5 Reasons To Get A Car Loan Pre-Approval
Luckily, one decision that's easy to make is whether to get your auto loan pre-approved before you hit the dealership. Read on to find out the many benefits of car loan pre-approval and why this simple step should be a no-brainer.
What Is Auto Loan Pre-Approval?
A car loan pre-approval is when your chosen lender gives you conditional approval to purchase a new or used vehicle from your preferred dealership. During the pre-approval process, you'll find out:
- If you're likely to be approved for your auto loan, or not, and why
- How much you can borrow, referred to as the loan amount
- Your choice of loan terms, or how long you have to pay the money back
- What interest rate and annual percentage rate (APR) you're likely to get based on your credit score, age of the vehicle, and preferred loan term
- What purchase price you can comfortably afford, using an auto loan calculator to figure out your monthly payment
You can then take this pre-approval to a dealership and start the process of purchasing your next vehicle. Once you agree on a deal, your lender will transfer the funds or write you a check to complete the purchase.
What You Need to Know About Auto Loan Pre-Approval
Here are a few pointers to keep in mind when you're applying for your auto loan pre-approval:
- Interest is how much you pay to borrow the money while the APR might be higher because it includes certain fees.
- Shorter loan terms get lower rates because they're considered less risky.
- Newer vehicles get lower rates because they're considered more reliable and it's easier to estimate how much the value will depreciate.
- You need to allow room in your loan amount to pay any applicable taxes and fees, so don't plan to spend all the funds on your car.
- Making a down payment on your auto loan means you can borrow less, pay off your loan faster, and save on interest.
- The higher your credit score, the lower your rate!
Note that if your pre-approval is denied based on information from the credit reporting agencies, you can talk to your lender about what you can do to ensure your auto loan application is successful next time.
5 Reasons Why You Should Get Car Loan Pre-Approval
Auto loan pre-approval is an important part of the car-buying experience that can save you time
and money. Here's why you should add this easy step to your checklist when buying your next vehicle.
1. You Can Get the Best Rate
When you choose to get car loan pre-approval, you have the chance to shop around multiple lenders to find the best auto loan choice for your needs. If you get your auto loan at the dealership, you won't have any way to compare the rates and terms and know if you're getting a good deal.
Here's how to comparison shop for an auto loan:
- A good rule of thumb is to apply with at least three different lenders.
- That way, you can compare the interest rate, loan term, and maximum loan amount you're offered.
- After analyzing your options, you can determine which one provides the best financing for you and select that lender.
2. You Can Focus on Finding Your Vehicle
Getting pre-approved for an auto loan means you can focus solely on finding the right car when you go to the dealership. If you decide to get financing at the dealership, you have to both select the right vehicle and make sure you can get financing with reasonable terms.
Advantages of car loan pre-approval while shopping:
- The shopping process at the dealership is easier because you already know how much you can afford to spend and what your monthly payment will be.
- You don't need to worry about whether the sticker price or APR includes hidden fees and what the total loan cost will be.
- You can enjoy shopping for the right vehicle that fits your conditional loan terms.
3. The Dealer Will Know You're Serious
Salespeople at a dealership come across many people in a day, and it's not always easy for them to know who is serious about buying a car and who is just looking around.
How auto loan pre-approval helps you stand out:
- When you go to a dealership with financing in hand, your salesperson will know that you're ready to buy and therefore will treat you seriously.
- They will see that you have the funding for a car and will work harder to ensure that they help you find a vehicle to fit your needs.
- They know that if they don't give you a good level of service, you can easily take your business (and financing) elsewhere—and they don't want to lose a sale.
4. You Know How Much You Can Borrow
Getting car loan pre-approval lets you know how much you can afford to borrow in advance. That way you won't need to worry about how a sticker price at the dealership translates into a monthly payment.
Here's how you can save time and stress:
- You want to begin your car search knowing exactly how much you can afford to borrow so you can avoid looking in the wrong price range.
- This will cut down the time it takes you to find a vehicle because you'll be more selective.
5. You'll Have Better Negotiating Power
Dealerships often expect you to get financing through them, which gives them all of the leverage. But car loan pre-approval puts you in the driver's seat.
- When you go to the dealership with financing, you have the negotiating power.
- This can make your car buying process not as stressful and allows you to spend less time at the dealership.
How to Get Auto Loan Pre-Approval
You might think pre-approval is complicated and unnecessary. But following these simple steps will guarantee you have a great car-buying experience and will get an auto loan you can comfortably afford.
- Shop around and find your preferred lender
- Gather all the documents shown below
- Find out your credit score and if necessary, talk to your lender about any steps you can take to improve your credit before you apply
- Hit the apply button or call into a branch—you should get a quick response
- Find out your pre-approved loan amount and likely rate for your preferred loan term
Before you know it, you'll be walking into a dealership with your financing in hand ready to select the best vehicle for you.
What Documents You Need for Auto Loan Pre-Approval
Before you apply for your car loan pre-approval, make sure you have these documents and details available:
- Your state-issued ID, contact details, date of birth, and Social Security number
- Proof of your address and information about how long you've lived there, whether you rent or own, and your rent or mortgage payment
- Proof of your gross annual income, including W-2s, 1099s, pay stubs, and tax returns, your employer name, and contact details
- Your loan Information, including how much you want to borrow and the loan term
Next Steps: Choose a Lender for Car Loan Pre-Approval
At OUCU Financial, we want you to get the auto financing you need and deserve. With rates as low as 5.99% APR, a user-friendly loan process, and personalized customer service for our members, we're ready to help you secure a pre-approved car loan.
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