How do preapproved car loans work?

I’ve heard that preapproval is a good thing to have when you take out a loan, but I don’t really understand it. What is pre-approval? How do preapproved car loans actually work?

Loans can be confusing, and all the terminology can feel overwhelming! But try not to worry. Pre-approval simply means that your lender agrees to give you a certain amount of capital if you qualify for a car loan. That means you’ll be able to budget and negotiate with a much clearer number in mind.
If that sounds worthwhile to you, follow these steps to get pre-approved.
  • First, you’ll choose which car you’d like to buy, and gather up the documents you need for the loan—including the amount you expect to finance and any trade-in information.
  • Once you have all your documents together, you’ll apply for pre-approval through the lender of your choice. Be sure to shop around to find the lender with the most favorable terms.
  • The lender will perform a hard credit check to make sure that you qualify for the loan and determine the amount you’re eligible for.
  • Once you’re approved, your lender will send you a letter stating your pre-approval status and the amount you’ll be able to borrow.
  • When you go to the dealer to purchase your car, you can use the letter to leverage a better deal.
  • Remember, pre-approval only lasts for 60-90 days, so you need to act fast!
When you get a new car, you’ll also need a new insurance policy. For help finding the best rate on the coverage you need, try Jerry.
A licensed broker, the Jerry app helps users save an average of $879 per year on car insurance! Just download the app, enter some information—and Jerry will send you personalized quotes from over 50 top providers like Progressive and Nationwide for free.
Liz Jenson
Answered on Nov 20, 2021

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