Getting pre-approved is the closest you can come to the perks of paying with cash while not having to save up for months or years in advance. So, how to get pre approved for a car loan?
You need to organize the necessary documents, shop around for loan options, and submit the preapproval application. Read on to find more detailed information.
How to Get Pre Approved for a Car Loan?
Here are the details:
Organize the Necessary Documents
You can use online lenders, banks, or credit unions to get preapproved for a car loan. The first step, regardless of the option you select, is to gather all the required application materials. These include:
- such as your name, address, Social Security number, and driver’s license.
- Your employer’s contact information, as well as your annual income.
- The amount you want to finance and the preferred auto loan term.
- If you’re buying a used car, details on the age and mileage of the vehicle.
- information on trade-ins, if any.
Shop Around for Loan Options
It makes sense to compare lenders the same way you would when shopping around for a car. Your credit history and other factors, which may differ depending on the lender, together determine your interest rates.
You might be able to find a better interest rate and more advantageous loan terms by doing some comparison shopping. A loan’s life-cycle cost can be significantly reduced by negotiating an interest rate that is even a tenth of a percentage point lower. To get the best deal, fill out applications with multiple lenders.
Submit the Preapproval Application
The application procedure will typically be similar to a standard full loan application. When submitting your application, you have two options: online or in person. Invest some time in finding the most reliable lenders if you decide to submit online.
No matter how you submit your application — online or in person — you can expect to spend about 15 minutes completing each application. A minimum credit score, details about the age and mileage of the vehicle, and a more involved preapproval application process are all things that some lenders may demand from applicants. Before applying, check the lender’s website for information on the requirements.
What Do You Need to Get Pre-approved for a Car Loan?
When reviewing your pre-approval application, lenders frequently request details regarding your income, credit history, employment, and other debt payments. Don’t forget to bring the necessary paperwork if you intend to finance through NMAC. Online pre-approval for Nissan vehicles is available to you.
The requirements are:
- Be 18 years of age or older
- Have a valid Social Security Number
- Be a legal resident of the US
- Have verifiable income and/or employment
- Have an e-mail address
How to Shop With a Preapproved Loan?
Following approval, the lender will inform you of the maximum amount you may borrow as well as the approved interest rate. Whether you’re purchasing a new or used car will determine what you should do next.
If you are certain of the exact new car you want to purchase, you can negotiate the price as normal, and the dealer will contact your lender to set up financing. Verify that the dealership you’re looking at is included in any lists of approved car dealers that some lenders may have.
If you are undecided about what new car you want, many lenders will give you a sort of “blank check” that isn’t limited to a certain car or dealer. The check isn’t really blank because it will have a maximum value equal to the one for which you are eligible. You can visit as many car dealerships as you like and test drive as many vehicles as you want with this check in hand before choosing which one to purchase. Once you’ve found the right car for you, hand over your check and the dealer will make the arrangements with your lender.
The specifications differ slightly when purchasing a used car. The majority of lenders will stipulate that the vehicle must be purchased from a franchised dealership. This eliminates purchasing from independent dealerships and third-party sellers. There are also restrictions on the age and mileage of the vehicle. Capital One, for example, says borrowers can only finance up to $40,000. The car must be at least ten years old and have no more than 120,000 miles on the odometer.
You would need to take out a personal loan, which frequently has much higher interest rates, in order to purchase a used car from a private seller or independent dealership.
Why You Should Get a Preapproved Car Loan?
Preapproval may seem like a lot of work, but it’s worthwhile. Here’s why:
It Helps You Budget
By getting preapproved, you can decide ahead of time and under much less pressure how much you want to spend and how much you can comfortably pay each month. You do not want to make such decisions in a dealer’s Finance and Insurance office, where the clock is ticking and it’s hard to keep track of all the details. You might end up with an excessively long loan, higher interest rates, or hidden fees if you become fixated on the monthly payment and dealers tinker with the other details to get the payment you want.
By preparing ahead of time, you can concentrate not only on the monthly payment but also on the overall amount you’ll have paid for the vehicle when the loan is over. It also gives you time to factor in the taxes and fees you will incur as part of the purchase as well as the increased monthly insurance costs for the new vehicle. Realistically assessing your financial situation may lead you to choose a less expensive vehicle that will enable you to borrow less money and have a lower interest rate (and possibly shorter loan term).
It Gives You Leverage at the Dealer
A preapproved loan in your pocket makes you like a cash buyer when it comes to negotiating your best price — with the same ability to walk away and shop around among other dealers. If you’re tempted to add more options, upgrade to a higher trim level, or buy an expensive model, having a loan set up in advance will also help you stay within your spending limits.
You’ll Know a Good Loan When You See It
With your preapproved loan in hand, you won’t feel compelled to accept a dealer-arranged loan, for which the interest rate may be 1% or 2% higher than what your credit should warrant. You can also determine whether a dealer loan offer is a better offer. It might be; the dealer might be in a position to provide, for instance, a lower promotional rate on a loan from the automaker’s finance division. If so, you’re free to take it; being preapproved does not obligate you to take the third-party loan you came in with.
You Can Leave the Finance and Insurance Office With Your Budget Intact
Most of the time, it is inevitable that you will end up in the finance and incentives department of the dealer to complete the paperwork for the sale, but if you are being pitched extended warranties and other lucrative extras, you can skip this step. You can state up front that you have a fixed-amount loan that has been preapproved and that you will not be paying for any add-ons.
FAQs
Does a Pre Approval Hurt Your Credit?
When you apply for credit after receiving a mortgage preapproval, a hard inquiry may be made into your credit report. Although a preapproval may affect your credit score, it plays an important step in the home buying process and is recommended to have. The good news is that this temporary damage to your credit score is not permanent.
Is Pre Approved the Same as Pre Qualified?
The biggest difference between the two is that getting pre-qualified is typically a faster and less detailed process, while pre-approvals are more comprehensive and take longer. In most cases, receiving a pre-qualification or pre-approval letter does not ensure that you will be granted a loan by the lender.
What is a Good Interest Rate on a Car?
According to Experian’s State of the Automotive Finance Market report for the third quarter of 2022, the average interest rate on auto loans is 5.16% for new cars and 9.34% for used cars. With a credit score above 780, you’ll have the best shot to get a rate below 4% for new cars.
What Does Pre Approval Amount Mean?
Unlike prequalification, preapproval is a more specific estimate of what you could borrow from your lender and requires documents such as your W2, recent pay stubs, bank statements and tax returns. These documents will then be used by the lender to calculate the precise amount for which you can receive a preapproval.
Summary: How to Get Pre Approved for a Car Loan?
The problem with starting your car financing at the dealership is that you don’t know whether the loan you’re being offered is the best financing you can get. It may also make negotiations more difficult and restrict your options for where to shop for the best deals. Preapproval for your car loan is a better option.
We discuss how to get preapproval in this story, but bear in mind you’ll want to move beyond that to actually secure the third-party loan if you end up choosing it. More paperwork needs to be submitted to your lender in this case, and there are different instructions. Preapproval at the start of the procedure, however, should aid in providing a road map for success.
