Obtaining an auto loan preapproval before shopping for a new car can give you a competitive edge. You can compare interest rates among lenders for the best and most affordable ones. You can also use your preapproval as a negotiation tool to get the best price for your new vehicle.
What Is an Auto Loan Preapproval?
An auto loan preapproval is a document that informs car dealerships or sellers that the buyer has already been approved for a loan. When you receive an auto loan preapproval, you’re given an amount and a locked-in interest rate. If you choose to buy a car using this lender, this is the maximum amount you can spend. Also, as long as you buy within the 30-day period, you’re guaranteed the listed interest rate.
What Is a Prequalification?
An auto loan preapproval isn’t the same thing as a prequalification. A preapproval is an official lender offer that has already been approved and includes your loan amount and interest rate. A prequalification is an unofficial form that estimates how much you’re likely to be approved for when buying a car.
Lenders typically review your credit score and history when issuing a preapproval, whereas, with a prequalification, they only do a soft pull of your credit report. If you’re not sure what your credit score is or whether or not you’ll be preapproved, a prequalification may be a better way to go. Then, you can use the information from the prequalification to decide if it’s worth it to file for a preapproval officially.
When Should You Get an Auto Loan Preapproval?
You’ll want to get an auto loan preapproval as soon as possible if you’re considering buying a car. You should submit an application before shopping if you plan on paying for your new or used car with an auto loan. This gives you time to price shop interest rates. It also lets you know how much you will be able to spend on a new car.
Getting a preapproval ahead of time can also save time when shopping for new cars. You won’t have to spend time at the dealership filling out applications after finding the car you want to buy. You also won’t have to waste time shopping for cars out of your price range. A preapproval can also give you more negotiation power at the dealership. The salesperson is less likely to try and upsell you if they’re aware of your hard spending limit.
Getting an auto loan preapproval today is easy and can be done online. You’ll need your name, address, social security number (SSN), and employment and income information. If you plan on using a cosigner, you’ll also need access to their information. Some lenders may also ask about the car you plan on purchasing. You may not have this information if you haven’t yet chosen a vehicle.
Things to Know About an Auto Loan Preapproval
There are a few things you should know when shopping for an auto loan preapproval, including:
- Rates may vary among lenders: Interest rates can significantly range between lenders. This is why it’s always a good idea to price shop to find the best rate.
- Loan terms also vary among lenders and customers: The loan terms may also vary depending on the lender. Some lenders may offer some buyers as little as 12-month loans and as much as 120 months to others. Shorter loans tend to have a higher monthly payment than loans that extend for a longer period of time.
- Loans are available for both used and new cars: Auto loans are typically available for both used and new cars. However, the terms may be different on older cars, such as shorter loan lengths or higher interest rates.
- Lenders require certain criteria to be eligible for an auto loan: Certain requirements are standard across all U.S. lenders. This includes all applicants must be at least 18 years of age, have a valid SSN, be a legal U.S. resident, and have verifiable income.
Depending on the lender, they may also have additional application requirements. Additionally, applying for an auto loan through your bank or credit union in which you’re already a member may lead to a faster preapproval.
How to Shop for the Best Auto Loan Preapproval
Getting the best rate and borrowing terms when buying a car may require some research and price shopping. Here are a few tips to help you find the best rates:
Check Your Credit Score
Knowing your credit score ahead of time can help you determine your chances of receiving an auto loan preapproval. If your credit score is low, it may be best to focus on increasing it before applying for an auto loan. A better credit score with less debt can get you a more favorable rate, which can mean lower car payments.
Apply to a Wide Range of Lenders
Applying to a wide range of lenders can get you access to better rates. You can apply for an auto loan preapproval from credit unions, banks, or online lenders. Multiple applications won’t affect your credit if you apply to each of them within the same 14-day period. You have a right to price shop to get the best interest rates and loan terms.
Review Your Offers in Detail
Once you have an idea of which lenders approve your auto loan, it’s a good idea to compare them against one another. Consider things like interest rate, loan length, and other financing fees. You’ll also want to check if the loan covers taxes and buying fees.
Take the Offer to Your Nearest Dealership
Once you have an official preapproval, you can take it to the nearest dealership to begin your car buying process. You don’t have to buy from the first dealership you visit. Most preapprovals can be used at any reputable dealership, meaning you can shop around also to find the best price. You can even buy your new car online.
Once you find the right vehicle, you’ll want to keep it in good working condition. The FIXD sensor tracks all your maintenance and repair needs. The FIXD Sensor and free app can read all standardized OBD2 codes on most gas-powered vehicles built since 1996. However, Enhanced Codes such as ABS, airbag, transmission, traction control, and tire pressure monitoring systems (TPMS) are not supported.
At FIXD, our mission is to make car ownership as simple, easy, and affordable as possible. Our research team utilizes the latest automotive data and insights to create tools and resources that help drivers get peace of mind and save money over the life of their car.