Should You Get Pre-Approved for a Car Loan?
From deciding it’s time to start searching for a car to the time you drive your car home, it can take the average car buyer nearly three months to find the right vehicle. That includes hours of online research and multiple visits to dealerships and banks. And one of the most stressful parts of buying a car was arranging the financing. But a car loan pre-approval made the entire experience a lot more efficient...
Does this scenario sound familiar? You’ve chosen the make and model and settled on a price. But your credit is just so-so or your income doesn’t quite support the loan value, so you’re waiting for the dealership to get you approved.
Maybe it happens, maybe it doesn’t. And there’s no worse feeling than having your heart set on a car and getting a negative answer. It’s deflating.
But today’s car shopper doesn’t have to go through that exercise in patience and disappointment. Car loan pre-approvals have changed the landscape for car buyers. Not only does it reduce (or completely eliminate) the time you have to spend at the car dealership, a pre-approval lets you shop for your new car more confidently. It can even save you money.
How does a car loan pre-approval work?
According to data analytics firm FICO, two out of every three Canadian car buyers look for financing when car shopping at a franchised car dealership. A car loan pre-approval is simply preparing for the process before settling on the vehicle or setting foot in the showroom.
The loan pre-approval process is more intentional than just asking, “How much car can I afford?” It’s saying, “I’m going car shopping very soon. What terms am I approved for so I can select a vehicle?” In that way, your pre-approval gets you much closer to taking a vehicle home.
A pre-approval application is completed at home, typically online, and all the same steps of a car loan application are taken. Income is verified along with your credit score and debt-to-service ratio. Then, the lender delivers the estimated loan terms that you can use to make your vehicle selection. Often, the total loan value, monthly or bi-weekly payment amount, loan term, and the interest rate is determined.
That’s great to know, but what are the benefits of being pre-approved for a car loan?
4 reasons to get pre-approved for your next car
1. It focuses your attention on the right vehicles
If you want to avoid the phone call saying, “You’ve been approved, but”, then getting pre-approved is a good idea. If you don’t have the income to support the car you’ve chosen, you may need to pony up a bigger down payment (that you don’t have) which means the car you’ve fallen in love with is out of reach. If you don’t have a strong credit history, you might not get approved at all.
But when you’re pre-approved, you can more accurately shop for a vehicle. The total price, your expected payment, your approximate interest rate – it’s all clear up front. You can shop within your means, saving you time and aggravation from looking at cars you can’t afford.
2. It gives you access to the best available financing rates
One of the most beneficial aspects of pre-approval is simply knowing. When you know what interest rate you’ve been pre-approved for, you can shop for a car more intelligently. That’s most evident in interest rates for financing.
Let’s say that your flawed credit history means you’ve been pre-approved on a 60-month term. You’ve selected the perfect compact SUV for your needs and budget and you know what your interest rate is going to be. The salesperson might ask, “Do you want to use your financing, or I can see if I can get you a better rate?” What do you say?
Of course, let the salesperson try! With a pre-approval, you aren’t locked into the deal until you’ve signed on the dotted line. Whether the salesperson comes back with a better rate or not, you can be confident you’ll be taking your new car home.
3. It speeds up the process
If you forego the pre-approval and head straight to the car dealership, it’s going to take hours or days longer to take your vehicle home. After you fill out an application and head to the finance office, the loan approval process can take a very long time.
The finance manager may need to call one or two lenders to clarify conditional approvals while others will require documentation you might not have on hand. Instant approvals aren’t the norm, especially when your credit is less than perfect.
With a pre-approval in hand, you’re often driving your car home within a day, often the same day. No more hoops to jump through because you’ve organized it all ahead of time.
4. It can help you get approved even with low credit
Car loan pre-approvals are a great idea for shoppers with great credit, but even more so for those with no credit or bad credit. Car dealerships have access to low- or zero-interest loans from the manufacturer but aren’t as well equipped for bad credit car buyers. By getting pre-approved, you can tap into the best rates and terms for your specific credit situation before you visit the car lot.
Get pre-approved online for free
Canada Drives can help you get pre-approved for a car loan online, so you know exactly how much financing you can get before you start car shopping.
It only takes a few minutes to complete the easy application and is available regardless of your credit.