How to Buy a Car with Pre Approved Loan?

Do you want to know how to buy a car with a pre-approved loan? Anyone can be interested, especially if they wish to buy a car with auto financing. Car loans are available from both the banks and dealerships. The benefit of getting pre-approved for a loan is that the car buying process becomes much more manageable. It helps you know how much money you can get from the lender and the type of car you can get. Instead of blindly initiating the purchase process, a loan pre-approval empowers you with the information you need to choose wisely. However, many people do not know how buying a car with a pre-approved loan works. This article packages all the information you need to complete a car purchase successfully. Read on for more details.

What Is a Pre-Approval Car Loan?

A pre-approved car loan is a loan approved to a buyer by a lender with conditions. It shows the estimated amount you can get, the interest rate, and loan terms. You can then use the pre-approved loan documents to purchase a car. You can easily estimate the total cost of financing a vehicle and budget before shopping for a car with the quoted loan amount.

With a loan pre-approval, you essentially let dealers know how much you’re prepared for the purchase. Besides, it removes the need for dealer financing, giving you the power to negotiate for a better deal. In the end, purchasing a car becomes less stressful.

Luckily, buying a car with a pre-approval loan is an easy process that starts with filling in application documents. When you present the documents, the lender shall check your credit rating to ascertain its health.

How to Get Pre-Approved for a Car Loan?

Before buying a car with a pre-approved loan, you should first apply for one. The following are the steps you can take to get a loan pre-approval:

Step 1: Check Your Credit

One of the prerequisites to qualifying for a pre-approved car loan is a good credit rating. Lenders use your credit score to determine your interest rate and how much you will make in monthly payments. That’s because a credit score is an indicator of the level of risk lenders can attach to your application. For that reason, you should have prior knowledge of your credit check before approaching the lender. You can then check if it contains any inaccuracies. Don’t hesitate to dispute it with the credit reference bureau if it does.

Step 2: Collect Necessary Information

Before getting a car loan pre-approval, the bank would require you to submit certain information. Typically, lenders would want to provide information on your credit history, identity, income, employment, and other debts you have. After reviewing your credit reports, be sure to gather the following information:

  • Employment status
  • Proof of residence
  • Social security number
  • Income (pay stubs, tax returns)
  • State ID or driver’s license

Step 3: Wait for Pre-Approval

The lender will likely pull your credit report during the pre-approval process, generating a hard credit inquiry. Therefore, you should check whether the lender has initiated a soft or hard credit inquiry. Hard credit inquiries from several lenders within 14 to 45 days usually count as a single inquiry based on the credit scoring model. You can, therefore, maximize how much your credit score has by getting your pre-approval within the 14-to-45-day window.

Once the lender decides on your application, you’re likely to get a pre-approval within a few minutes. Sometimes, the lender might contact you to corroborate or ask for more information. Be sure to provide everything the lender needs to expedite pre-approval.

Step 4: Get Multiple Offers

It’s not advisable to accept the first car loan pre-approval you get. Why don’t you approach several lenders with pre-approval applications if you have a good credit rating? You’ll likely get varied loan terms, interest rates, and monthly payments. After getting pre-approvals from several lenders, you can compare them and choose the most affordable.

Apart from car dealerships, you can check out what online lenders, credit unions, and banks have to offer. Compare several deals to know whether or not you’re getting value for money. Like anything else, you need to have monthly payments that fit squarely within your budget.

Step 5: Shop for a Suitable Car

After getting several pre-approvals, approach the dealer with the best offer and start shopping for a car. Since the validity of pre-approvals lasts for 30 to 60 days, don’t wait too long before going to the dealership. Once you find an ideal car, submit your application using your information while applying for pre-approval. On the application form, write the vehicle’s details, including the VIN, mileage, model, make, and year.

Learn More: How To Get A Car Loan With No Job And Bad Credit?

Benefits of a Car Loan Pre-Approval

Most of the time, buyers make the mistake of rushing to a car dealership to start negotiating the purchase of a new or used car. They get drawn to the shin of the car and forget that the dealership can deny them the opportunity to make a purchase. It helps to know the amount of money you can get from a car loan, and there’s no other way to do that except via a pre-approval. The following are the benefits of getting pre-approved for a car loan:

1. Knowing How Much You Can Borrow

With a car loan pre-approval, you have realistic expectations about how much money you can get from the lender. A pre-approval is a quote of the loan amount you can borrow, including the car’s value, taxes, title, and additional fees.

You’ll also have a rough idea of the loan’s interest rate. With that, you can calculate your monthly payments and determine the car make and model you can buy. Remember, you’re free to apply for any amount lower than that for which the lender has pre-approved you.

