There are several ways to finance your car and as a borrower who wishes to finance your car, it is up to you to explore all the options available to you and choose the one that is best for you. In this write up, I’ll touch on the question “How Does A Preapproved Car Loan Work? ”
Securing a car loan can be challenging sometimes. But what if I tell you it’s possible to get approved for a car loan in advance even before visiting the dealership? Yes it is possible and it has some advantages that will interest you.
Often times people mistake preapproval and prequalification to mean the same thing. However, they are not! So whiles one does a hard pull on your credit, the other only does a soft pull which does not affect your credit score. I’ll touch more on it later.
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What Is A Preapproved Car Loan?
A Preapproved Car loan is simply loan that is given in advance to borrowers even before purchasing a car. Getting a preapproved car loan puts you in a better position to negotiate for a better deal at the dealership.
This is because with a Preapproved car loan, you are going to the dealership already prepared with your cash/cheque or preapproval letter which puts you in the position of a cash purchase and not a borrower at the dealership.
With a Preapproved car loan, you know exactly how much you can spend on your car hence you don’t go beyond what you can afford. But it also means that your credit score will definitely be affected when you apply for preappoval. Hence to be on the safer side, you should only apply for preapproval when you are ready and is sure about it.
How It Works
Because lenders do a hard credit inquiry when you apply for preappoval, it is best to only apply for one when you’re ready and serious about getting a new car. It takes a bit longer to preapprove a car loan than to prequalify which can be done online.
When considering your preapproval request, lenders generally will treat your request as a regular loan application hence may ask for things like proof of identity, income, permanent residence, employment details, Social Security Number, Bank statement, credit score, etc to determine your credit worthiness.
Once your request is successful, your lender will give you estimates of the loan amount and interest you I’ll be offered. They do so looking at the information you provided in your preapproval request. Hence the better your income, credit score, etc, the better the chances of getting a higher offer with better interest rates and vice versa.
A Preapproved Car Loan enables you the borrower to have an idea of how much loan you can be offered bybs lender to finance your car.
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How To Get A Preapproved Car Loan
As mentioned earlier, it’s best if you can get preapproval before going to the dealership to shop for your car hence you must always try to explore your options to see how much a lender may be willing to offer you.
Generally, to get a Preapproved car loan, you may want to examine yourself and your finances if you can really afford a car loan and to what extent you can afford. Be satisfied that you can provide a down-payment if it’s required and be able to make monthly payments throughout te course of the loan term.
Then you will want to check your credit as well to see if its good enough to get an offer from your lender because you are likely to get a better loan offer and lower interest rates if you have a good credit score.
And also because the lender will normally do a hard credit inquiry when you request for preappoval, you will have to get your documentations such as identification, proof of income, social security number, etc ready so you can provide them when you’re asked. Additionally, shopping around a few lenders is one of the best things to do as it enables you to check and compare the offers of these lenders.
However, if you wish to compare the rates or offers of a few lenders before settling on one, then you have to do that within a 14 day window. Anything beyond that counts separately hence affecting your credit score the more.
Once you’re okay with a particular lender, go ahead and shop for your desired car from the dealership.