GoodToKnow: The Benefits of Getting Pre-Approved for an Auto Loan

A pre-approval is conditional approval given to you from a lender with estimated terms — such as the amount of money you can borrow, the interest rate and loan term — to finance the purchase of a car. This loan quote makes it easier to estimate the total cost of the loan and to create a budget before you start shopping. It lets dealers know you’re done your homework and you won’t necessarily have to rely on dealer financing. This could give you greater negotiating power which can make the car-buying process less stressful.

Benefits

Get an idea of how much you can borrow!
Getting preapproved for an auto loan can help you set realistic expectations about what you can afford to spend. The lender gives you a quote for the amount you can borrow and may include the car, title, taxes and additional fees. You’ll also get an idea of what your interest rate and loan terms will be, so you can calculate your monthly car payment and set your budget. You don’t have to apply for the maximum amount you’re preapproved for.

You can focus on the car!
If you haven’t taken the time to run the numbers before you go to the dealership, it’s easy to get distracted wondering what you’ll be able to afford and how much your monthly payments will be.

You’ll have greater negotiating power.
If you go to the dealership without an auto loan preapproval and find the car of your dreams, it could be tempting to take whatever financing is available to avoid losing out on the car. But if you have a preapproved loan offer, you may be less likely to feel pressured to get dealership financing that may cost you more.

How to Get Pre-Approved for a loan!

1. Check your Credit! Review your credit report and make sure there are no surprises.
2. Gather the necessary information and fill out an application! Lenders often ask for information about your identity, income, employment information, credit history and other debt payments.

What to do if you don’t get preapproved.

1. Build your credit! Habits like consistently paying your bills on time, keeping your credit utilization low and minimizing your debt-to-income ratio can help you establish a solid credit history and improve your chances.
2. Earn more, save more. Even if you have good credit, a lender may not approve you for a loan it doesn’t think you can afford to repay. If you were denied because of your ability to pay, you can save more for a down payment to reduce the amount you need to borrow, or you can boost your income.
3. Consider getting a co-signer. If you can’t wait to get a car, consider asking someone you know and trust to co-sign the loan with you. A co-signer is someone who agrees to pay back the loan if you can’t. But remember, a co-signer is putting their financial health on the line.

Getting preapproved for a car loan helps you get an understanding about how much you can borrow for a car. It can offer you more flexibility to choose a car dealership and can give you greater negotiating power.

WKFCU will work to get you pre-approved and have your back all the way through the entire process.

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Partially reprinted from Credit Karma, Inc. https://www.creditkarma.com/auto/i/preapproved-for-car-loan/

(*Annual Percentage Rate. Membership and approved credit required. Some Restrictions Apply. Limited time offer.)