Car Loan Preapproval in 2023
Car Loan Preapproval in 2023
Getting a car loan pre-approved can help you figure out what you can afford, find the best rates, and give you more options.
Getting preapproved for a car loan before shopping for a new or used car has a lot of benefits, but not everyone thinks to do it first. That can make shopping for a car stressful and cause you to pay more for an auto loan than you need to.
The Guides Auto Team will explain in this article why you might want to get preapproved for a car loan and how to get started. Becoming a preapproved buyer is one way to find the best auto loan rates before you even start looking for a car.
What is a preapproval for a car loan?
Getting preapproved means that a lender has looked at your credit report, which includes your credit score, employment history, and other things that affect the loan amount and rate you are most likely to get. This is what many people do after they’ve chosen the car they want to buy. This can make it so that people who have spent hours filling out paperwork and negotiating at the dealership are turned down for financing.
Before you try to buy a car, it might be easier to get a loan if you’ve already been approved for one. Instead of waiting until you’re ready to buy, you give a lender some basic financial information up front. The lender then sends you a letter with the loan amount you’re approved for and the APR (APR).
Getting preapproved for a loan is not the same as getting a loan. It usually requires less information and, depending on the lender, may result in a “hard pull” on your credit, which can hurt your credit score.
But once you’ve chosen a car, you’ll need to fill out an application to get your loan. Most preapprovals only work for a certain amount of time, usually between 30 and 60 days. You don’t want to have to apply for a loan again because they do a hard credit check, which can hurt your score.
Auto Loan Preapproval vs. Prequalification
Some people may have told you that “prequalified” and “preapproved” are the same thing. Even though they are similar, there are some big differences between them.
A prequalification is a general estimate from the lender of how much you can borrow. Most of the time, it is based on less information than a preapproval. So, it’s possible that you won’t be able to get a loan for the same amount that you prequalified for.
Preapproval is a much better way to be sure and accurate. Most of the time, you can count on getting a loan for the amount you were preapproved for or close to it. Many car dealerships think of a buyer who has already been approved for an auto loan as a cash buyer.
Since a prequalification might not have the same effect on your credit score as a preapproval, it might be a good idea to get prequalified if you’re still in the early stages of looking for a car and a lender.
Why should you get pre-approval for a car loan?
The process of buying a car can be stressful, but having a preapproval letter in hand can help. This is why:
You’ll find out how much you can spend.
If you’ve ever thought about buying a car, you probably know what you can afford. A preapproval, on the other hand, can give you a much more accurate number that will tell you exactly how much car you can afford.
You can look at cars in your price range.
Too many options can be a real problem. When it comes to cars, there are sometimes too many options to learn about everything in detail. When you know how much you can spend on a car, you can rule out options that are too expensive for you and spend more time learning about the ones that are within your price range.
You can take as long as you want to find the best prices.
You decide when you want to get preapproved for a car loan. You have as much time as you need to shop around for rates and get preapprovals from lenders. This gives you the freedom to choose the best interest rates without feeling rushed.
At the dealership, you’ll be in charge.
Most car dealerships have their own financing options and will try to get you to use them. If you have proof that you’ve locked in a certain interest rate, you can tell the dealership about it and see if it’s willing or able to beat it. Getting preapproved takes the pressure off and gives you a better chance of getting what you want.
Where can I get preapproval for a car loan?
Banks, credit unions, and online lenders are all places where you can get pre-approved for a car loan. Below, we tell you more about the best places to get pre-approved for a car loan.
Most national banks offer preapproval for car loans, which makes it easier for customers to do all of their financial business in one place. Bank of America and Chase, for example, both offer auto loans as well as checking and savings accounts. Some banks, like Wells Fargo, don’t directly offer auto loans. Instead, they act as middlemen between you and the dealership where you want to buy your car.
The credit unions
Since every customer is treated like a member of the organization, credit unions tend to have lower interest rates than banks. Some credit unions have rules about who can join, like having to live in a certain area or work for a certain company.
Rates for auto loans from online lenders may be better than those from banks or credit unions. A preapproval for an auto loan from an online lender usually happens very quickly. Some companies can even fund auto loans the same day a borrower applies.
Know your credit score. Because the preapproval process can affect your credit score, it helps to know your credit score before trying to get preapproved. Many lenders have minimum credit scores, and if yours is lower, you won’t get the loan. If your credit score is low, you can look for lenders who specialize in car loans for people with bad credit. B
y going to AnnualCreditReport.com, you can get free credit reports from the three major credit bureaus, but they won’t show you your credit score. Most credit bureaus and credit score services will charge you for it, but a bank you already use may give it to you for free.
Request preapproval: Most online lenders let you get pre-approved on their sites these days. But be careful. A “hard pull” on your credit report can happen when you get preapproved, which can hurt your score. On their websites, lenders usually say if they offer preapproval or prequalification and if it will affect your credit score.
You can also call them to find out this information. Even though it’s a good idea to compare loan offers, you shouldn’t apply for too many preapprovals too quickly. Our list of the best places to get an auto loan is a good place to start.
How to Make the Most of Being Pre-Approved for a Car Loan
When you get approved for a car loan ahead of time, you have a useful tool for buying a car. Here are some ways you can make it work for you:
Don’t be afraid to shop.
The rate you see on your loan preapproval will almost always be the same or very close to the rate you get when you apply for the loan. Once you’ve been preapproved, you don’t have to worry that you won’t be able to buy when the time comes. You can use your preapproval to know what you can afford and how much your monthly payments will be.
