Do you need to get preapproved for a car loan?
An auto loan preapproval involves applying with a lender prior to shopping for a car so that you know how much you can spend. Getting preapproved makes it easier to buy a car because you know upfront not only how much financing you qualify for but what the terms are.
How to buy a car with a preapproved loan
To apply for a car loan preapproval, you'll need to start by picking a lender and completing an application. When securing financing, it's a good idea to see how much your monthly car payment would be for different loan amounts. Use our monthly car payment calculator to estimate your payments. Once you're preapproved for a loan, it's time to hit the dealership. When your application is approved, your lender will provide you with an auto loan preapproval letter explaining the financing amount you qualify for and the terms.
Be sure to take your car loan preapproval letter with you when you shop for a new car. You can let the salesperson know you're preapproved for financing, which may help you get a better deal on a car. When you're shopping, make sure you stick to vehicles that you can afford based on your preapproved loan terms, being mindful of any down payment you may need to make as part of your purchase. Once you pick out a car, all you need to do is call your lender with the details. They can help you lock in your financing based on your preapproval terms so that you can leave in your new car. You'll also want to have your auto insurance secured before you drive away. Learn how insurance works when buying a new car.
Steps to get preapproved for a car loan
1. Check your credit
Before applying for a car loan preapproval, you should check your credit using online tools like Credit Karma or Experian. This will help you know the current state of your credit and how you'll look to potential lenders.
2. Improve your odds
Now that you know the state of your credit, you can take steps to raise your credit score and improve the quality of your application. These include paying down credit card balances and eliminating other small debts to improve your debt-to-income ratio. A higher credit score will make your loan application more appealing and help you get preapproved for more financing or better terms.
3. Gather your documents
Before applying for an auto loan preapproval, gather documentation about your income and debts that a lender may need to see. These include recent pay stubs, bank statements, and potentially two years of tax returns if you're self-employed.
4. Shop for a good loan offer
Before applying, the last step is to check around for a lender and loan offer that makes the most sense for you. Some lenders serve borrowers in particular areas or specialize in borrowers with specific credit profiles. Research different providers to see what they offer and who may be best for you.
5. Apply for the loan
Once you've chosen a lender, you'll need to complete an application and submit documentation for yourself and any cosigners. Your lender may request additional information, which you'll need to provide before they can process your application and complete your preapproval.
Getting preapproved for an auto loan isn't required for you to get a new car, but it can take a lot of the uncertainty out of buying and makes your car buying experience much faster and easier. It will help make you a more informed shopper when you decide to buy because you'll better understand what you can afford and how much your payments will be.