The average sale price of used and new cars has increased steadily over the last year. With car prices on the rise, more buyers are relying on financing to purchase new or used vehicles. Financing, or taking out a car loan, ensures you can buy a new or used car even if you don’t have enough cash to cover the entire purchase on your own.
If you’ve never financed a vehicle before, you may not know where to begin when it comes to securing a loan. The first step in the process of financing a new or used car can be getting pre-qualified for a car loan. But what does getting pre-qualified for a car loan really mean? What steps should you take after receiving pre-qualification? Here’s everything you need to know about how to buy a car with a pre-qualified loan:
What Does it Mean to Be Pre-qualified for a Car Loan?
Getting pre-qualified means you are approved for a car loan on a conditional basis. Think of a pre-qualification as a loan estimate. This pre-qualification will outline the terms of the loan you qualify for, including the amount you are able to borrow, the interest rate, and other key information.
Does Getting Pre-qualified for a Car Loan Affect Your Credit?
If you’re preparing to get pre-qualified for a car loan, you may want to know how this decision will impact your credit.
If you apply for pre-qualification, the lender will need to perform a credit check as part of the application process. This credit check may appear as a hard inquiry on your credit report. The presence of a new hard inquiry could cause your credit score to drop slightly, but this is only temporary.
If you’re shopping around for the best deal possible, you may wonder how getting multiple pre-qualifications will impact your score. Most lenders from whom you apply for pre-qualification will perform a credit check. However, these multiple credit checks are treated as only one hard inquiry as long as they occur within a 14-day window. This gives you the chance to shop around for the best car loan without damaging your credit.
Why Should You Get Pre-qualified for a Car Loan?
There are a number of benefits to getting pre-qualified for a car loan, including:
● Know your budget. If you plan on financing a car, getting pre-qualified will tell you how much you will be able to borrow, which makes it easier to set your budget. This way, you won’t waste time looking at vehicles that are not within your budget.
● Focus solely on finding a car. Getting pre-qualified in the early stages of your car buying journey allows you to focus all of your time and energy on finding a vehicle. You’ve already figured out how you are going to pay for the vehicle, so now you just need to find the right one.
● Negotiate for better terms. If you walk into a dealership with a pre-qualification in hand, you could have more power when it’s time to negotiate the terms of your transaction. In other words, you may be able to get a better deal on your car if you get pre-qualified before you start shopping.
These are some of the many reasons why you may want to get pre-qualified if you plan on financing a car.
Does Pre-qualification Guarantee a Car Loan?
A pre-qualification letter is not a guarantee that you will be approved for a car loan. Typically, you will receive approval for a car loan if you have already been pre-qualified. In some cases, however, you may not be approved for a car loan even if you have been pre-qualified.
How Long is a Pre-qualified Car Loan Good For?
It’s important to start shopping for a car as soon as you receive a pre-qualification letter from your lender. This is because your pre-qualification won’t last forever. Most pre-qualification letters are only valid for 30 to 60 days from the date on which they were issued. If you try to finance a car after the deadline has passed, you may need to go through the entire application process again, which means another hard inquiry may appear on your credit report.
Be sure to read the fine print of your pre-qualification letter to find out how long you have to find a car. Then, mark this date on your calendar so you can make sure you complete the transaction in time.
Pre-qualification vs. Pre-Qualification: What’s the Difference?
Many lenders use the terms “pre-qualification” and “pre-qualification” interchangeably, but they actually refer to two different processes.
Both a pre-qualification and pre-qualification letter will tell you how much you may be able to borrow once you officially apply for a car loan. However, the pre-qualification process is not necessarily as formal as the pre-qualification process.
During the pre-qualification process, the lender will decide how much you will be able to borrow based on information you provide. During the pre-qualification process, on the other hand, the lender could verify all of the information you provide. For this reason, the terms of a pre-qualification letter may be more accurate than the terms of a pre-qualification letter since they are based on verified information.
Another major difference is how each of these processes will impact your credit. Your lender could perform a credit check regardless of whether you apply for pre-qualification or pre-qualification. However, a credit check may appear as a soft inquiry when you get pre-qualified and as a hard inquiry when you get pre-qualified. In other words, getting pre-qualified for an auto loan could not affect your credit, whereas getting pre-qualified may.
How to Get Pre-Qualified for a Car Loan
The pre-qualification process can vary depending on your lender. But in general, here are the steps you will need to take to get pre-qualified for a car loan:
- Submit an application to the lender. You will need to provide some basic information such as your address and income to initiate the pre-qualification process. At LoanCenter, you can do this by filling out the form here.
- Submit the required documentation. The documentation that you will need to submit can vary from lender-to-lender. Be prepared to submit proof of income, proof of residence, your driver’s license, employment information, and more. When applying for a loan at LoanCenter, one of our loan officers can help.
- Consent to a credit check. You must give the lender permission to check your credit as part of the pre-qualification process but it won’t be required here for a pre-qualification. Checking your credit allows the lender to evaluate your creditworthiness and determine your eligibility for a car loan.
- Review your pre-qualification letter. A pre-qualification letter based on a number of factors, including your income, debts, and credit score. Carefully review the terms of your pre-qualification letter. Feel free to ask your lender if you have any questions or concerns about the terms of your letter.
What to Do After You Get Pre-qualified for a Car Loan
Once you get pre-qualified for a car loan, it’s time to start shopping for the car of your dreams. Print or download your pre-qualification letter so you have it on hand when the time comes to purchase a vehicle. Then, start shopping for a car. Once you find a car, present your pre-qualification letter to the dealership to complete the transaction.