Do you know how to get preapproved for a car loan? If you don’t, or if you’re not sure how it all works, here’s what you need to know about how to get pre-approved, the requirements for pre approval, and refinancing options. Start by reading below.
What is a Pre Approved Car Loan?
The concept of pre-approval is simple. A lender tells you how much money they are willing to lend you, based on your credit profile and employment situation, before you even go shopping for a car. This way, when you find that perfect ride in your price range, all you have to do is sign on the dotted line.
Requirements to Get Pre Approved
If you want to get pre-approved for an auto refinance, there are certain requirements that you will need to meet. Also, you should have enough equity in your car to give at least 25% of its value, have stable employment for at least six months, and be above 18 years old. Requirements to get a preapproved car loan also include:
1. Debt-to-income ratio should be low to medium
2. Your credit score should be above 650
3. You should have a debit card
4. You must have a bank account
Before you start your car shopping, you’ll need to be preapproved. To do so, contact your bank or check with your dealership of choice to see if they offer auto refinancing options. Since different dealerships require different amounts of proof before giving out loans, make sure you’re as prepared as possible by gathering as much information as you can about your credit history and income.
Auto Refinancing
Auto refinancing is getting approved for an auto loan while already having an auto loan. It’s basically taking out a new loan and using it to pay off your old one. Banks generally offer lower interest rates and fewer fees than your original auto loan, so refinancing can save you money if you’re paying high-interest rates and high fees.
Credit Checks
A pre-approved car loan will give you an estimate of how much you can borrow, but that doesn’t mean it’s time to start filling out paperwork. Before you go any further:
• Make sure you know your credit score.
• Check your credit history for inaccuracies.
• Determine what kind of interest rate is available to you.
You can also use sites like Credit Karma or MyFico to see what information banks are using when they consider whether or not to approve your auto loan.
Take into account that if certain aspects of your report don’t meet their criteria—like high debt utilization ratio, the low average age of accounts, low credit limits—you may need to take steps to improve them before applying for financing on big-ticket items like vehicles.
Also, consider your credit utilization ratio, the percentage of your available credit that you are using. If you have multiple accounts open, each with its own balance, then your total credit utilization is calculated by adding up all those balances and dividing by your total available credit.
According to Lantern by SoFi, “You may be able to refinance with bad credit if you have a cosigner and/or a positive track record of making payments on your current loan.” However, the site also explains that while many lenders offer pre-approved loans at competitive rates, getting a pre-approval isn’t a guarantee of auto loan approval.
Finding a Cosigner
One of your requirements for pre-approval may be finding someone who will co-sign on your loan. For example, if you’re applying for a car loan with bad credit, the chances are that if you have someone willing to cosign with you, your loan provider will be much more likely to approve you. Remember, co-signing is serious business. If you can’t pay back your debts, nothing is stopping them from coming after your cosigner for payment too.
Get preapproved to find out what you can afford before you start shopping for cars. That way, you’ll know exactly what price range you’re working with and what payment options are available to you.
