval, it’s important to understand the documents and information that will be required.
Most lenders will require:
- Proof identification
- Proof of income
- A copy of your credit report
- Documentation of outstanding debts (how much you owe and your monthly payment)
- Estimated down payment (Payment upon final transaction)
By understanding the documents and information that will be required upfront, you can save yourself time and hassle during the auto loan preapproval process.
For a full loan approval, your lender will need other documents such as proof of residency, insurance, trade in information (if applicable), and banking information. Learn more about the requirements for car financing.
Do Preapproval and Prequalification Offers Impact Credit Score?
Preapproval and prequalification offers can affect your credit score in a number of different ways. Some lenders will look at both hard and soft inquiries when making decisions about lending to you, while others may only consider hard inquiries.
Most often, a full preapproval will be made with a hard credit pull, whereas a prequalification will only be a soft pull.
Hard inquiries – or requests for information about your credit history made by lenders – can have a negative impact on your score, as these signals that you may be in the market for new credit.
Soft inquiries, on the other hand, are typically non-reportable, and therefore do not have an impact on your credit score.
Ultimately, whether a preapproval or prequalification offer affects your credit score will depend on the individual lender’s policies and practices. However, it is important to be aware of any potential impact in order to ensure that your credit remains strong over time.