Vehicle Finance Pre-Approval: Auto Loan Preapproval Process
If you are in the market for a car, you do not want to go through all the hustle of finding the right car only to discover that you cannot get vehicle financing pre approved. And even if you do, you cannot tell if you can afford the downpayment or monthly payments.
Luckily, there is a way around this, and no, it’s not turning into a cash buyer. Vehicle finance pre-approval can solve both issues. In addition, it tells the dealer that you are ready for the car-buying process.
There are numerous advantages of getting a preapproved car loan, which you can explore in this article. In addition, the article will outline the process of getting preapproval even if you have a bad credit car dealership history.
What is A Preapproved Auto Loan?
Preapproved auto financing is a loan product that the potential lender has conditionally approved. It means that the lender has decided to give a buyer vehicle financing as long as there are no major changes to their financial situation before the loan closes.
A preapproved car loan does not mean receiving the amount in your account. Instead, it outlines the estimated interest rates, total money, and monthly payment the buyer must contribute. So, the buyer will still have to apply for the loan formally to get the money.
It is important to note that getting preapproved for a car is not pre-qualification. The two concepts are similar but not interchangeable.
Prequalification is the first step in getting a car loan, where you provide your personal credit and financial information to a lender. It will trigger a soft credit pull, and the lender will deny or accept your details to proceed with preapproval.
On the other hand, the vehicle finance pre approval process requires completing an application, a hard credit pull to verify your details, and receiving loan information to share with potential dealerships. Dealer financing eliminates this last step.
Credit unions, banks, online lenders, and dealerships can offer pre-approved car loans depending on their policies.
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Who Should Get a Preapproved Car Loan?
A preapproved car loan can be beneficial for various people. If you are on the fence about getting preapproved, consider if you fall under the following categories:
- First-time car buyers. If this is your first time buying a car, then you might find a preapproved auto loan helpful. Preapproval provides a clear budget and makes the car buying process smoother.
- Buyers with no or low credit score. If you have a low credit score, car loan preapproval can help you understand the amount you can borrow and the interest rate you qualify for.
- People with a limited budget. Buyers on a limited budget could benefit from preapproved auto loans because they set a limit on the budget. They will offer clarity on affordability and what would work best for you.
- Buyers who need negotiating power. Preapproval can give car buyers negotiating power. Buyers can negotiate based on having a preapproved car loan and may get better deals from the dealership.
Factors Influencing Car Loan Pre-Approval
Several factors determine whether a buyer will receive vehicle finance pre approval. Lenders evaluate various factors when evaluating loan applications. The primary factors include:
Credit History/Score
Lenders examine the buyer’s credit score or history to determine their creditworthiness. The rule is that a higher credit score means better loan terms and higher chances of preapproval.
Lenders may have a minimum credit score for gettting a pre-approved loan. Similarly, a record of responsible financial behavior with loans and credit increases the chances of preapproval.
Debt to Income Ratio
Lenders must also evaluate the ratio of the borrower’s monthly debt payments to their monthly income. Lenders prefer a lower DTI since it indicates a better ability to take on additional debt and, thus, lower risk. So, a low DTI can increase the chances of getting preapproved car loans.
Income and Employment History
Lenders require the assurance that the borrower has a stable salary to repay the loan. This is why income information is often a requirement when applying for preapproved car loans.
In addition, the lender may ask for employment history to further demonstrate the capability to repay the loan. If you have a stable income and a good employment history, there is a higher chance of getting auto loan preapproval.
Car Value
If the vehicle acts as collateral for the loan, the car’s value plays a role in the preapproval process. Lenders consider factors such as the vehicle age, mileage, make, and model to determine the car’s value, contributing to the likelihood of getting the pre-approved car loan.
Loan Term and Amount
the desired loan amount and the term length can affect preapproval. Some lenders have specific terms or limits for pre-approved loans. That is why you should check with multiple lenders to ensure the most favorable outcomes based on your situation.
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Advantages of Auto Loan Preapproval
Improved Negotiating Power
The primary benefit of vehicle finance pre approval is the negotiating power you will have when applying for financing. Many first-time buyers often agree to whichever loan terms and interest rates they can get because they assume any rate is better than no rate.
Unfortunately, loan officers may have the upper hand if you are new to auto loans. However, getting a loan preapproval can solve the issue. With a pre-approval in hand, you will not feel pressured to accept any terms or offers you receive.
If you get preapproved from multiple lenders, it gives you even more leveraging power. Dealerships that are interested in your business will match or beat another lender’s pre-approved rate.
More Realistic Budget
Getting preapproved means knowing how much you can afford to spend on the vehicle before shopping. In short, it takes the guesswork out of car shopping. With preapproval information, you can set a reasonable budget and avoid overestimating the type of car you can get with your current finances.
Preapproval quotes include the interest rate and term of your potential loan. This information helps to determine the total cost of the car. Therefore, you have a clearer picture of the interest amount and monthly payments you must pay. It helps determine if you can afford the car long-term.
If you get preapproval from different lenders, it helps determine which option saves you the most money. Still, remember that you do not have to apply for the full amount of the preapproved car loan. It is safer to borrow less to give yourself a financial cushion for affording expenses in the long run.
