Being pre-approved for a car loan can save you a lot of time, money and energy. Pre-approval means that there is no need to negotiate with dealer financing or make a large down payment. It does take a little research and planning to find the best loan rate, but this little bit of extra research is well worth the effort: it lets you act as though you are paying cash at the dealership, which can help you get discounts and better deals while saving money on your loan’s interest rates.
How Does Pre-Approval Work?
There are two primary kinds of pre-approved financing. In one case, you get approved for a loan through a third-party lender. That is, a lender who is not directly associated with the dealer from whom you plan to purchase your vehicle. This lender may be a bank, a credit union, or a finance company. They will pre-approve you for a specific amount, and they will either give you a check for this amount or transfer the funds to you in some other way. They may provide you with a “blank check” – a check which you can write in the amount that your vehicle costs. Of course, the amount cannot exceed the agreed sum.
The second type of loan pre-approval involves working with a dealer finance specialist. You will apply online and receive a pre-approval notice from a dealership in your area. This way, when you go to the dealer to choose your vehicle, you will go with the knowledge that your credit will be approved and you will already know exactly how much you can spend. This saves you a good deal of time at the dealership, and it also increases your negotiating leverage – though not so powerfully as the first scenario.
Fortunately, we support both types of financing pre-approvals. Simply apply online, and we’ll work to place your application with the right lender or dealer for your unique needs. Don’t wait until you hit the dealer lot – secure your financing ahead of time!
Credit History vs Pre-Approval
People that are seeking pre-approval for a car loan should be aware of their credit history. A history of good credit and financial responsibility can help you get low interest rates and a higher line of credit, while a negative item or low score can slow the process or cause your loan application to be rejected. Even a shopper with less than stellar credit can get pre-approved by demonstrating that they are improving their credit and are a good risk, though. One of the best ways is to apply for auto loans online.
A pre-approved car loan does not mean that you should walk into a dealership and choose the flashiest car on the lot. You need to decide how much you can reasonably pay for the car every month, and you also need to figure out how long it will take you to pay the loan off. Banks and credit unions can help you calculate how much you can afford to pay based on monthly income and expenses. You will need to prove that they can pay the loan back in a set amount of time to qualify for the loan.
Even with pre-approval for a car loan, it is a good idea for you to make a down payment. This will shrink your monthly payments and help you pay back the loan quickly to avoid paying significant amounts of interest. You should be able to pay back the loan in two to three years to avoid owing more in interest than in principal on a car that is depreciating in value. Should you fall behind on your loan payments, the bank can claim the car as collateral to off-set their losses on the loan.