2. The Power to Shop for a Good Car

Did you know that car dealerships treat a pre-approval as good as cash? During negotiations, it gives you an upper hand since you know that possible maximum price. From that, you can negotiate to pay anything lower than the pre-approved amount. In the process, you’ll save a lot of money by avoiding a more extended payback period or a higher interest rate. Besides, you can choose a car that falls within the pre-approved loan amount. 

3. Avoiding Dealership Financing

Going to a dealership without cash or a pre-approved loan exposes you to the possibility of taking just any available financing in a bid to avoid losing the car. In the end, the dealership might give an expensive offer, well beyond your ability to pay. With a pre-approved loan, you’ll feel less pressured to agree to the dealership’s financing offer. Also, if several lenders pre-approved you for a car loan, you can choose an offer that works for you best, enabling you to negotiate with the dealership on your terms.

4. Qualifying for a Lower Interest Rate

Apart from helping you know the expected monthly payments, getting a pre-approval is essential in qualifying you for a lower interest rate. That translates into lower monthly payments, allowing you to adjust your budget better. To reiterate, you’ll also avoid falling to dealership financing, which could attract a higher interest rate.

What to Do If You Don’t Get a Pre-Approval?

Sometimes, you might fail to qualify for a pre-approval. It wouldn’t because you lack the income to make the monthly payments on financing consistently. You can either sulk as you go home or take steps to qualify for a pre-approval in the future. The following are some of the measures you can take:

1. Get a Co-Signor

If you can’t get car financing, ask a friend or family member to co-sign your loan application. With that, you stand a high chance to qualify for a loan using the co-signors credit rating. Essentially, the co-signor risks damaging their financial health by putting down the signature on your loan application. Failure to make payments on the loan impacts you and the co-signors credit rating.

2. Improve Your Income and Save More

It is not always because of a poor credit rating that a lender may deny you a pre-approval. Instead, it could be because your income cannot support regular monthly payments. In that case, you can work towards improving your income or saving for a larger down payment. Since that might not happen overnight, you shouldn’t be in a hurry. Take time to put aside some money until you have enough to pay for your dream car.

3. Improve Your Credit Rating

Your credit rating depends on several factors, including a significant debt burden, maxed lines of credit, delinquent loans, and bill payments. So, why don’t you work on improving your credit? Once you realize the things you haven’t been doing well, take the necessary steps. Pay your bills on time, maintain a low credit utilization, and reduce your debt-to-income ratio. You’ll establish a solid credit rating and qualify for a pre-approval with time.

Learn More: How to Buy a Car with Bad Credit and No Co-Signor?

When to Apply for a Car Loan Pre-Approval?

Getting a loan pre-approval isn’t something you should do on a whim. The best time to do it is when you know you have a good credit score and are serious about buying a car. Possibly, the lender might deny you a pre-approval. Even if they give it to you, a pre-approval doesn’t guarantee that you’ll get the financing you need to purchase a suitable vehicle. It also helps you know the kind of car you can afford. So, it would help if you applied for a loan pre-approval before going to shop for a vehicle.


You know how to buy a car with a pre-approval with the information above. That’s as good as cash, especially when negotiating for a good deal. While it might seem complex, getting a pre-approval is easy. After getting your credit report, approach the lender and provide the required information. The lender will then assess your application and give you a pre-approval if you qualify for one. If you do not qualify, you would have to take other steps to purchase your dream car. Some options include improving your credit, getting a co-signor, improving your income, or saving for a down payment.

Frequently Asked Questions (FAQ)

How does buying a car with pre-approval work?

Buying a car with pre-approval is simple, with lenders issuing borrowers a statement representing the loan amounts they qualify. A pre-approval is conditional and does not necessarily mean you’ll eventually get financing for your car. The lender approves an estimated loan amount at an estimated interest rate and loan terms. After finding the right vehicle, you’ll fill in an application form and get financing which is usually equal to or lower than the pre-approved amount.

Does pre-approval guarantee a car loan?

No. pre-approval doesn’t necessarily guarantee that you’ll get a car loan. However, it only indicates your ability to secure financing and suggests the vehicle’s value within your range. It results from a lender’s review of your credit report, income, and other information and determines the amount you can borrow.

Should I tell a car dealer I’m pre-approved?

Not just yet. The best time to inform a car dealer about a pre-approval is after settling on the price of the car. If you disclose the loan pre-approval from the get-go, you could have no chances of negotiating for a better deal.

What does a pre-approval for a car loan mean?

A pre-approval is a conditional approval from a lender with an estimated loan amount, interest rate, and loan terms. It means that you have a good idea of the amount of money the lender can advance to you and at what cost.

Can you be denied after pre-approval?

Yes. You can be denied a loan after pre-approval, especially if you wait for more than 60 days before approaching a dealership. Also, if your credit score changes, the lender will likely deny you financing for a car. That means going back to the drawing board if you hope to get your dream car.

CarsPlan Admin

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