How to Get Preapproved for a Car Loan
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- Getting preapproved
- Pre-qualification vs pre-approval
- Improving eligibility
- Loan comparison
To get preapproved for a car loan—set a budget, get your documents together, shop around, and apply!
Getting preapproved for a car loan can set your financial expectations and even expedite your purchase process.
If you’re shopping for a car, preapproval is generally a good idea. You will need to show proof of finances to a lending institution before they will preapprove you for a loan—but if you have all your documentation ready, it should be pretty easy.
To help you along the way, Jerry has put together everything you need to know about how to get preapproved for a car loan.
Not only that, Jerry can help you refinance your auto loan. This intelligent, AI-based app is the fastest, most accurate way to comparison shop for loan options—and you won’t have to spend time making calls. (And bonus—it’s totally free to use!)
Set a (sensible) budget
Before you approach a financial institution, you need to figure out what you can actually afford. What monthly payment amount can you handle comfortably? What interest rate makes sense for your long-term budget?
When setting your budget, don’t forget about taxes and fees, which will account for about 10% of the loan amount.
You’ll typically have to make a cash down payment (usually 20%), too. And you’ll want to consider ongoing car expenses like gas, cheap car insurance, maintenance, and more, which may actually exceed the monthly payment for your loan.
Your lender will perform some calculations to help you understand what you can afford. But banks often approve you for a ceiling amount, which is the absolute highest amount you could receive. You probably won’t want to spend that much money.
Pull a soft credit check on yourself ahead of time to get a sense of the amount you could be approved for. This allows you to make a reasonable estimate before you go to a lender—and before you fall in love with a pricey vehicle!
Key Takeaway Setting a realistic budget can help you stay on track so that you don’t end up with a car (and a loan) that you can’t afford.
Get your documentation together
Now you can prepare your application. The first step is to assemble all your documentation. You’ll likely need:
- Proof of identity
- Proof of income
- Proof of insurance
- Information about the car you’re buying (if you’ve already picked one out)
Your lending institution will review this documentation to determine how much money they can responsibly loan to you. Keeping everything organized will help expedite the process.
How to get preapproved for a car loan
You can apply for a car loan in several ways. Researching lenders online can be helpful, and your regular bank should be one of your first stops.
Shopping around will help ensure you’re getting the best loan terms. Multiple offers allows you to pick the best one—and being hasty could cost you in the long run.
To avoid dings on your credit report from hard inquiries, plan to do all your loan shopping within a two-week period. This will ensure that all the credit pulls will count as just one inquiry and will minimize any effect on your score.
Once you’ve decided on the lenders you want to apply to, submit your documentation and wait to hear back.
Benefits of preapproval
Having a preapproval offers some great benefits once you start car shopping.
Protects you from dealership markups
You can get a loan through the dealership itself, but they could inflate your interest rate to higher than market value. And if you haven’t shopped around, you’d be none the wiser.
While a 1% difference in APR may not seem like much on paper, over the life of your loan that could add up to hundreds or even thousands of extra dollars!
Preapproval puts you in the driver’s seat. Take your time, shop around, and go to the dealer prepared to negotiate knowing that you already have access to a great rate.
Strengthens your negotiating position
Many people don’t understand the key difference between approaching a dealership as a cash buyer versus seeking financing.
If you already have preapproval for a car loan from a bank, then the dealer will consider you a cash buyer. You don’t need the dealership to make you a contract, add special fees, or negotiate rates. All you’re focused on is the price of the car—and that’s a major benefit!
If you come without preapproval, you’re relying on the dealership to help you finance the purchase. They can offer you high rates or extra (unnecessary) fees simply because you don’t have any other option. If you’re not a strong negotiator, car shopping without preapproval could stick you with a bad rate.
Facilitates hassle-free buying
If you have a preapproval for a certain amount, you can easily deflect a dealer’s attempts to negotiate. Just say, “I’m approved for this amount and I can’t go over it.” It’s like when you were a kid and you could use your mom’s strict curfew as an excuse not to hang out with people you didn’t like.
Lean on your pre-approval letter as a negotiation tool. Sometimes, the dealership will surprise you and beat the rate just to get your business!
Should I get prequalified or pre-approved?
Pre-qualification is a less rigorous examination of your finances and it doesn’t guarantee an approval. To get prequalified, the lender will do a soft credit pull and offer you a range of rates—none of them guaranteed.
Pre-approval is more serious and it’s what you need before you approach a dealership. During the pre-approval process, the bank will assess your finances, do a hard credit pull, offer you a loan when you’re ready to accept it.
What to do if you can’t get pre-approved
If you’re having trouble getting preapproved, there are a few actions you can take to help improve your eligibility.
Improve your credit history by paying off debt with regular payments, and work to stabilize your income and employment history. You can also consider asking someone with better credit to co-sign the loan with you, which makes you more attractive to lenders and can help boost your credit.
In some cases, reducing the amount of your loan can help. If you need some extra cash to put towards a down payment, consider shopping around to see if you can find savings on your insurance.
Jerry can help you find the best deal. In less than a minute, Jerry compares rates from more than 45 top providers and presents you with three competitive options. And when you’re ready to make the switch, Jerry takes care of everything so that you don’t have to.
With the extra monthly savings, you’ll be on your way to a car down payment (and loan pre-approval) in no time!
Jerry’s car loan comparison tool
It’s also worth shopping around for car loans. You can call around to compare loan terms—but who has the time (or patience) for that? To easily compare multiple rates from top lenders, use Jerry.
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