Sara Routhier, Managing Editor and Outreach Director, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming world o...

Full Bio →

Written by

Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

Full Bio →

Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Dec 21, 2012

Advertiser Disclosure

Advertiser Disclosure: We strive to help you make confident loan decisions. Comparison shopping should be easy. We are not affiliated with any one loan provider and cannot guarantee quotes from any single provider. Our partnerships don’t influence our content. Our opinions are our own. To compare quotes from many different companies please enter your ZIP code on this page to use the free quote tool. The more quotes you compare, the more chances to save.

Editorial Guidelines: We are a free online resource for anyone interested in learning more about loans. Our goal is to be an objective, third-party resource for everything loan related. We update our site regularly, and all content is reviewed by experts.

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:

Step 1:

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.

Step 2:

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.

Step 3:

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
  • income
  • residence
  • 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.

Step 4:

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.

Step 5:

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!