Buying a car is one of the most significant purchases consumers make, often second to a home. Even if you choose a used car, you may not have enough cash on hand to pay for the car outright.
Shop around, and get pre-approved for your loan, but before you do, make sure you know what your credit score is. Check it for free on Credit Sesame.
Pre-approved car loan: What are the benefits?
Getting pre-approved means exactly that, you are going to the bank, credit union or online lender before you head to the dealership. Why should you do this? It typically helps you to leverage better negotiating power, an smoother buying process, and could help you reduce your financing costs.
[Get the best auto loan rates from Credit Sesame’s Auto Loan Research Center.]
When you are pre-approved for a car loan, you can negotiate more effectively with the seller because you’ll be working with a firm purchase amount that you know you can get. You’ll enter negotiations with a firm and realistic budget in mind. You will also be able to determine whether the dealer can offer a better rate.
How to get pre-approved for a car loan
The first step in the application is to get your credit score. It is important for you to know your credit score before any major purchase. Don’t worry if your credit isn’t perfect though. Plenty of lenders are willing to work with consumers with lower scores. The downside is that the lower your score, the higher the interest rate you are likely to pay.
Getting pre-approved for a car loan means identifying the lender you want to apply with. Some lenders advertise their pre-approval process, while others might require a little research. You can choose from banks, both local and national, credit unions, and special online lenders.
The rates vary from lender to lender, so it is in your best interest to shop around for the best rate. If you’re planning on buying a used car, don’t worry; you can still get a pre-approved auto loan.
If you know what kind of car you want
If you know what car you want, let the lender know. They can pre-approve you for that specific car. Note that many lenders have special agreements with dealerships and will only allow you to use your loan funds at that dealership. Just be sure you check the terms with your lender before making any deals.
If you don’t know what car you want, then the lender will give you a “blank check.” It is not exactly a blank check, but it is pretty close. They will write out an agreement for your maximum approved amount along with the interest rate and other important terms. You can walk into the dealership and test drive any vehicle in your budget with the reassurance that you have the financial backings to buy it.
Are you going to buy a used car?
If you’re thinking about getting a used car, the process varies a little bit. Lenders typically have more strict requirements and terms. You don’t have to know exactly which car you want, but some lenders will only fund the loan for a purchase from a partner dealer. In some cases the lender may impose limitations on the type of car you can buy, including the year, make, and model.
Pre-approval for bad credit
Getting pre-approved for a car loan is especially important if you’ve got bad credit. Sometimes dealerships will allow you to leave before the financing is fully finalized, and this is bad if your credit isn’t great.
This is called conditional delivery, and you may later get a phone call letting you know that the loan wasn’t approved. If that happens, you will have to bring the car back, get a larger down payment, or re-apply for a larger or more costly loan. If you’ve already gotten pre-approved for the car loan however you’ll have a much easier and smoother car buying experience.
If you have a pre-approved loan but get a better offer elsewhere, you can always take the better option. One of the amazing features of a pre-approved auto loan is that you aren’t locked in to any contract. It is not a commitment to borrower the money. You can keep your options open.