A pre-approval is a bank's initial agreement to extend you a loan. The approval is based on the information you submit on your application, although it is not guaranteed. You must meet various bank lending guidelines and provide proof of all of the information you offered on your credit and loan application.
Pre-Approval Process
Check the websites of banks in your area or vehicle manufacturer websites to evaluate interest rates. Manufacturers sometimes offer competitive, low-rate financing for new cars to entice buyers. Once you've decided where you'd like to apply, call the bank to apply for a pre-approval. Expect to offer your credit, employment and housing information. Discuss payment options with your possible lender to determine the amount you can afford to borrow. Depending on the bank, the pre-approval may be instant or take up to a week's time.
Benefits
A pre-approval can save you money. Knowing your rate and approval terms ahead of time allows you to set your budget accordingly and shop within your price range. If you plan to shop at a dealership, the pre-approval can protect you from dealer ploys to mark up interest rates. Dealers can mark up a buyer's rate by as much as 3 percent to make additional profit. If buying privately, submit your vehicle information to obtain your loan check. You won't have to wait through the approval process.
Proving Personal Information
A pre-approval does not guarantee you a loan. Expect to prove all of the information you supplied with your credit application. Your most recent pay stub should reflect the gross annual income you offered to the bank. Your lender will ask for a copy of your paystub to confirm this. Expect the lender to contact your employer to verify your employment history. Talk to your lender if you have concerns. For example, if you recently received a pay raise, your bank may not recognize your expected gross annual income. Your bank may also require a down payment, depending on the vehicle you ultimately decide to purchase.
Warning
Mailed pre-approvals are often gimmicks that serve to entice car buyers to shop at a particular dealer and apply for financing, also known as a "mailer." A mailer generally targets buyers in a certain area, but does not guarantee an actual loan approval. If the dealership targets consumers with poor credit, the pre-approval may require a cosigner or a large down payment. If you receive a mailed pre-approval for a loan for which you didn't apply, call the dealer or lender to find out more about its loan requirements. You may want to pursue your own financing instead.
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