How to Get Preapproved for a Car Loan

A preapproved car loan is a conditional loan approval from a lender for an auto loan. It includes estimates of a loan amount, interest rate, and repayment terms you may be approved for. With a preapproved car loan, you can simplify the car-buying process and potentially save time and money. 

Below, we’ll dive deeper into how to get a preapproved car loan, whether it’s a good idea, and what to do in the event you get denied a loan.

How does getting preapproved for a car loan work? 

Once you decide you’re in the market for a new (or used) vehicle and need an auto loan, it’s time to get preapproved. Here’s an overview of the steps involved.

1. Collect your documents

Lenders will ask for certain paperwork when you apply for preapproval, so it’s smart to have it on hand. While documentation requirements vary, you’ll likely need the following:

• Government issued-ID, such as a driver’s license or passport
• Proof of income with pay stubs, bank statements, or tax returns
• Proof of residence in the form of a mortgage statement, rental agreement, or utility bill
• Social Security card or Social Security number
• Details about the vehicle you intend to purchase, including the make, model, year, purchase price, and Vehicle Identification Number (VIN)

2. Understand your credit

Since lenders usually look for a minimum credit score, and some are more lenient than others, you should know where you stand credit-wise. Visit AnnualCreditReport to pull free copies of your reports from the three major bureaus. If you find any errors or inaccuracies, dispute them right away because they may be bringing down your score. 

You can also use a free credit monitoring tool online or through your credit card company to determine your credit score. Note that good credit will make it easier to get preapproved, while fair or bad credit may limit the lenders you can choose.

3. Apply for a preapproval 

Once you have all of the required documents and know your credit, you can apply for preapproval. 

Request multiple quotes because interest rates, loan amounts, and repayment terms vary between lenders. If possible, get your applications in around the same time. Most lenders perform a hard credit pull, and too many hard inquiries at once can hurt your credit. 

A rule of thumb is to limit your inquiries to a 14-day shopping window; the credit bureaus will bundle these requests into one credit pull. 

4. Calculate your auto loan payment 

After you zero in on the ideal preapproval, you may want to calculate your potential auto loan payments so you can budget for them. Our auto loan calculator makes this process a breeze. 

You can use the calculator to calculate your monthly payment, total interest, and total loan cost. Just enter your auto loan amount, interest rate, and loan term in years. 

Where can you get preapproved for a car loan? 

You may turn to any of the following for a car loan preapproval.

Banks

Most national banks offer preapprovals for vehicle financing. However, you might also find preapprovals at smaller community banks. While banks are known for larger loan amounts and comprehensive customer service perks, they might impose stricter eligibility requirements and more extensive documentation. Consider exploring preapprovals at banks if you have good-to-excellent credit. 

Credit unions

Credit unions might offer lower interest rates on vehicle preapprovals than banks. The National Credit Union Administration caps federal credit union rates at 18%. You’ll need to join a credit union to take advantage of a preapproval, but membership requirements can be easy to meet. They may be as simple as donating to a certain organization or making a $5 deposit into an account with the credit union.

Online lenders

Online lenders are known for easy applications and fast approvals. Many also have more flexible requirements and cater to borrowers with bad credit. They don’t have large overhead expenses like banks and credit unions do, so you may find lower interest rates with them. In many cases, you can apply for a preapproval online within minutes from the comfort of your own home.

If you get an attractive preapproval offer, consider reaching out to your car dealership to find out whether it can beat it. Depending on the dealer and other factors, such as your down payment and their sales goals, the dealership may offer a lower rate, better terms, or unique perks to win your business. If the dealer doesn’t beat the offer, you can enjoy the peace of mind of knowing you’ve found the right car loan

Here are several lenders’ rates for comparison:

Lender	Type	Rates (APR)
LightStream	Online lender	Starting at 7.49%
Bank of America	Bank	Starting at 4.54%
Southeast Financial Credit Union	Credit union	Starting at 6.85%
Navy Federal Credit Union	Credit union	Starting at 4.54%

Should you get preapproved for a car loan? 

