For Starters, What Is a Pre-approved Car Loan?
It basically means there’s a lender that gives you a pre-approval car loan and will then cover the financing of a car for you up to a certain maximum. The pre-approval component is a firm offer by a lender. Thereafter, you’ll be tasked with figuring out which car you want, and the pre-approval offer should generally stay the same, even if you shop around various dealerships.
What Are the Benefits?
A pre-approval on a car loan can help you understand the approximate value of the loan you can get for your desired car, whether new or used. Having a pre-approval suggests you’re a safe (read: fiscally reliable) customer for a dealership. You can have more negotiating power, and this can benefit you as you negotiate for the car you want.
Walking into a car dealership with pre-approval for a car loan gives you a certain bargaining advantage with the dealer. You know the approximate amount that you’re able to spend on a vehicle, and they know you’re good for it. You’re essentially walking in and saying that you have been given the green light to look for a car, and that, up to a certain value, you’ll be approved for the funds to cover the cost. It gives you more clout in the car-buying process.
Walking into a dealership with a pre-approval also sets you apart, as it shows you’ve done your homework and won’t necessarily rely on financing from the dealer. This can give you more “bang for your buck” in the role of purchasing negotiator because you’re already establishing yourself as someone who is financially secure enough to cover payments after the car purchase.
About How Much Can I Borrow?
When you apply for and receive pre-approval, you’ll be able to set realistic expectations about how much you’re able to afford. The lender will give you a quote for the maximum amount you’re eligible to borrow, and that may include more than just paying for the car, including taxes, the title, and any additional fees.
Additionally, you can arrive at the dealer having already reviewed the terms of the loan, including the interest rate involved and any pertinent information. Being prepared in this capacity before arriving on the lot makes it so you’re able to pay attention to the most important component in the whole transaction: choosing the right car for you and your needs.
Focus on the Task At Hand: The Car
When you know how much financial backing you have, the car-buying process is more streamlined. That is, you’re able to walk in with a better idea of what you can afford, and in doing so, will be more mentally available to focus on getting the best car that amount of money can buy.
What size car do you need? What are your hopes for spatial capacity and miles per gallon? How are you going to use the vehicle most often? Are you able to invest in an automobile that will be more sustainable and environmentally friendly? When you know the approximate monthly payment you’ll be shelling out, you’ll be putting yourself in a much more stable and focused car-purchasing position.
The Application Process
The process itself—getting pre-approval—is quite easy, especially if you’re prepped with all the documentation and have maintained a healthy credit score. That means getting the paperwork in order.
For starters, lenders want to verify who you are and establish your income and employment information. In addition, your credit history and any outstanding debts will contribute to their decision. Some items that may be required for your pre-approval application can include your Social Security number, driver’s license, and state or military ID. Employment status or income may also be topics requested to process the application.
Because of the extensive paperwork and the (possibly) overlapping contingencies that go along with the process, it’s recommended that applicants keep all the paperwork and requests to within a 14- to 45-day window. In order to minimize the impact on your credit score while you’re shopping rates, it’s important this window is maintained.
Your Credit Score
Let’s be honest—like most things in the realm of borrowing money, much of it will depend on your credit score. With a healthy credit score, you’ll be enabled to do a lot more. What is a healthy credit score you may ask? There’s no right or wrong answer to this, but research has shown a score of 661 or higher will improve your approval chances and possibly lower the interest rates available to you.
On average, you need to provide lenders with various personal information, including financial and employment information, in order to be considered for pre-approval on an auto loan. Sometimes, the decisions can come in just a few minute’s time.
Before you’re issued a pre-approval, lenders will gauge your credit history and your debt-to-income ratio. This means they’ll be able to quell any hesitations on the part of the dealership by providing the likelihood of you making payments on time.
It’s important you take time before applying for a car loan (or loan of any sort, really) to review your credit report. Review your score and review your outstanding items for collection (and pay off what you can right away!). Correct any errors or information that might be incorrect. It’s definitely worth disputing any of the information that’s not true or not up-to-date.
Once you’ve gathered all the information and the lender has processed things, you may be able to get a quick decision. Occasionally, a lender may need to prolong the process by requesting and reviewing any missing information.
What Happens If I Receive Multiple Offers?
Shopping around for a car is much like shopping for a home or any other situation where multiple financing options are available. It may behoove you to get pre-approval from several lenders. Check out the various banks, credit unions, such as Rivermark Credit Union, and online lenders and see what they can offer. Finally, compare carefully. There could be a better deal available, but it’s up to you to compare and find out the best solution for your situation.