What Is Pre-Approved Financing?
Securing financing at a dealership can be a mentally and time-exhausting endeavor, often lasting two to three hours, if not more. Pre-approved financing can streamline the financing process and strengthen your negotiating position as a car buyer, reducing the stress of car shopping.
Pre-Approved vs. Pre-Qualified Financing
Pre-qualified financing isn’t as definitive as pre-approval financing – although both are simply proactive measures that prepare car shoppers for the official process. Pre-qualification is an informal and unofficial service provided by lenders where they conduct a preliminary review of your application. It’s essentially a practice run that shows you how a lender will judge your application, offering insight into ways you can improve your application before submitting it officially. However, while pre-qualification gives you a general idea of what you might be eligible for, it’s not a guaranteed offer.
Pre-approval financing, on the other hand, is a more formal, detailed and intensive process that will provide you with an actual loan amount, interest rate and other definitive terms of your auto loan rather than just an estimate. Pre-approval isn’t approval, but it shows you what you will likely receive once officially approved, making the outcome more reliable and functional compared to pre-qualification.
During pre-approval, your credit score and debt-to-income ratio will be assessed. The review process for pre-approved financing often takes longer than pre-qualified financing, as it may take several days. This hard inquiry can temporarily affect your credit score for a short period of time, but as a result, it can give you more power during negotiations. Pre-approval carries more weight than pre-qualification, as it shows that you are a serious buyer who has secured reliable financing with exact terms.
Steps of Pre-Approved Financing
- Check Your Credit: Review your credit report and score. The lender will check your credit to assess your eligibility. A higher credit score can get you better loan terms.
- Gather Documents: Prepare detailed financial documentation, including proof of income, employment history, your credit report and any existing debts.
- Research Lenders: Look for lenders who offer pre-approval for auto loans and compare their requirements and terms.
- Apply: Submit your application to one or more lenders, whether at a bank, credit union or online lender, to get pre-approved.
- Review Your Conditional Offer: If the lender approves your application, they provide a pre-approval letter. This letter outlines the amount you are eligible to borrow, the interest rate, the loan term and any other conditions.
Benefits of Pre-Approved Financing
Knowing how much you can borrow helps you set a clear budget that will give you clarity while comparing offers from different lenders, ensuring you get the best possible interest rate and loan terms. A certified pre-owned car can be particularly useful from a financing perspective. They’re not as expensive as new cars but are still low mileage and on the newish side of the age curve. The higher value compared to other pre-owned vehicles means lenders may be more willing to offer favorable terms on your auto loan.
Pre-approval can also streamline negotiations with the car dealership. The process of finalizing your purchase at the dealership can be faster since much of the paperwork is already completed. Moreover, since you already have financing and a strict budget in place, the dealership will be less likely to try and upsell you, making purchasing a car less of a strenuous experience.
Not only can pre-approval expedite negotiations, but it can also elevate the possibility of negotiations going in your favor. Having pre-approved financing can give you more negotiating power with the dealer. It shows you are a serious buyer with funds secured and readily available. Having pre-approval tells the salespeople you aren’t wasting their time, making them more willing to compromise.
Because pre-approval is not approval, you still have the ability to shop around for a different lender. You can go to dealerships or other banks and see if they are willing to beat the rate and terms you are pre-approved for, potentially giving you a way into a better car loan.
Our Customer-Focused Financing Experts Work Hard to Help D.C. and Baltimore Residents Afford High-Quality Pre-Owned Vehicles
At Easterns Automotive, we’re on your side whether you have pre-approval or not. Our financing team can use our relationships with banks and financiers to help you secure a favorable car loan regardless of your credit score.
With us, “Your Job is Your Credit™”. We’ll work hard on your behalf to find the right loan for you so you can get your ideal car at a price you can live with. Browse our inventory or visit one of our dealerships and get help from a dedicated auto financing expert today.
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