How to Get a Car Loan Pre-Approval?

February 20, 2024

Are you looking to buy a car but don’t want financing surprises? Getting a car loan pre-approval avoids shock and disappointment later.

However, many car buyers rush into purchasing without knowing about loans. This can lead to big letdowns if your loan’s rejected, but don’t worry!

We have created this guide to help you ace your loan pre-approval application. Let’s speed up that process and make car shopping stress-free!

What Does Car Loan Pre-Approval Mean?

Car loan pre-approval is when lenders conditionally approve your loan application at a fixed interest rate. It helps you determine how much you can borrow and the interest you’ll likely pay, so you can budget accordingly.

However, a pre-approval doesn’t guarantee you’ll get the loan. You’ll need to provide more information and documents before it’s final.

Pre-approval also gets confused with pre-qualification, but they’re different.

Pre-qualification gives you an idea of the rates you might get based on a credit check. However, your final rate might be higher.

On the other hand, pre-approval involves a harder credit check which might slightly dent your credit score. However, the offer you get is more likely to stay the same. It’s a good idea to avoid seeking pre-approval until you’re set on buying a car because of its impact on your credit score.

Reasons to Get Car Loan Pre-Approval

Here’s why getting a car loan pre-approval is important:

Preapproval helps you establish a practical budget

Upon receiving an auto loan pre-approval, your lender determines the highest loan amount based on your credit score and other factors. This allows you to focus your vehicle search within the pre-approved price range.

Aside from the car’s cost, consider other expenses like fees and taxes. For instance, if you’re approved for a $30,000 loan, selecting a vehicle priced lower by several thousand dollars is wise.

Taxes and fees, roughly around 10%, should also be accounted for. To help reduce the price, consider factors like down payments or trade-in amounts, as they can offset the total cost significantly.

It grants you the freedom to purchase your preferred vehicle

Finding a decent interest rate at a dealership ties you to their available stock. If your desired car isn’t there, securing a similar rate elsewhere isn’t assured. Yet, with loan preapproval from an independent institution, you can buy your car from any source.

For a diverse range of cars to explore, consider Madman Motors. Our extensive inventory offers various choices. Check out our wide selection of vehicles that may fit your preferences.

Getting preapproved for a car loan could lead to savings during the dealership process

Dealers partner with various lenders who offer fixed interest rates depending on credit scores. These lenders often permit dealers to increase rates by 1 or 2 percentage points. This could result in hundreds of extra interest dollars throughout the loan period.

An auto loan preapproval helps gauge if the dealer’s rate is fair and if better rates exist elsewhere.

The pre-approval is an advantage in car buying. It helps aid negotiation for better rates. For example, consider it if you got preapproved at 4.5%, and the dealer offers 3.5%. However, ensure the loan terms, like the down payment and duration, are the same.

It positions you well for negotiations

A loan preapproval turns you into a cash buyer at the dealership, offering negotiation power. Having financing in place simplifies the deal-making process significantly.

Dealers are aware that a preapproval can be used at other dealerships. This motivates them to finalise a deal because customers can easily explore other options.

You’ll spend less time on dealership visits

Getting preapproved for a car loan helps you spend less time at the dealership. You don’t have to haggle with the dealer for financing, so you can hit the road in your new car faster. This makes buying your car quicker and saves time at the dealership.

Also, having a pre-approved loan means you won’t feel pushed into getting more expensive dealer financing, making your car-buying experience faster and more satisfying.

Where to Get Pre-approved for a Car Loan

You can explore several avenues to obtain pre-approval for a car loan. Here are some options to consider:

Online Lenders

Online lenders like Madfinancewa.com.au, Loans.com.au, CarLoans.com.au, and Ausloans often provide pre-approved car loan options. They typically require a good credit score for eligibility.

Banks

Major banks like National Bank Australia, Westpac, and Macquarie Group offer pre-approvals and car loans. Banks might offer competitive rates but may have stricter criteria for approval.

Credit Unions

Credit unions like Credit Union SA and Police Credit Union offer personalised services and potentially lower interest rates. They may also have more flexible terms compared to traditional banks.

Steps to Get Pre-Approved for a Car Loan

You are now closer to getting your dream car. Here are the steps to follow to get car loan pre-approval.

Estimate how much money you need

Before you finalise the type of car, know all the associated expenses like taxes, fees, and warranty. You might not know the loan amount you’ll need, but you can estimate an amount for a loan pre-approval.

Lenders often approve more than you requested to cover different car choices or extra costs. Yet, considering your budget and choices, you can estimate how much you want to spend on your new car.

