I’ve seen alot of people ask this question “how does prequalifying for a car loan work” . As a result, I have decided to answer this question in this article.
The amount of money needed to purchase a brand new car or a used one makes it difficult for most people in the working class to cough up the lump sum amount to make a purchase. This situation has brought up the idea of seeking financing for a car and paying back in installments that is best for the borrower so he/she can drive that car they so desire.
You can choose to go for a bank loan to finance your car or an in-house car finance. Whichever way you choose to finance your car, you may want to try prequalification which doesn’t affect your credit by the way.
READ ALSO: How Does In-House Car Finance Work
What is Prequalification for a Car?
Prequalification helps a borrower to know whether they will be granted a loan and if so how much a lender may be willing to loan out to them. Lenders use the information provided by the borrower to determine if they will be approved for a loan.
When you prequalify, it doesn’t guarantee that you have been approved. Rather, it shows that you stand a chance of qualifying for the loan when you finally decide to apply for it and also helps you (borrower) have an idea as to what the rates are.
With prequalification, you are able to know if you qualify for a car loan even before moving to the car dealership to shop for a car, it doesn’t affect your credit, neither do you have to make any down payment.
Now let’s go ahead and answer the question of “how does prequalifying for a car loan work”
How prequalification for a Car loan Works
Prequalification is very common when financing a car or going for a mortgage. However, we are focusing on how it works when financing a car. Prequalification opportunities are normally offered by most auto loan providers to clients so they can check to see if they are fit for an auto loan even before visiting a car dealership.
You don’t have to visit the car dealership to check out their cars and prices before seeking financing which normally results in back and forth. With prequalification, which you can get from banks, credit unions or any auto loan provider, you can check if you are qualified for × amount of loan, APR, etc.
READ ALSO: How Do Car Finance Rates Work
It makes it possible for borrowers to shop around a few lenders to know their rates, loan duration and the conditions of the loan. This helps you in making a decision as to which lender to finally choose when you are ready to go for an auto loan.
Additionally, lenders who prequalify with at least two or more lenders are in a better position to begin for a good deal since they have an idea of the terms of competing firms. You can do all these without it having any impact on your credit. This is because the kind of check a lender does is a minor credit check and besides the fact that you are prequalifying doesn’t mean you have gone for a loan.
All a borrower has to do when prequalifying is to visit a lender of choice either in person or online, provide them with your information which includes proposed loan amount, visit dealerships for viewing if you are prequalified. Check out their cars and select your desired car, complete whatever paper works there is to be done and you’re good to go.
In the case of lenders, they also use prequalification offers to attract more customers to apply for loans. They sometimes use data they have available to them from existing customers to prospect and offer prequalification to them.
FREQUENTLY ASKED QUESTIONS (FAQs)
Q1. After I’m prequalified what’s next?
Once you are prequalified, you get to know how much loan a lender can offer you and at what cost. You can then go ahead to shop for your desired car and do the proper loan application.
READ ALSO: How To Apply For FAFSA Loan
Q2. Is prequalification worth is?
Yes! That’s the simple answer to anyone wanting to finance a car. This is because it saves you time and money as you are able to tell beforehand how much it will take to service a loan so you can properly draw up a budget.
Q3. How long does prequalification take?
The prequalification process is very easy and a short one. It shouldn’t take more than 24 hours to complete it. It can even be done online or on phone.
Q4. Does prequalification affect my credit?
No! Prequalification does not affect your credit score.
Q5. What do I need for prequalification?
- Identification which requires all or any of these; passport, driver’s license, social security number, State ID
- Employment information
- Income
- Any other requirements specific to the lender.