How to get preapproved for a car loan

Taking out a loan to finance a car purchase is an increasingly popular option among American consumers. In 2017, 107 million Americans financed their auto purchases that way, according to the Federal Reserve.

One powerful step that consumers can take to increase their bargaining power is to get preapproved for a car loan. Here’s how to do it:

Getting Started
If your bank or credit union offers car loans, the easiest way to get started is to simply go down to your local branch and fill out a car loan pre-approval application form. (You may be able to do this online as well.) Before you do so, you’ll need to corral several important documents to serve as proof of:

1.       Current and previous employment history (for example, pay stubs or W2 tax forms).

2.       Additional sources of income (if applicable)

3.       Social security number/Date of birth

4.       Residence

5.       Financial indebtedness via any other loans you may have taken out.

After submitting the form and copies of any required supporting documents, the lender will perform a credit check and verify the other information you’ve supplied. Some direct lenders will pre-approve you very quickly (sometimes within the same day); others may take up to two weeks.

Provided your submission has passed muster, you’ll soon receive a car loan quote from the lender that will include:

1.       The maximum loan amount offered by the lender

2.       The loan length

3.       The interest rate you’ll pay

Now that you’ve got your loan pre-approval document in hand, it’s time to start visiting car dealerships. Show your loan preapproval document to a salesperson at the dealership and ask him/her whether the dealer can offer you better terms (some will). If so, you have the option of accepting the dealer’s offer; if you’re not happy with it, visit another dealership.

Repeat this process until you’ve zeroed in on the car you want at the terms you’re willing to accept. But don’t dally because you won’t have unlimited time to do your negotiating – many pre-approvals expire after a relatively short period of times -- typically 30 days.

Making the Car Loan Preapproval Process Work for You

1.       Start with your bank. Your bank knows you, your history, and (presumably) wants to keep you as a customer by helping you with a car loan. So start with whoever is now handling your checking and credit accounts. If you’re unhappy with the offer you get, feel free to visit a competing financial institution.

2.       Get your credit house in order early. Credit score is a crucial element determining the costs of financing your car purchase, so it’s important that your score be as high as possible going into the preapproval process. If possible, accelerate the payment of your debts. Begin this process well before you fill out any pre-approval forms.

3.       Investigate online lenders. There are now dozens of non-bank entities that now offer car loans online, and their pre-approval cycles are often very quick (several claim to provide results in under 10 minutes). Google “car loan pre approval” to identify these companies.

4.       Wrap it up quickly. You want to avoid having your credit score negatively impacted by multiple credit history inquiries, so arrange to have all your preapproval requests done within a short window of time (e.g. two weeks or less). Credit bureaus will usually classify multiple credit history requests occurring within a short period of time window as a single credit history request that won’t hurt your score much.

5.       Remember: everything is negotiable. Lenders naturally want to make a profit on the loans they issue, but the exact amount of this profit is always open to negotiation. Make sure you give your dealer a chance to beat any offers you get from your bank or credit union. Remember, dealers often have access to special manufacturer-backed finance incentives that sometimes can go as low as zero percent.

At Merrick Dodge Chrysler Jeep of Wantagh, we enjoy a direct relationship with Chrysler Capital, a financial institution that often provides very attractive financial terms to buyers of Chrysler/FCA vehicles. So give us a chance to beat any loan offers you’ve received and we’ll work hard to do so. Give us a call at 888-656-7689, use our website’s online contact form, or visit our Financing Center to get started.

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