Collect Information and Documents

You must prepare the requirements to get approved for a car loan before buying a car. Whether you apply online or at a bank or credit union, you’ll need certain documents for the application:

• Your info like your name, Social Security number, driver’s license, contact details, and home address
• Details about your income from your job, like where you work and how much you earn. You might need papers like a W-2 form, tax return, or pay stubs
• How much money do you want to borrow for the car, and how long you can pay it off
• Info about any car you wish to trade in, if you have one

When you apply, you’ll have to give details about your income:

• How much money you earn each month before taxes
• Any other money you get, like disability payments, retirement money, child support, or alimony

To get pre-approved for a car loan, you’ll have to share similar info to what you’d give for a normal car loan:

• How much money do you want to borrow, and for how long
• Details about the car you want, its mileage, age, make, and model

You’ll also need to share personal details:

• Your name, contact details, date of birth, and Social Security number. You might need to show a copy of your ID
• Information about where you live, if you rent or own, and how much you pay for housing each month. You might need to show a utility bill or your lease or mortgage agreement
• Details about your income, like how much you make in a year and where you work

Apply for pre-approval

Now that you know how much money you need and where you might get it from, you need to apply for pre-approval of the loan.

Different lenders have different ways of doing this. Some let you apply for a car loan online, and it’s super quick. Others might need you to call or visit them in person to apply.

The application process is the same as filling out a regular loan application. You can do it online, on the phone, or in person. If you go online, make sure to pick a trusted lender.

No matter how you apply — online or in person — it usually takes 15 minutes for each application. Some lenders might need more info from you, like your credit score or details about the car. Check what they need before you apply.

Once you’ve given all the info they requested, most lenders will tell you if you’re approved in just a few minutes.

Most online lenders let you get preapproved on their websites now. But watch out! Sometimes, when they check your credit for this, it can lower your credit score. You can usually find out on their website if they do this, or you can ask them directly.

Collect multiple pre-approval offers wisely

When you want to get pre-approved for a car loan, you can check with different local lenders or use websites listing various lenders. These websites help you see the interest rates and terms offered by different banks or credit unions. This way, you can pick the best option.

A preapproved car loan doesn’t last forever, usually only about a month or two. You don’t have to use the loan you get preapproved for. Pick the loan that suits you best once you find your desired car. You can let the other preapproved loans expire, and it’s best to inform the lenders you won’t be using their loans.

Choose the most suitable lender

After you get preapproved and get some loan offers, it’s time to check them all and choose the best one. You can consider factors such as:

• The amount of money the lender will give you
• How much money you need to pay upfront
• How long you’ll have to pay back the loan
• The interest rates they offer you

This will help you determine which loan costs less and what you can repay without problems.

Print your preapproval certificate

After you pick a lender, you can usually print your loan pre-approval certificate. This document details the lender and how much money they’ll let you borrow. You can show this to the car dealership.

They will use it to send the information about the car you want to buy and how much it costs to the lender. Then, the lender will pay the dealership, and you can finish setting up your loan.

Best Practices to Get Car Loan Pre-Approval

Have a stable job

Having a stable job is important when you want to get pre-approved for a car loan. Lenders usually look at how long you’ve had your job and if you get a regular paycheck when they decide about giving you a loan.

Even though getting a car loan with a new job is possible, it’s better if you’ve had a stable job and earn money regularly. Lenders might also consider your job title and years of employment and verify how much money you earn.

Work on your credit score

Boosting your credit score before getting a preapproved car loan is a good practice. Lenders check credit scores, and a higher score improves your chance of approval. Also, review your credit at least six months before a major purchase to fix issues and get better loan terms. Improving your credit can lead to better rates.

Remember, the pre-approval process impacts your credit, so knowing your score beforehand is helpful.

Start saving

Saving money for a down payment can make it easier to get pre-approved and might reduce your monthly payments. A larger down payment could also lower your interest rate, saving you money throughout the loan.

Furthermore, down payments help prevent owing more than the car’s value or a negative equity car loan. This situation usually occurs when you finance the car price without a down payment.

An ideal down payment is 20%, but it’s even better if you can manage more. Buyers who can put down up to 25% tend to receive the best rates and terms from lenders.

So, saving before getting pre-approved puts you in a better financial position and could save money on your car purchase.

Frequently Asked Questions

What If I Can’t Get a Preapproved Car Loan?

If unable to secure a pre-approved car loan, explore alternative lenders, improve your credit score, consider a co-signer, or save for a larger down payment. Be open to smaller loan amounts or opt for a used car. Don’t rush; boost your creditworthiness before reapplying for a loan.

Does Pre-Approval Guarantee a Car?

Pre-approval for a car loan doesn’t guarantee the purchase of a specific car. It confirms the loan amount you’re eligible for based on your financial situation. However, the purchase depends on finding a suitable vehicle within the approved loan limit and meeting the lender’s requirements.

How Long Does Car Pre-Approval Take?

The timeframe for car loan pre-approval can range from a few minutes for online lenders offering instant decisions. Banks or credit unions may also take approximately 1 to 7 business days. Online applications usually yield quicker responses due to automated processes. Meanwhile, traditional lenders may take longer due to manual review and verification processes.

Get A Pre-Approved Car Loan From Mad Man Motors and Mad Finance

In conclusion, don’t let the fear of bad credit keep you from getting your dream car. Remember, Mad Man Motors, in collaboration with Mad Finance, is always ready and willing to assist.

We can help you get that much-needed car loan pre-approval without any hassle. Even with bad credit, you’ve got a ton of options from a variety of lenders.

So why wait? Drive away in your dream car with the help of Mad Man Motors and Mad Finance. It’s easier than you think!