Walking into a dealership with a preapproved loan allows you to lock in rates and terms on a loan before shopping for a car. However, it can limit how much you’re able to spend on your new car.
Age 18 years or older, credit score 500+, to refinance loan car must have less than 100,000 miles, no more than eight years old and loan balance must be $7,500+
With car loans, preapproval works by allowing you to lock in the rates and terms on a car loan before heading to the dealership. It draws out the period between getting approved for a car loan and signing the loan documents.
Unlike preapproval on other types of loans, auto loan preapproval typically requires a full application, documents and a hard credit check.
4 tips to help get preapproved for a car loan
Consider these four tips before you submit a preapproval application:
Create a budget. Before you begin, calculate your potential monthly payments and learn how much you can afford. This can help guide you toward lenders that offer preapproval options you may qualify for.
Check your financial standing. Car loans are an expensive commitment. Be sure that a loan is something you can realistically fit in your budget and understand your credit score before you apply for preapproval.
Research your car. Having a car already in mind when you apply for preapproval can help — it gives the lender something to go by when determining whether or not to offer you a loan.
Shop around. Not every lender offers the same car loan. Seek preapproval from multiple lenders to increase your chance of qualifying for a loan.
What are the advantages of preapproval for car loans?
Increased confidence. The lender assessed your finances and gave you the green light to purchase a vehicle, so you don’t have to stress about securing financing.
Bargaining power. Knowing how much you can spend gives you the upper hand when negotiating a price at the car dealership.
Fixed interest. A fixed interest rate can help you maintain a budget without having to worry about fluctuations in the market raising your interest rate.
Increases loan options. Because you’ll already have a loan, you won’t be stuck with whatever financing package you’re offered. Preapproval can protect against dealership markups.
Avoid upsales. Preapproval gives you a specific amount you have to spend. When the salesperson tries to upsell you with GAP insurance or an extended warranty, you’ll know if you can afford it.
Why might I want to hold off?
Short approval time. Auto loan preapproval is often only available for between 30 and 60 days. If you’re not ready to finance a car within the month, you should wait to apply for preapproval.
Limited budget. Because you’ve been preapproved for a set amount, your car options may be limited. This can be beneficial if you don’t want to overspend, but it might restrict which models you can get.
Smaller market. Not all lenders offer preapproval, and some might still require a hard credit check — even before you’ve accepted the loan.
Should I get preapproved for a car loan?
It depends on your situation. You might want to get preapproved for one of the following reasons:
You’re new to lending. Getting preapproved can give you an idea of what type of loan you can actually get without the commitment.
You want to negotiate. Going to a lender with a preapproved rate in hand is key to making a solid case for yourself.
You aren’t set on a dealership. Having a preapproved car loan effectively makes you a cash buyer. If you don’t like what one dealer offers, you can move on to the next.
Does preapproval affect car loan interest rates?
Yes, preapproval can affect car loan interest rates in two ways: It allows you to learn what rate you can qualify for and gives you a tool to help negotiate a lower rate with a lender.
For example, say you were preapproved for 11% APR. You can walk into a dealership and offer the salesperson 8%. They might come back with 9% or 10%.
Preapproval isn’t a commitment, so if the dealership can give you a lower rate, take it. If you can’t get a better deal, you can walk away or find another dealership that can — or stick with the original loan.
Preapproval vs. prequalifying
When it comes to car loans, preapproval is technically not the same as prequalifying — though some lenders might use the two-term to refer to the same process.
Preapproval involves a hard credit check that temporarily lowers your credit score and gives you more power at the dealership.
Prequalifying involves a soft credit pull. It’s helpful when comparing lenders, but it won’t give you leverage for negotiating a price.
Tip: If a lender advertises “locked-in rates,” it’s talking about preapproval, not prequalifying.
5 more reasons to get financing before hitting the dealership
You’ll know your interest rate ahead of time. Dealerships mark up their rates to turn a profit on your loan. Even a seemingly small markup of a percentage point or two can add hundreds of dollars to your loan. When you apply for preapproval, you’ll have a good idea of the rate you can expect to receive.
You can pick a loan that fits your budget. Preapproval means you know the exact amount you can borrow, the term of your loan and the rate you can expect. Once you know your monthly payment, you can ensure it fits your budget — without the stressful guesswork the dealership’s finance office would put you through.
It simplifies the negotiation process. With preapproval, you’re considered a cash buyer. You’ll be in a better position to negotiate, largely because you don’t need to worry about how you’ll finance your car. And you can avoid last-minute additions from the dealership that raise your loan’s cost.
You might score a better rate from the dealership. If you have good credit, the dealership might try to beat the rate you got preapproved for. If it’s a few percentage points lower or there are special discounts available through manufacturer financing, it may be worth the switch.
You’ll look like an informed buyer. A preapproval shows the salesperson that you’ve done the legwork and are prepared for a big purchase. Combined with a firm stance on the money you can spend, you’ll be less susceptible to sales tactics meant to trick buyers into bad deals.
Ensure you have all your personal documents and income information.
Compare a range of loans that you can apply for.
Fill out one or more preapproval applications with multiple lenders.
Shop around for your next car.
Each lender will have a set time for how long your pre-approval stays in place. While this varies, it is usually around 30 days.
What happens after I get preapproved?
After you get preapproved for a car loan, most lenders allow you to shop around for around 30 days to find the right car. Some might offer preapproval for as long as 60 days.
Once preapproved, lenders typically give you a check that you can use to buy a car at a dealership, with a private party or at an auction. You aren’t obligated to sign off on the loan if you decide to go with another lender or not make the purchase at all.
Compare more car loan options
Explore your options by minimum credit score, APR, loan term or requirements. Select the Go to site button for more information about a particular lender.
Getting preapproved for a car loan can be helpful for buyers who want to negotiate with a dealer or are willing to shop around for a car. But since not all lenders offer preapproval on their car loans, it could limit your options. Check out our guide to car loans to ensure you’re making the right moves when buying your next car.
Frequently asked questions
Is preapproval available for everybody?
It depends. Generally, you’ll have to be at least 18 years old, a permanent resident or citizen of the US, have a regular income and be able to afford your loan repayments. Many lenders also require that you meet a certain credit score requirement.
Does preapproval guarantee I’ll get a car loan?
Generally, yes. Preapproval means you are able to shop for a car. While it’s not guaranteed, the lender has likely already performed a hard credit check and analyzed your finances to confirm you qualify.
What is a conditional approval for a car loan?
Conditional approval is given before preapproval on your car loan. Based on the information you give the lender, you’re given a maximum loan amount. You’ll have to wait to get information like loan term and interest rates. Unconditional approval is when the lender approves you for the loan to buy a specific car.
Will getting preapproval hurt my credit?
Not necessarily, but it could cause a temporary dip. If you end up getting multiple preapprovals from different lenders with hard credit pulls, your credit score could be affected. However, most credit bureaus now consider multiple applications for the same type of loan as one line, so your score may not decrease significantly.
After I’m approved for an auto loan, are there restrictions on where I can shop?
Some lenders will have no restrictions as to where you can buy a car, while others work with a network of dealerships. Check with your lender if it has restrictions in place.
Matt Corke is Finder’s head of publishing ventures. Prior to this he was head of publishing for Australia, New Zealand and emerging markets. Matt built his first website in 1999 and has been building computers since he was in his early teens. In that time, he has survived the dot-com crash and countless Google algorithm updates. See full bio
If you’re in the market for a car don’t miss out on this guide to buy a car, get all the info you need and a range of loans to help you get into your car sooner.
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