Whether you’re ready for your very first car or need to update your ride, figuring out how you’ll finance your purchase can be overwhelming. Fortunately, there is one step you can take that will save you a lot of time and headaches before you get to the dealership: getting preapproved for an auto loan.
Getting preapproved before you make your purchase will give you the comfort and security of knowing that you can pay for the car you want, make negotiations easier, and allow you to start budgeting around your new payment. You can apply easily online, over the phone or in person with a credit union, bank or online lenders.
Ready to get started? Here’s what you’ll need:
Proof of identity and residence – Make sure to have a photo ID handy, such as your driver’s license or passport. Some lenders may also require your Social Security number, and additional proof of residence such as a lease agreement or mortgage statement.
Credit report – Generally, the better your credit score, the better rate you’ll get on an auto loan. While the lender will pull your credit report when you apply, it is good to check your own credit report to get a sense of where you stand and whether there are any errors you can fix on your report. By federal law, you are entitled to one free credit report per year from each major reporting bureau (Equifax, Experian and TransUnion).
Proof of income – Your loan application will ask you to state your gross monthly income with proof of income, such as your pay stub or copy of your tax returns. You will also need to disclose any additional sources of income, such as alimony, disability or retirement benefits.
If you are approved, you should receive a copy of your preapproval within 1-5 business days, and the preapproval may be valid for up to 60 days, depending on the lender. Remember, getting prequalified is not the same as getting preapproved. A prequalification means you’re likely to receive a loan at a specific rate or within a rate range, while a preapproval is an offer to fund you.
With proof of preapproval, you’ll now be able to shop around for the best deals and better negotiate with the dealer. Make sure to check your loan offer to see if any brands are excluded, when the offer expires, and if you have to shop with a specific network of dealers.