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!
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