How To Get Preapproved for a Car Loan

Mar 22, 2022

7

min read

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reapproval is a quick analysis of your capacity to repay a loan based on your credit history and current financial situation. It helps save your time by determining how much you can spend, allowing you to personalize your car search to your budget.

Getting preapproved for a car loan before making a purchase helps you get the best possible interest rate, understand your finances, and make purchases within your budget.

Preapproval auto loan is a smart move if you want to save your time and money. Thus, if you want to get preapproved for your auto loan, here's everything you need to know before applying.

What Is Auto Loan?

Auto loans are secured loans borrowed to purchase vehicles where the vehicle itself is kept as collateral. Banks often lend up to 90% of the price of a new car and up to 85% for a used vehicle. As collateral, the vehicle is held in the trust of the lender.

The payback depends on your monthly income and repayment capacity, with a typical repayment period of 12 to 84 months.

What Is A Preapproved Auto Loan?

A preapproved auto loan means the lender has agreed to lend you money before making a vehicle purchase. It indicates to the dealership that you're ready to purchase a vehicle, and the lender is prepared to finance you for that.

Preapproval might provide you with an advantage in negotiating pricing and finance while purchasing a vehicle.

Lenders may occasionally provide preapproval vehicle loans to applicants who meet specific lending requirements. This is when a loan is approved on a conditional basis.

The lender will give the borrower an estimated amount of money and an expected interest rate, which they need to consider before making the purchase.

Why Should You Get a Preapproved Loan?

There are several reasons why you should consider getting a preapproved loan. However, here are three key reasons why you should get a preapproved loan :

Know Your Borrowing Capacity.

Preapproval for a vehicle loan might help you set realistic expectations for how much you can spend. When you get a preapproval for an auto loan, the lender provides you a quotation for how much you can borrow based on your credit scores and financial situation.

You'll also receive an estimate of your interest rate and loan conditions, allowing you to calculate your monthly auto payment and determine the car you can afford. This helps you know your borrowing capacity and purchase the vehicle that fits your budget.

Narrow Down The Options

If you go to market, there are plenty of vehicles options that you can choose from. Some may fit your budget, whereas some are out of your budget.

With so many options available, it's easy to become sidetracked, wondering what you'll be able to buy and how high your monthly payments will be. This will waste your time.

However, if you know how much you want to spend ahead of time, you may narrow down your search to automobiles that fit within your price range and budget. This might provide you peace of mind that your loan payments will not strain your budget.

More Bargaining Power.

It may be tempting to accept whatever financing is offered if you go to the showroom without an auto loan preapproval, as you don't know about the competitive rates offered.

However, if you have a preapproved loan offer, you may feel less forced to get dealership financing, which may be more expensive than you want.

You may also pick the best offer from numerous lenders if you have preapprovals from many lenders, giving you more negotiating power with the vehicle dealers.

How To Get Preapproved Auto Loan?

You'll need to do the following few steps if you're ready to get a preapproved auto loan :

Provide Required Documents and Information

While most lenders don't require documents to get preapproved for a vehicle loan, some may require you to prepare several documents and provide information accordingly. Thus, it's never a bad idea to be prepared, so it's better if you have these documents handy in case you need them.

Income and employment information
Personal identification (driver's license or military or state I.D.)
Social security number
Outstanding debt.
Tax documents

Understand Your Credit Score:

Because the preapproval procedure might impact your credit score, knowing your credit score before applying for preapproval is beneficial.

Many lenders have minimum credit score requirements, and if yours falls short, you'll be turned down. You may seek lenders specializing in poor credit vehicle loans if you have a low credit score.

Thus, understanding your credit score helps you know where to apply and what fits right for you.

Apply For Preapproval

Most lenders allow you to apply for preapproval directly on their websites. It is advised to apply for a loan from a few lenders to get the best deal.

You can compare and analyze which lenders offer the best deal that fits your needs. However, it would be best to be cautious while applying to many lenders as a preapproval might sometimes result in a "hard draw" on your credit, lowering your credit score.

While comparing loan offers is essential, you shouldn't apply for too many preapprovals in a short amount of time as it may hamper your credit score. So, only apply to a few lenders you think would be the best fit.

Make A Purchase

You can take the best offer to the dealer and start looking for the vehicle once you've received preapproval for an auto loan.

However, do not delay the purchase since preapprovals usually last between 30 and 60 days. Thus, you should purchase the vehicle as soon as possible.

After finding a car you want to purchase, you need to fill out a formal loan application with the dealer and buy the vehicle through that loan.

How To Choose A Preapproval Auto Loan Lender?

Choosing the best auto loan lender is very important to ensure that you get the best deal at the best price. Thus, it is advisable to go through a pool of lenders to know what they are offering and choose the best fit for you.

Here are some of our top auto loan lender recommendations for you :

U.S. Bank

Credit requirements

A term of 36 months or less
A loan for $30,000 or more
Financing of 80% or less of the car's value
A credit score of 800 or higher
A vehicle that is less than 12 months old
Automatic payments from a U.S. Bank personal checking or savings account

Pros

Online preapproval application
Quick loan processing
Responsive customer care
No vehicle information is required to establish a preapproval loan amount.
Easy confirmation letter and proper guidance.

Apply Here‍

Westlake Financial

Credit requirements

A term of 48- 72 months
Maximum loan for $30,000
APR between 2.99 % - 29.99%

Pros

Online preapproval application
Search for vehicles that fit within the loan price range.
Quick loan processing
Responsive customer care
Easy and less time-consuming

Apply Here

Ally

Credit requirements

Purchase of new vehicle with MSRP greater than $5000 but does not exceed $25000.
Must have a down payment in cash or trade-in value that is 5% of the vehicle's cash price.
Contract APR should not exceed 19%.
The term should be between 12 months to 84 months.

Pros