Drive Your Dream
Whether you’re buying your first car or your tenth, figuring out how to finance a vehicle can feel overwhelming. This is where a pre-approved car loan can come in handy. Considering that the average cost of a new car in Canada in 2023 was $67,817, paying for a car in cash is no easy feat. If you’re looking at financing, going into a dealership with a pre-approval in hand empowers you with confidence and leverage, all while staying within your budget.
In this article, we’ll be covering how you can get a pre-approved car loan in 7 easy steps. Learn how you can gain the upper hand when negotiating, so you can drive away with the car of your dreams on your own terms.
What is a Pre-Approved Car Loan?
A pre-approved car loan is a conditional financing offer from a lender. It provides you with an estimated loan amount and interest rate that you qualify for. Lenders typically evaluate your creditworthiness and income to come up with a pre-approval offer. A pre-approved car loan can also be referred to as an auto loan pre-approval, pre-approved car finance, pre-approved vehicle finance or pre-approved car loan.
How Do Pre-Approved Car Loans Work?
Simply put, getting a pre-approval is the first step in securing a car loan. With the lender giving you an estimated loan amount and interest rate, you’ll be able to establish a realistic budget. While it’s not a final loan agreement, pre-approved car loans give buyers the opportunity to come prepared during negotiations. Once you pick out a car, the dealership will submit a final loan application to the lender with your specific vehicle details for final approval.
Where to Get a Pre-Approved Car Loan?
When it comes to getting a pre-approved car loan, you have many options to choose from:
- Banks.
- Credit unions.
- Online lenders.
- Loan comparison websites.
- Car dealerships.
To make sure you’re getting the best deal, remember to compare interest rates, loan terms and any fees associated with both the pre-approval and the final loan.
7 Steps to Getting a Pre-Approved Car Loan
1. Check Your Credit Score
The first step of the pre-approval process is to check your credit score. Your credit score indicates to lenders how creditworthy you are, which influences the interest rates and loan terms they offer you. Before applying for a pre-approval, take a look at your full credit report, see what range your credit score falls into and dispute any errors you may find.
2. Set a Budget
While it may be easy to just look at the purchase price of a car and set that as your budget, think again. A realistic budget should consider all the costs associated with your car, not just the loan payment. Other factors to consider include insurance, gas, maintenance and any down payment. Having a clear budget can help you avoid overspending, keeping you on track with your other financial goals.
3. Research Lenders and Interest Rates
Even though it may be tempting to just pick the first lender that comes up, researching different lenders can potentially save you thousands in the long run. During your research, you may find that different lenders are offering different interest rates. Interest rates significantly impact your loan cost and you should be looking for the lowest rate you qualify for based on your creditworthiness.
4. Gather Your Documents
Before applying for the pre-approval, make sure to have the relevant documents ready. While specific documents may vary between lenders, generally they’ll ask for:
- Proof of income: Pay stubs, T4s or tax returns are common documents to verify your income.
- Proof of residence: Mortgage statements, lease agreements or utility bills are common documents to prove your residency.
- Identification: Government-issued photo ID, such as a driver’s license or passport, is required for verification.
Keep in mind that some lenders may ask for more documentation as needed. Information about the car you’re looking to purchase (e.g. year, make, model) may be helpful for some lenders as well.
5. Apply for Pre-Approvals
With your documents ready, it’s time to apply for pre-approvals! In this digital age, most lenders accept online pre-approval applications, but some lenders might also require an in-person visit. To compare options, you should consider applying to several lenders, so you can secure the best interest rates and terms. However, be mindful of how many pre-approvals you’re applying for since each one usually involves a hard credit check, which can slightly impact your credit score. Remember to try to limit inquiries within a short time frame (30-45 days) to minimize the effects on your credit score.
6. Choose a Lender
Now that you have all your pre-approval offers, you’ll want to carefully evaluate your options before choosing the best fit. Some factors you should consider are interest rates, loan terms, fees and customer service. Also, don’t forget to read the fine print to make sure you’re fully understanding all the loan terms and conditions before finalizing your choice.
7. Use Your Pre-Approval to Shop for a Car
With all the finances out of the way, it’s time for the fun part – shopping for a new car! Having your pre-approval gives you the leverage to negotiate at the dealership, which can potentially help you secure a better deal on your dream car. If a dealership’s offer doesn’t align with your pre-approval terms, you can avoid the pressure and walk away since you have a clear budget in writing. When you’re ready to buy, your pre-approval can simplify the financing process at the dealership, getting that dream car in your driveway even faster.
Final Thoughts: Getting Pre-Approved for a Car Loan
Securing a pre-approved car loan provides you with a roadmap to start the car-buying process. Rather than going into it aimlessly, you’ll feel more prepared having set numbers in mind before you even step foot into a dealership.
By following these steps on how to get a pre-approved car loan, you’ll be able to navigate the process with confidence, all while driving away in your dream car without blowing your budget or pushing aside your other financial goals. Remember that being prepared gives you the upper hand, and with a pre-approved car loan, you’ll be well-equipped to negotiate and secure the best deal on your new wheels.
Read on to learn about some of the top places for pay-as-you-go car insurance.