How do I get pre-qualified for a car loan?
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UPDATED: Dec 21, 2012
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There are several steps that borrowers must go through in order to get pre-qualified for a car loan. Getting pre-qualified for a car loan is wise since it allows buyers to step onto a dealership with a set maximum price they can spend, knowing exactly how much they are qualified for.
In contrast to this, car buyers that go to dealerships without financing can end up paying more money since they are vulnerable to the high pressure sales tactics of dealers and the financing divisions of dealerships.
Here are the steps to getting pre-qualified for a car loan:
First, borrowers should check their credit score. They can do this free of charge once a year. Borrowers can obtain their own credit report at one of the three major credit monitoring agencies: Equifax, Experian, and TransUnion.
Checking a score isn’t merely to see where one stands before seeking out a lender. A credit score and credit history will show if an agency has made any mistakes or errors. These mistakes or errors can damage or lower the credit score of a borrower, putting financing out of reach. If borrowers notice any problems with their score, they can try to pursue a credit repair service to help them correct it.
Next, borrowers need to seek out a lender for a car loan. Almost every bank and credit union offers financing for car purchases. While prospective buyers can always just get financing at a dealership, they will not have to deal with high pressure sales tactics or the tiring process of purchasing a car all in the same day.
Obtaining a car loan from a bank or credit union is certainly slower than the one-day process seen at dealerships, but in the end this preparation may save borrowers more money.
The reason being: banks and credit unions only need to make money on the loans they originate rather than on the large overhead of inventory, sales, accounting, and financing that dealerships have to consider. On top of that, banks and credit unions with long histories of business with a customer will be inclined to offer more favorable financing terms just to show their appreciation.
Once inside a credit union or bank, borrowers will have to submit several documents and reveal certain information in order to be evaluated for financing. Most car loan applications ask for the following information:
- proof of employment
- identity confirming information
Lenders require proof of employment and income in order to ensure that a borrower can make the proper payments each month. They also need to confirm the residence of an applicant in order to make sure the borrower is stable in the region rather than just passing through. This is especially true for community banks and local credit unions. Finally, proof of identity is absolutely crucial whenever any sort of finances are involved.
Once borrowers have sought out lenders, they need to compare the quoted interest rates and loan terms. Different lenders have different policies and fees associated with their financing. Some banks and credit unions can afford to offer great deals on a car loan. Others may be in dire straits, suffering losses, or simply wary of offering financing and thus opting to charge higher interest rates. Borrowers need to get the lowest interest rate they can while at the same time being approved for enough money to buy the type of vehicle they want.
When borrowers get approved they now know how much money they can spend. Borrowers can step onto a dealership’s lot and begin vehicle shopping knowing full well their maximum price. Once borrowers have chosen their car, they can return to the dealership with a proper check from their lender. The car gets purchased, the borrower saves money in on the car loan, and the dealership sold a car. Everyone wins!