Use your price as a negotiating point.
One way dealerships can make money off of customers is by offering financing. If you haven’t been preapproved for financing, dealerships may try to get you to agree to loan terms with higher rates than you might qualify for. Getting preapproved for a loan before you go car shopping gives you a powerful advantage in this situation, putting pressure on the dealership to beat that rate.
Make it easier to buy things
Buying a car can be stressful for a lot of people. But if you have preapproval, it’s like you have the cash to buy the house. You can use this status to look at cars at dealerships that are farther away from you and make offers on cars without ever having to go inside. So, you won’t have to go through the usual song and dance at a car lot.
What to do if a car loan is turned down Preapproval
You might not get preapproved for a car loan for a number of reasons. Here are a few examples:
Low credit score: Most lenders have a minimum credit score, whether or not they make it public. During a credit check, if your score is lower than that number, you won’t be approved.
High debt-to-income ratio (DTI): Your DTI is the total of your monthly debt payments, like credit cards, mortgages, and other loans, divided by your gross monthly income. If your DTI is too high, which means that your debt payments take up too much of your income, it means that you might not be able to pay for your car payment.
Spotty employment history: Lenders want to know that you’ll be able to pay back your loan, so if you’ve had a lot of job changes or been out of work for long periods, you might not get preapproved.
Mistakes in the application: You don’t always get turned down because of your situation. Sometimes, you just make a mistake on the credit application, and that’s why it doesn’t go through.
A loan rejection can be frustrating and stressful, but it doesn’t mean you’ll never be able to get a loan again. Here are some things you can do if you don’t get preapproval:
Look over your application.
There is always a chance that the only reason your application was turned down was because you filled it out wrong. Small mistakes in your address, date of birth, or Social Security number can get you turned down. Check your application to make sure that you weren’t turned down for a simple mistake. If so, you can fix the mistake and reapply carefully.
Save up to make a larger down payment
Putting down more money toward the price of a car can help you in two ways. First, it reduces how much money you want to borrow from the lender. Even though that might be enough to get you approved or not, you are also lowering the loan-to-value ratio (LTV) of the car you want to buy, which makes the loan safer for the lender.
If your DTI is high, paying down your credit card debt and other debts could help you get preapproved. This is because if you pay down your debt, you have to pay less each month toward it. Even if you make the same amount of money, this lowers your DTI as a whole.
Try another lender.
Each lender has its own set of rules. Some lenders only work with people who have a good or great credit history. Others are available to people who have bad credit or a higher DTI. For example, if a private lender turns you down, a credit union may be more willing to work with you.
Get Someone to Co-sign
You can also get preapproved for an auto loan by using someone else’s good credit. A co-signer agrees to share responsibility for the loan with you. This lets the bank look at their creditworthiness instead of just yours to decide if you should get the loan.
But if you miss a loan payment or don’t pay back the loan, it will hurt the co-credit signer’s score as well as yours. Be careful who you get involved with in this relationship.
Preapproval for a Car Loan: The End
Getting a preapproved car loan has many benefits and can make the whole process of buying a car easier and less stressful. But if you’re not ready to buy, it’s not a good idea to get preapproved because it could hurt your credit score. Before deciding on a preapproved car loan, you should look around and compare rates from different lenders.
Recommendations for Lenders of Car Loans Already Approved
Not every lender has preapproved car loans, but our team of experts knows which ones do. Here are two lenders who offer preapprovals to help you narrow your search.
The best low-rate option is myAutoLoan.
MyAutoloan isn’t a direct lender, for one thing. Instead, it’s a marketplace for auto loans where you can put in your information and get offers from different lenders to compare. Our experts found that the company always gives people who want preapproved car loans low rates and a lot of choices.
The marketplace is also a good place to find out if you have average credit, since its lowest minimum credit score is 575. Also, myAutoloan has a website that is easy to use and can be a good choice when you first start looking for a preapproved car loan.
Carvana: Most Seamless Everything in One Step
You may know Carvana as a place to buy cars online or as the company that has vending machines that sell cars. But Carvana also lets people who buy cars through its website get auto loans. If you’re thinking about buying a car through Carvana, it’s a good option to look into because it doesn’t have a minimum credit score requirement.
Even though its rates are usually higher than average, Carvana can be a great choice for many buyers because it works for people with less-than-perfect credit and makes it easy to shop for cars and get a loan at the same time.
Does preapproval guarantee a car loan?
Even though it’s not 100%, getting preapproved for a car loan pretty much guarantees you’ll get one. Most of the time, it comes in the form of a blank check from the lender that is good for up to the amount you qualified for.
Can you get turned down for a car loan after being preapproved?
After getting preapproved for a car loan, it is very rare to be turned down, but it can happen. Lenders can put in terms that let them back out of a deal. You might not get a loan because of a mistake on your application.
Some shady dealers also use a trick called “yo-yo financing,” in which they offer you one rate, then tell you that offer fell through after you’ve decided to buy the car and offer you financing at a higher rate. But in most cases, a preapproval is almost a sure thing.
Can you get a loan that has already been approved for a private sale?
Not all lenders offer preapproved car loans, or any car loans at all, for buying a car from a private party. But some do. If you want to buy a car from a person instead of a dealer, check with your lender first.
Can you get a loan for a used car that has already been approved?
You can get a loan that is already approved to buy a new or used car. But most lenders won’t finance a used car that is too old or has too many miles on it.