Easier Shopping
Part of the car purchase process is shopping for the car. It can be challenging to find the right vehicle out of the many options. Getting preapproved makes it easier to find the car since you already know what your budget can handle.
A preapproved auto loan makes your research more specific on cars within your budget. With a narrowed-down list, you can focus on the car’s features and how they fit into your unique needs.
Discover Credit Issues
Getting preapproved means you will get access to your credit report. It informs you of your credit standing, eliminating chances of surprises in the long run.
Access to your credit score helps identify any inconsistencies, which you can take up with the correct authorities. Buyers can resolve credit problems before purchasing the vehicle to ensure that their credit score will not suffer in the long run.
Better Impression as a Buyer
There are many good car dealers in the market, but it does not mean every dealer is good. Some salespersons may take advantage of a buyer’s limited financing knowledge. So buyers could end up paying more than they need to.
Securing a financial plan through getting a preapproved car loan tells the salesperson that you are serious about buying and have thought the process through.
Faster Buying Process
Finally, vehicle finance pre approval accelerates car buying. Some lenders can provide a loan offer in a few minutes and finalize financing within the same day.
Getting preapproved means you do not spend a lot of time with guesswork for your budget or desired car. Instead, you have a clear view and can move to loan application faster.
In addition, with different loan options, you can negotiate more easily. With a budget in mind and concrete terms, you can skip the initial negotiation steps and finalize the loan approval.
How to Get Auto Loan Pre-Approval
It can take just a few minutes to get a preapproved auto loan. Just stick to the following steps:
Check your Credit Score
Before comparing financial institutions, you need to check your credit score and correct any errors or work toward improving it.
Lenders rely on credit scores for preapproval. Therefore, it is important to know what you are getting yourself into before applying. You can do a credit check through your credit card company or third-party sites.
Determine your Budget
An alternative first step could also be determining your budget. Before you visit the credit union or other lenders, ensure that you figure out how much you are willing to spend on a vehicle.
Examine your monthly financial transactions, bills, and gross annual income to determine a number. As you budget, do not consider only the initial cost and interest rate. Consider maintenance, inspection, repair, insurance, and registration costs.
Get Supporting Documents
To simplify the preapproval process for a new or used car loan, ensure that you have all the required documents. Different lenders have varied document and information requirements. They include:
Personal information. It includes your name, contact information, date of birth, and social security number. You can present this information through legal identification documents such as a driver’s license.
Housing details. This includes your address and proof of how long you have lived there. You may also need to indicate if you rent or own, plus your monthly housing payments.
Income and employment information. The lender will often require income and employment information, especially if you have a low credit score. You may need to provide information such as gross annual income, employment status, and the employer’s name. You can present this information through pay stubs, bank statements, and tax returns.
Trade in information. If applicable, you need to provide information such as the title and registration of your vehicle.
Debt details. You may also provide information about any outstanding debts you have. For example, mortgages and student loans.
Shop for Lenders
Next, you need to shop for lenders who offer preapproved auto loans. The goal is to find lenders with flexible financing terms that match your capabilities. You should start with the bank or credit union you already have a relationship with.
It is important to get offers from many lenders, offering the loan amount and terms you are looking for. Do not settle for the first lender with a favorable preapproved loan. Find at least three to choose from.
Complete the Applications
Next, complete the preapproval applications for the lenders you have chosen. Expect to spend at least 15 minutes on each application.
Having your documents ready makes it easier to complete the application. Similarly, if you are working with an online lender, you can complete the application from the comfort of your home.
Apply For the Loan
Preapproved car loans usually expire after a month or more, depending on the lender. So once you receive the loans, consider which car payment best aligns with your capabilities.
Go to the dealership with a preapproval in hand to shop for a car and negotiate for a better deal. Once you’ve found the car, complete the loan application.
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Preapproval Rejection: What to Do After
Unfortunately, preapproval is not a guarantee. Lenders may reject applications due to credit reports and other factors. If you get rejected, you can do the following:
Improve your credit score
Borrowers with poor credit have a harder time getting preapproved for auto loans.
It is because lenders are concerned that they will struggle with loan payment since a low credit score may indicate late payments. If you are rejected for preapproval, consider working on your credit score before applying again.
Work on your savings
Increasing your savings can be beneficial for getting a preapproved loan. You will not need to borrow so much with substantial savings, increasing the chances of approval. Even with a low income and credit score, lenders may consider approving you if you apply for a smaller loan.
Get a co-applicant
Getting a co-signer with good credit could get you approval. Ensure that your co-applicant has good credit to convince lenders to provide a loan with favorable terms.
It is best to pick a close friend or family member for this application and remember that if you fail to repay, it affects both of you.
Find another lender
Finally, remember that there are lenders with lenient criteria. Therefore, consider finding another lender that provides preapproval. If you are in a hurry, do more research and find a lender with competitive rates who is not solely fixated on credit score.
You Are Almost In the Driver's Seat!
Titan Auto Group is one of the best car dealerships in Phoenix, Arizona. We can help you get vehicle finance pre approval. In addition, you can pre-qualify in minutes and get an affordable auto loan.
No credit? No fighting with Titan Auto Group! We cater to people with good, low, or no credit. Check out our inventory to find your dream car. Or better yet, contact us, and we’ll let you know which car best suits your loan capabilities.
