Pre-approval simply involves applying for a loan before you buy a car. Technically, a pre-approved auto loan is a conditional offer to lend the money to buy a car up to a certain amount. It is approved in the same way any other loan is — they check your credit, employment, income, and the amount you are considering for a down payment.
It is best to apply to several lenders for pre-approval to find the best deal for you. One good tip is to submit all your applications within 14 days. Why? Hard inquiries on your credit from lenders lower your credit score. If you submit all your loan applications within two weeks, the major credit bureaus will consider these applications to be one hard inquiry, which will lessen the negative impact on your credit score.
Being pre-approved enables you to shop while knowing exactly what your budget is. It enables you to negotiate without the worry that you may be moving beyond the point where you can swing the deal. If you are approved for a $10,000 loan, then that is as high as you can go. It also prevents you from choosing a car that is unattainable, instead focusing your attention on cars in your price range.