It can take time to get preapproved for a car loan, but it’s often worthwhile. Go through the preapproval process so you know what you can afford, home in on the best rate, and give yourself negotiating power.

Find out what you can afford

Chances are you have a ballpark budget for a new (or used) vehicle. However, with a preapproval, you’ll get a much more accurate number. This will tell you how much you can afford and, in turn, make it easier to focus on cars within your budget. It’s an effective way to shop with confidence and avoid overspending.

Home in on the best rate

Interest rates are important when it comes to auto loans. The lower your rate, the less you’ll spend on the overall cost of your vehicle. If you get preapproved with multiple lenders, you can pinpoint the most competitive rate for your situation. A lower rate can save you hundreds or even thousands on your vehicle purchase.

Give yourself negotiating power

Once you receive preapproval for auto financing, you’ll put yourself in a better position throughout the car buying process. The dealer will be more likely to perceive you as a serious buyer. You’ll also be able to share the preapproval offer with them to find out if they can beat it. A preapproval will make negotiating easier and increase your chances of success.

Car loan preapproval vs. prequalification 

You might hear the terms auto loan preapproval and prequalification used interchangeably, but they have several noteworthy differences. A preapproval is far more accurate than a prequalification. 

When you apply for preapproval, the lender will perform a hard credit check and verify your financial information. If you get preapproved, you’re likely to be offered that rate and those terms if you formally apply for a car loan.

A prequalification involves unverified information you provide as well as a soft credit check, which won’t affect your credit. You can think of prequalification as an estimate rather than a firm offer. It can help you confirm whether you’re eligible and give you an idea of the rates you may be offered. The table below outlines how preapprovals and prequalifications differ.

Preapproval	Prequalification
More intense process	Quick process
Documentation required	Minimal information required
Hard credit inquiry that will affect your credit score	Soft credit inquiry that has no impact on your credit score
Accurate loan offer	Loan estimate

Does auto loan preapproval guarantee car financing?

No. In a perfect world, you’d receive preapproval for a car loan and then be able to purchase your vehicle without any issues. The reality is that preapproval is conditional, meaning it does not guarantee car financing. Even if you get preapproved, the lender may deny your application for the following reasons: 

• Lower credit score: Most lenders have a minimum credit threshold that they may or not publish. If they find your credit score is lower than they’d like, you might not be approved.
• High debt-to-income ratio (DTI): Your DTI refers to all your monthly debt payments divided by your monthly gross income. A high DTI may make a lender hesitant to approve you because it shows you might not be able to afford your car payments. 
• Unstable employment: Lenders look for stable employment that indicates you earn regular income that will allow you to repay your car loan. If you’ve job-hopped often or haven’t worked for a while, you might get denied. 
• Application errors: Mistakes on your application can result in a denial, even if you didn’t mean to make them. It’s important to double-check your work before you submit an application to ensure all the information you provide is accurate. 

What if you’re denied a car loan preapproval?

If you’re denied a vehicle financing preapproval, here are five actions you can take to improve your situation:

Review your application

Take a close look at your application. Make sure there are no issues with your name, address, birthdate, Social Security number, monthly income, and other details you provided. If you do find an error, fix it and reapply.

Increase your down payment

The higher your down payment, the less you’ll need to finance, and the more likely you are to get approved. If possible, save for a higher down payment. To do so, you may need to cut your expenses or increase your income through a temporary side hustle or part-time job.

Repay debt

If your DTI is too high, you should work to reduce your debt levels. You can start with a DIY debt relief strategy, such as the debt snowball or debt avalanche. Once your debt goes down, you’ll lower your DTI and boost your chances of approval.

Consider a cosigner

A cosigner can be a trustworthy friend or family member who agrees to repay your auto loan in the event you default. As long as the lender accepts cosigners, you can apply with a creditworthy cosigner and get a preapproval you might not qualify for on your own. 

Explore lenders

Some lenders target good-credit borrowers, while others are open to those with no credit, bad credit, or higher DTIs. Do your research, and find out whether you can get approved with a different lender.