Introduction
Being pre-approved for the car loan is one of the best strategies that can be employed when it comes to car shopping. A pre-approval enables you to know the amount you can borrow, you get a fixed interest rate, and you can bargain with the dealerships. In this guide, you will learn how to get pre-approved for car financing from checking your credit score to getting your pre-approval letter. By using Automatic Car Credit you will be in a better position to secure the financing that will enable you to pull out your dream car.
What Does Pre-Approval Mean?
It is, however, important to first explain what pre-approval means before looking at the steps involved. When you are pre-approved for an auto loan, a lender takes a look at your credit profile and other factors like your credit score, income, debt to income ratio among others and offers you a loan with certain conditions. This offer is the amount of money you will borrow plus the interest rate that you are eligible for, which can be used to look for a car within your range.
The pre-approval does not mean that you will be approved for the loan but it helps you to have a better understanding of the terms of the loan once you have found a car. Also, having a pre-approval can help in the dealership process to be faster and less stressful.
Step-by-Step Guide
Step 1: Know your credit score
The first thing that one needs to do in order to get pre-approved for a car loan is to look at credit score. Credit score is an essential factor when it comes to the amount of loan, the rate of interest and the terms of the loan that you are likely to be given. This means that the better the credit score the more favorable the terms that you are likely to be given for the loan.
Step 2: Determine Your Budget
Once you have a clear understanding of your credit score, it’s time to determine your budget for a new or used car. This involves calculating how much you can afford to spend on a monthly car payment, as well as other related expenses such as insurance, maintenance, and registration.
Step 3: Gather Your Financial Documents
Before applying for pre-approval, it’s essential to have all of your financial documents in order. Lenders will require specific information to assess your ability to repay the loan.
The documents you’ll typically need include:
- Proof of income: Recent pay stubs or tax returns to verify your earnings.
- Proof of identity: A government-issued ID, such as a driver’s license or passport.
- Proof of residence: You must be a citizen of the US or permanent resident.
- Credit history: A report from one of the major credit bureaus (if requested by the lender).
- Vehicle information (if applicable): If you already have a car in mind, you may need to provide details about the vehicle, including the make, model, and VIN (Vehicle Identification Number).
Having these documents ready will help streamline the pre-approval process and ensure that the lender can assess your application without delay.
Step 4: Submit Your Pre-Approval Application
Once you’ve selected a lender, it’s time to submit your pre-approval application. The application process may vary depending on the lender, but in most cases, you can complete the application online, over the phone, or in person.
Step 5: Review Your Pre-Approval Offer
After submitting your application, the lender will review your financial information and provide a pre-approval offer. This offer will include important details such as:
- The loan amount you qualify for.
- The interest rate.
- The loan term (typically 36 to 72 months).
- Any conditions or restrictions, such as the need to purchase a vehicle within a certain price range.
Take the time to review the offer carefully and compare it with offers from other lenders. If the terms meet your expectations and fit within your budget, you can move forward with the pre-approval.
Step 6: Get Your Pre-Approval Letter
After you agree to a pre-approval offer, the lender will then give you a pre-approval letter. This letter works as a proof that you have been pre-qualified for a car loan and this gives you leverage when bargaining with the car dealers.
When you have a pre-approval letter, then you can go to the market with full knowledge of how much you are capable of paying. The letter will usually be effective for a given number of days, say 30 to 60 days, after which the holder is supposed to complete the purchase.
Step 7 Select Your Car
Once you are pre-approved you can go out and look for your car. Regardless of whether you are purchasing a new or a second hand car, the pre-approval provides you with a clear price range within which to operate, thus making the car buying process all the more effective.
We have a large selection of good used cars at Automatic Car Credit and our staff will be glad to assist you in finding the right car for your needs. This way, you will be in a better position when it comes to bargaining with the seller and you will not be stressed by the issues to do with financing the car.
Step 8: Finalizing the loan
The last activity that is performed in the process of car hunting is the process of completing the loan with the lender. This process involves entering the details of the vehicle that is; the price, the VIN number, the dealership etc. The lender will then go through the final assessment of the application and once approved, the loan will be granted to you to enable you to effect the purchase.
Bottom Line
It is always advisable to get pre-approval for car loans since this will help one to avoid a lot of hassles, time and even money when searching for a car. If you follow these steps and use a reputable lender such as Automatic Car Credit, you can get a good rate on the loan and take the car of your choice without the risks involved in applying for a car loan. Call us today to know more about our financing schemes and how we can assist you to secure pre-approval for your next vehicle.