Here’s why you should get pre-approved for a car loan


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A pre-approved car loan could prevent a dealership from overcharging you. It isn’t hard to get preapproved for a car loan — it simply means a lender reviews your credit and tells you how much you may borrow and what interest rate you could expect. An auto loan preapproval may seem like an extra step, but it will actually expedite your car-buying journey.

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1. Knowing your budget

When you apply for a preapproved auto loan, you’ll typically list the amount you want to borrow along with personal information, such as income, the name of your employer and housing costs. If your bank, credit union or online lender approves you for that amount, you’ll start your car shopping knowing the total amount you can borrow, what your maximum monthly car payment would be and the price range you should be seeking.


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Shop below your preapproval amount

Just because you can borrow up to a certain amount doesn’t mean you should. Aim for a vehicle priced 8%-10% below your preapproval amount to account for taxes and fees. There’s wiggle room here if you plan to make a down payment that would effectively cover those costs.

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2. No more markups

Many car shoppers skip the preapproval step and go straight to the dealership to arrange financing. But dealerships can and often do raise customers’ loan rates beyond what the lender charges, taking the difference as profit. A 1%-2% APR increase can send hundreds or thousands of dollars from your pocket into the dealer’s wallet. An auto loan preapproval cuts out the middleman, giving you a huge advantage.

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3. A stronger negotiating position

One of the biggest mistakes people make when buying a car is focusing on the monthly car payment. By getting an auto loan preapproval and knowing your total possible loan amount, you’re set up to focus on total price instead. That makes it harder for the salesperson to pad the deal with extras you might not even want. The dealer may even lower the car price to meet your budget.

Negotiate for a lower APR

In addition to negotiating a lower car price, leverage your car preapproval for a lower APR. Dealerships may be able to beat your preapproved rate, especially if they want to keep your business.

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4. Protection from add-ons

Extras like rustproofing and window tinting are easier to slip into your car loan if you’re only focused on the monthly car payment. You might not notice a $5 increase in your monthly payment, but you’d probably raise an eyebrow if the total cost jumped by $900. If the dealer wants to upsell you, they’ll have to explain why the total price has changed.

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5. Freedom to find another dealer

With an auto loan preapproval, you can act as a cash buyer. Rather than being tied to the one dealership where you did a credit application with its particular lender partners, you can comfortably check out multiple dealerships if you want. An auto loan preapproval is portable.

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6. Save time

No one likes to spend time at a dealership, but car buying can take the entire day if you’re not prepared. When you have an auto loan preapproval, you can cut to the chase — you already know your price range, down payment amount, maximum monthly payment, lender and APR. By doing what is arguably the most difficult part of car buying ahead of time, you should be able to cut down on time in the sharkpool.

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7. Less stress

Having a preapproved car loan lessens the stress of making a major purchase. You know what you qualify for and won’t be fooled into paying a higher price or APR than you deserve.

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How do pre-approved car loans work?

When a lender preapproves your auto loan, it means the lender agrees to finance a car for you up to a certain amount, at a certain APR for a specific time.

Preapproval vs. prequalification

A prequalification is a soft offer in which most lenders do not pull your credit. This means your actual loan offer might be very different, because lenders will perform a hard pull on your credit and get a fuller picture of your credit history once you fill out the full loan application.

A preapproval, on the other hand, is a firm offer by a lender. The offer will include a loan term, APR, the maximum amount to be borrowed and an estimated payment. Some lenders require that you choose a specific car for the preapproval, but you could change the vehicle after you test-drive and decide on the car you want.

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How to get pre-approved for a car loan: 5 steps

Step 1: Figure out how much you want to borrow

You probably don’t need to know the exact car you want to buy, but it helps if you’ve got a figure in mind for how much money you want to borrow from the bank, credit union or online lender.

Step 2: Gather documentation

The preapproval application may ask for:

  • Personal details, such as address, date of birth and Social Security number
  • Employment information, including where you work and how much you make each month
  • A basic idea of the vehicle you want (i.e. new or used)
  • Loan information, including how much you want to borrow and for how long
  • Your assets and debts, such as how much you have in your checking and savings accounts, or the value of your stocks, bonds and debts

Step 3: Fill out the application

Visit the lender’s website or go to a bank or credit union branch in person. You can request a preapproval from multiple lenders, which is a smart way to get the best deal possible. Some lenders, such as LightStream, even have a program where they’ll agree to beat any competitor’s rate you can find that’s lower than theirs.

Step 4: Shop with your preapproval

If you are preapproved, the lender will tell you how much financing you qualify for, your loan APR and term. The preapproval offer is likely good only for a certain time, typically 30-60 days, so it’s time to get shopping.

If the dealership beats your preapproval offer with a lower rate, or you change your mind about that particular lender or decide not to buy a car, you’re under no obligation to use the preapproval; simply let it lapse.

Here’s what else you’ll need to bring when buying a vehicle.

Step 5: Use your preapproval

If and when you use your preapproval, contact the lender and supply it with the information it needs about the exact car you purchased: year, make, model, mileage and VIN.

The lender will guide you through finalizing the loan.

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Where to find a pre-approved auto loan

Many lenders offer preapprovals for auto loans, including most of those on our list of best auto loans. Start with your current bank, but check with the competition, too — some of the lowest rates can be found at credit unions and online lenders.

It won’t hurt your credit to apply to multiple lenders any more than it does to apply to one, as long as you do so within a 14-day window. Some credit-scoring models allow up to 45 days. It’s smart to apply to a few places so you can compare offers. Don’t just fill out one application and think that’s the best you can get.

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