Why preapproved auto financing makes sense (2024)

FAQs

Why preapproved auto financing makes sense? ›

Auto loan preapproval enables you to head to a dealership knowing how much you can borrow and at what rate. It's an incentive for a dealer to beat or match the rate and terms.

Getting a preapproved car loan can give you negotiating power over dealers, which means you're more likely to get a better deal. Preapproval can also provide a good measuring stick for you to compare offers from multiple lenders.

You'll rarely be denied an auto loan after initial approval unless your information has changed or there was a mistake. Reach out to the lender to learn why your loan application was denied.

As such, it's not something you should expect to affect your credit score much—it certainly won't wreck it. While yes, getting pre-approved for an auto loan does involve a “hard credit inquiry”, the impact on your credit score is minor.

When you get pre-approved, you'll know how much you can afford to spend on a new car before you shop. With that information, it's easy to set a reasonable budget and avoid overestimating how much car you can get with your finances.

Although a preapproval may affect your credit score, it plays an important step in the home buying process and is recommended to have. The good news is that this ding on your credit score is only temporary.

If the loan validity expires, then you have to pay the processing fees once again for renewal. You need to keep in mind both the pros and cons of a pre-approved loan before you opt for one. It is prudent to apply for the loan only if you are certain about purchasing a home within the next six months.

Plus, preapproval gives you negotiating power –the dealer may be willing to match or beat the other offers you get to earn your business. Use an auto loan calculator to see what monthly payments may be like at different rates and loan terms.

However, even though prospective homebuyers get pre-approved for a mortgage before shopping for homes, there's no 100% guarantee they'll successfully get financing. Mortgages can get denied and real estate deals can fall apart — even after the buyer is pre-approved.

Car Loan APRs by Credit Score

Excellent (750 - 850): 2.96 percent for new, 3.68 percent for used. Good (700 - 749): 4.03 percent for new, 5.53 percent for used. Fair (650 - 699): 6.75 percent for new, 10.33 percent for used. Poor (450 - 649): 12.84 percent for new, 20.43 percent for used.

Is Capital One pre-approval legit? ›

In general, Capital One credit card pre-approval is likely to be fairly accurate. Because you provide your Social Security number and other identifying information, it's possible for Capital One to get an idea of your credit history and provide you with a reasonably accurate list of cards you qualify for.

How fast will a car loan raise my credit score? There's no set time frame for how long it takes a car loan to improve your credit score. After buying a car, you can expect to see your score improve after making monthly payments on time and paying down your loan balance.

Rates aren't guaranteed — and their validity is dependent on how accurate the information you provide is. Preapprovals also aren't guaranteed. If your income, employment or credit drastically changes between when you are preapproved and when you fully apply, you may be denied the loan.

In addition, because pre-approval includes submitting a loan application and securing financing, it can accelerate the closing process. However, don't worry if you don't use your pre-approval in time. Your house-hunting doesn't have an expiration date just because your pre-approval does.

But let's be clear: Financing is profitable for dealerships in many ways. If they know they can't turn a profit from financing, they're more likely to push harder to find profit elsewhere. Discuss your plans with your credit union or banks loan department; so, they can pre-approve you, so you have the knowledge.

That sounds more official (and in some ways, it is), but that “pre” in the name shouldn't be ignored. Preapproval is still just an estimate — it doesn't guarantee approval of financing.

Credit card pre-approval doesn't typically impact your credit scores because the process usually involves a soft inquiry. Applying for a credit card typically requires a hard credit inquiry, which could cause credit scores to drop temporarily.

Before you start car shopping, your first step should be to plan your financing. Securing an auto loan before shopping puts you in a position to get the most for your money. Going through the loan process with your credit union gives you even more options to get ahead financially.

When looking for pre-approval on a car loan, you should NOT get a loan directly from the car dealer to keep things simple. It is important to compare pre-approval offers and select the one that is best for you.