What is a preapproved car loan?

With a preapproved car loan, you can get approval from a bank, credit union or online lender to borrow up to a certain amount before you even go to a car lot and start shopping for your new car, rather than the other way around. Sometimes your lender may even provide you with a check worth up to the preapproved amount so you can take it to almost any dealership and pay for your car just like you would with a personal check. This gives you tons of flexibility when shopping. Here are the best auto loan rates in 2020.

Where can I get preapproved for a car loan?

Most auto lenders will be able to help you get preapproved for a car loan. Potential lenders include traditional banks, such as Capital One, Chase and Wells Fargo, as well as your local credit union and online lenders. You can get a car loan preapproval for new or used cars. The requirements and interest rates will vary depending on the lender so you’ll definitely want to shop around and compare auto loans and terms.

Is a preapproved car loan worth it?

Overall, having a car loan preapproval will simplify the car-buying process and shorten the amount of time you have to spend in the finance office. No one wants to spend an entire day at the dealership, but that’s often what happens if you finance through the dealer and they have to find you a lender and work out all the terms. If you’re looking to buy a car in the near future, it’s highly recommended that you choose to get preapproved for a car loan. Start by shopping around to find the right lender and asking about their application, terms, interest rate offers and requirements for the usage of the loan.

Why, How and Where to Get a Preapproved Car Loan

Q: Why get a preapproved auto loan?

Buying a car can be a very expensive, but necessary, purchase, which is why many people choose to take out an auto loan. When you head to the dealer with the intention of finding a car and a car loan, you may have a harder time negotiating and little idea as to whether the final loan terms the dealership offers you are the best you can get. Given that a car is a very important purchase, you should take the time to research before you head to the dealer. Look at the type of car you want, the average price and your financing options. Getting preapproved for a car loan is a much better choice than waiting until you get to the dealership for financing.

Getting preapproved before heading to the dealership gives you more negotiating power.

Loan type

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Why get a preapproved auto loan?

It helps you plan your money moves

Budgeting before you hit the blacktop is a great plan, and getting a preapproval can help you eliminate guesswork by providing estimates on monthly payments. Don’t forget: When you’re looking at car prices, leave at least a 10% buffer to account for taxes and fees. Use a car affordability calculator to help you plan your purchase, and check out some preapproved car loan rates to give you an idea of what to expect:

Starting APR*	Terms	Loan Amounts	Min. Credit Score	Best For...
4.24%	36 - 84 months	$500 - $100,000	620	A car-buying service	See Rates See Details
2.79%	Up to 96 months	$250 - $500,000	No minimum	Military connections	See Rates See Details
3.49%	Up to 84 months	Up to $150,000	Unspecified	Used car buyers	See Rates See Details
4.24%	12 - 72 months	From $7,500	Unspecified	Those who prefer a bank	See Rates See Details
1.00%	0 - 240 months	$10,000 - $4,000,000	550	Large car loans	See Rates See Details

*May include an autopay discount

You can defend yourself against dealer markups

Dealers can inflate your interest to make a profit when you get a car loan through them. With a preapproved car loan, you’ll have an interest rate quote directly from a lender without a middleman marking it up.

You get to act like a “cash buyer” and avoid upsells

Cash buyers often look at total cost rather than monthly payments, giving them the upper hand when negotiating. Similarly, when you have a preapproved auto loan with a set price, it’s much easier to deflect a sales pitch that could up your monthly rate.

How to get a preapproved auto loan

Plenty of financial institutions offer car loan preapprovals, but some of the most common are:

Credit unions: Your local credit union could be a great first place to check. Credit unions tend to offer lower auto loan rates than banks and many have lenient membership requirements, such as a one-time, nominal donation to a nonprofit.
Banks: National banks offer convenience, providing additional services like credit cards, saving and checking accounts in addition to auto loans. Keeping all of your financial transactions with one entity makes it easy to stay organized, and may even qualify you for bundles and discounts.
Online lenders: Without the overhead that credit unions and banks face, online lenders can offer competitive rates. If you’re comfortable completing the car loan process entirely online, an auto loan preapproval from an online lender could be the best choice. You could fill out an online form at LendingTree and get up to five auto loan offers at once.

It doesn’t harm your credit score to apply to multiple lenders any more than it does to apply to one. As long as you do all your applications within a 14-day window of time, the three major U.S. credit bureaus count multiple inquiries for the same type of loan as one hard pull against your credit.

What will I need to get an auto loan preapproval?

Application requirements for car loan preapproval are often the same or looser than a regular car loan application.

Loan information: How much you want to borrow and the loan term
Personal information: Name, contact details, date of birth, Social Security number
Residence information: Address, length of residency, whether you rent or own, rent or mortgage payment
Income information: Gross annual income, employer name and contact details

The lender may ask about the car you want to purchase. You could always change the vehicle by contacting the lender if you change your mind after test driving.

What's the difference between a car loan preapproval and prequalification?

An auto loan preapproval is a firm offer from a lender. When you finalize the loan, your actual APR will be very similar, if not the same, as your preapproval rate. On the other hand, a prequalification is not an official offer, but an estimate of the car loan you may receive. Because a prequalification is not firm, it’s much harder to use it when negotiating at a dealership.

Auto loan preapproval vs. prequalification
Preapproval	Prequalification
A firm offer from lender The lender does a hard credit pull APR is not likely to change It offers a firm negotiating position	An estimate of the loan offer you may receive The lender does a soft credit pull APR is likely to change

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