Do I Need to Get Pre-Approved Before Buying a Car?
You don’t have to get pre-approved before buying a car, but doing so can make the process easier and help you make a more informed financial decision.
An auto loan pre-approval can give you a clearer idea of how much you may be able to borrow, your estimated interest rate, potential monthly payment and available loan terms before you start shopping. With vehicle prices, interest rates and everyday expenses putting pressure on household budgets, understanding your financing options before visiting a dealership can help you set a realistic budget and shop with greater confidence.
A pre-approval can also give you an offer to compare against dealership financing. That means you’re not walking onto the lot without knowing your options or feeling like you need to accept the first financing offer presented.
What Is an Auto Loan Pre-Approval?
An auto loan pre-approval is an indication from a lender of how much you may be eligible to borrow and what financing terms may be available to you, based on information provided during the application process.
A pre-approval can help you understand:
- How much you may be able to borrow
- Your estimated interest rate
- Your estimated monthly payment
- Potential loan terms
- What fits within your overall budget
Getting this information before you shop can help take some of the guesswork out of one of the biggest purchases you’ll make.
Why Should You Get Pre-Approved Before Buying a Car?
Getting pre-approved before shopping can help you make a more informed decision. Here are seven ways it can benefit you.
1. Know Your Budget Before You Shop
One of the biggest benefits of pre-approval is knowing what you can comfortably afford before you start looking at vehicles.
Instead of choosing a vehicle first and figuring out financing later, you can establish a budget based on your financing options and overall financial goals.
Keep in mind that your monthly car payment is only part of the cost of owning a vehicle. Your budget should also account for:
- Insurance
- Fuel
- Maintenance and repairs
- Registration and taxes
- Other ongoing ownership costs
2. Understand Your Monthly Payment
A pre-approval can give you a better idea of what your estimated monthly payment could look like.
This can help you compare vehicles based on what fits your budget rather than simply choosing a vehicle based on its purchase price.
It’s also important to look at the total cost of the loan. A lower monthly payment may come with a longer loan term, which could mean paying more interest over time.
3. Compare Financing Options
Does getting pre-approved mean you have to use that lender? No.
A pre-approval can give you a financing option to compare with other offers, including financing offered through a dealership.
Having a point of comparison can help you evaluate the interest rate, loan term, monthly payment and overall cost of different financing options before deciding what works best for you.
4. Shop With More Confidence
Walking into a dealership without knowing what you can afford can make the buying process feel overwhelming.
When you already understand your financing options, you can focus on finding a vehicle that meets your needs and fits within your budget.
You’re also less likely to feel pressured to make a financial decision simply because you’re already at the dealership.
5. Separate the Vehicle Price From the Financing
When buying a vehicle, there are several numbers to consider: the vehicle price, trade-in value, down payment, interest rate, loan term and monthly payment.
Having a pre-approval can help you evaluate these pieces separately.
For example, you can focus on negotiating the vehicle price and then compare the financing options available to you. This can make it easier to understand what you’re actually paying for the vehicle and what you’re paying to finance it.
6. Give Yourself an Option to Compare With Dealer Financing
Can a dealership offer a better auto loan rate than your pre-approval? It can happen.
That’s why comparison matters.
A pre-approval doesn’t necessarily mean you should automatically choose that financing option. If the dealership offers financing, compare the options and look at the complete picture.
Consider:
- Interest rate
- Loan term
- Monthly payment
- Total interest
- Fees and other costs
The goal is to choose the financing option that best fits your financial situation.
7. Help Avoid an Uncomfortable Financial Stretch
It’s easy to get caught up in the excitement of buying a vehicle. A pre-approval can help keep the focus on your actual budget.
Knowing your financing options before shopping can make it easier to recognize when a vehicle or loan doesn’t fit comfortably within your financial goals.
Does Getting Pre-Approved Hurt Your Credit?
The impact of an auto loan pre-approval on your credit depends on the lender and the type of credit inquiry used during the application process.
Before applying, ask the lender whether the pre-approval process involves a hard or soft credit inquiry and how it may affect your credit.
If you’re shopping for an auto loan, it’s also worth asking how the lender handles multiple credit inquiries made within a short period.
When Should You Get Pre-Approved for a Car Loan?
A good time to get pre-approved is before you begin seriously shopping for a vehicle.
Getting pre-approved first can help you establish your budget before you visit dealerships or start comparing vehicles.
You don’t necessarily need to know the exact make and model you’re going to buy. The goal is to understand your financing options so you have a realistic starting point.
What Should You Do Before Applying for an Auto Loan?
Before applying for pre-approval:
- Review your budget. Determine what monthly payment and overall vehicle cost you can comfortably manage.
- Review your credit. Understanding your credit profile can help you know what to expect.
- Consider your down payment. Decide whether you plan to put money down or use a trade-in.
- Think about the total cost of ownership. Include insurance, fuel, maintenance and registration.
- Compare lenders. Look at rates, terms and other loan costs.
- Get pre-approved. Understand your financing options before you start shopping.
Is It Better to Get Pre-Approved or Finance at the Dealership?
Getting pre-approved before visiting a dealership can give you more information and another financing option to consider. It doesn’t mean you can’t use dealership financing.
The advantage is having something to compare. If the dealership offers financing, you can evaluate both options and choose the one that makes the most sense for your situation.
The Bottom Line
Getting pre-approved for an auto loan can take some of the guesswork out of buying a vehicle. It can help you understand your budget, compare financing options and feel more confident when you’re ready to make a purchase.
The best time to think about financing isn’t after you’ve found the car you want. It’s before you start shopping.
Greater Nevada Credit Union can help you understand your auto financing options and prepare for your next vehicle purchase.
Ready to start shopping? Get pre-approved for an auto loan with Greater Nevada Credit Union.
