How to Apply For an Auto Loan?
Once you understand what you can afford, you can begin shopping around for auto loans. Institutions that offer loans include credit unions, banks, and dealerships. Oftentimes, credit unions can offer members lower interest rates and better loan terms than dealerships and some larger banks.
To secure an auto loan, you’ll have to apply and then be approved by the lending institution. For this reason, it can be beneficial to go through the preapproval process.
Auto Loan Preapproval Process
Getting a preapproval means the lender will review your credit history and other specifics about your financial situation to determine your eligibility for a loan. The preapproval may also include the potential interest rate(s) and term that you qualify for.
During the preapproval process, lenders perform a “hard” credit check, which means they check your full credit report in addition to your score. (Hard credit checks do show up as credit inquiry on your credit report. If you have too many credit inquiries in a short period of time, this can negatively affect your credit score. The good news is most credit scoring models allow consumers to shop around for auto loan rates without seriously damaging their credit scores. Multiple hard inquiries for auto loan pre-approvals are generally treated as a single inquiry by scoring models if they occur within a 14-day window.
A pre-approval is a strong indicator of your likelihood to receive a specific interest rate and term, which is advantageous to you because when you’ve already been pre-approved for a car loan, you’re like a cash buyer. This gives you a big advantage when negotiating a price and can also help you to avoid upsells. You will also have the freedom to go to any dealer you choose and can check out several different ones. There are other benefits to getting preapproval as well, such as helping you budget more accurately, narrowing down vehicles to ones within your budget, and even comparing loan rates between lenders.
Keep in mind that getting a preapproval does not automatically guarantee you’ll be offered the loan. Your application must still be approved by an underwriting team at the time you apply. However, a preapproval is a strong indicator of whether or not you’ll be able to secure funding and how much funding you can secure.
Applying for a Loan
After you’ve been preapproved, you may decide to officially apply for a loan.
There are several items you’ll want to have on hand to simplify the process. You’ll need the details of the vehicle you’re trying to purchase, records of the purchase agreements, registrations, and titles readily available. You’ll also need personal documents such as your driver’s license, proof of income, and residence.
Once you receive an official approval, you should then make sure you understand the terms and conditions of your auto loan before signing, such as the rates, repayment terms, and repayment process.