More than 25 million people in Canada have at least one car. Purchasing a car can be easier for some than for others.
But that’s why car loan preapproval exists. Getting a car loan directly can be quite a challenge, but getting preapproved can make things much easier. But how can you get preapproved for a car loan?
What factors will increase your likelihood of getting preapproved? Does getting preapproved mean that you’re guaranteed to get a car loan?
Keep reading and learn more about what it takes to get a car loan preapproval.
What Does It Mean To Be Preapproved for a Car Loan?
The first thing you should know is that getting preapproved for a car loan does not necessarily mean that you are guaranteed to get a car loan from an online lender or any lender for that matter. However, being preapproved does mean that you have a better chance of getting a car loan from a particular lender compared to other people who have not been preapproved.
For example, if you try to get preapproved for a car loan and learn that you have been denied, this means that it would be unlikely that you would be able to get the car loan.
On the other hand, if you are preapproved for a car loan, there is a very good chance that you will be able to get that loan. However, there is also a small chance that you still may be rejected for the car loan even if you are preapproved. Why might this be, you ask?
First, it is important that you understand what preapproval is exactly. When you are preapproved for a car loan, this means that the online lender has taken a look at your credit report. This report is extremely important when it comes to both getting preapproved and getting the car loan itself.
If you have been preapproved, this means that the lender at hand has gone through various factors of your credit report and then approved you based on those factors. Certain factors that a lender may go over include your employment history, your credit score, and your credit history.
Keep in mind that the information required to be preapproved is different from the information necessary to apply for a car loan.
The Details
This is because applying for a car loan requires far more information compared to just applying for preapproval. This is why some people may be denied a car loan even if they’ve been preapproved. The extra information required to apply for a car loan may not be sufficient enough to be fully approved.
Also, keep in mind that another reason you may be rejected for a car loan is that a car loan preapproval may negatively affect your credit score. However, this may only happen in some cases. This is because applying for preapproval may cause something known as a hard inquiry or hard pull.
This will cause your credit score to drop a few points. If your credit score is not all that great, this simple drop may cause you to be rejected for a car loan. You also need to remember that your preapproval won’t be valid forever.
Rather, most preapprovals are usually only valid for a maximum of 60 days. If you wait longer than this to seek out a car loan, you may find that you may be unable to get one, especially if your credit report has changed in some way.
How to Get Preapproved for a Car Loan
Getting preapproved for a car loan doesn’t have to be difficult, but there are certain things you will need to consider. To start, you need to make sure that you apply for preapproval at the right places. For example, there are many online lenders you can choose from.
The benefit of applying for preapproval from an online lender is that they tend to give you an answer very quickly. However, the downside is that some online lenders are very competitive, so it may be harder to get approved by them. You can also apply for preappoval in other ways such as from credit unions or banks.
Credit unions tend to have very low interest rates. However, it can be difficult to get approved by certain credit unions if you don’t have certain requirements. For example, certain credit unions require you to live in a certain location or have a very good credit report.
You can also get preapproved for a car loan by applying with a bank. This tends to be relatively simple and it is quite a flexible option for all sorts of people. When applying for preapproval, you’ll want to make sure that you have all the right documents on hand.
These days, preapproval applications don’t require all that much paperwork. This simplifies the process, but you should still have a few important documents available such as your driver’s license. It would also be wise to have your Social Security card and some pay stubs on hand.
This documentation will give the lender all the necessary information to make a good decision about your application. You should also be aware of your credit score before you apply.
What You Need to Know
If you don’t have a great credit score, you likely won’t be able to get approved by many of the different online lenders or credit unions that are available.
However, just because you have a bad credit score doesn’t necessarily mean that you’ll never be able to get preapproved for a car loan. After all, there are bad credit auto loan options. But even so, it is a good idea to try and increase your credit score as much as possible before you apply for anything.
The better your credit score is, the more likely you will be preapproved. This is because your credit score is essentially a reflection of how reliable you are when it comes to paying back loans and other aspects. If a lender sees that you have a bad credit score because you rarely pay back what you owe on time, it makes sense that the lender would not want to give you a car loan.
On the other hand, if you have a good credit score and a history of always paying what you owe on time, you will certainly be a very good candidate for preapproval. Keep in mind that certain lenders have credit limits that they will accept. If your credit score is below a certain limit for a lender, then you will be automatically rejected.
Researching Your Credit Score
For that reason, it is best to do some research and check what kind of minimum credit score limits certain lenders have. That way, if your score is below the necessary limit, you can take some time to build up your score and then apply for preapproval. If you don’t know what your credit score is, you can always check it on various websites.
That way, you can better understand what might be lowering your credit score and what you can do to increase it.
Sending in the Application
Once you have a better understanding of your credit score and you have all the necessary documentation on hand, it will be time to send in your application. The application process, in most cases, is very easy. All you have to do is go to the website of an online lender and submit your application.
An application for a car loan preapproval shouldn’t take more than a few minutes to fill out. But keep in mind, as mentioned before, that applying for preapproval may negatively affect your credit score since it is considered a hard pull. If your credit score is already in a good place, then this might not be a big deal for you.
But if your credit score is already quite low and on the brink of being unacceptable for a certain lender, then this might be a much bigger problem. Usually, online lenders will tell you on the website whether or not the preapproval will affect your credit score in one way or another.
If you can’t find this information on the lender’s website, you can always call or email the lender for more information.
That way, you can make a more definitive choice when applying for preapproval.
How to Approach the Application
If the application does not affect your credit score, then you may be able to apply for preapproval from several different online lenders. That way, you can compare your options.
However, even if a preapproval doesn’t affect your credit score in a negative way, it is still best to avoid applying for too many at once. Doing this may make your credit report look bad and it may make it difficult to get approved for a car loan.
As long as you’re careful about how you approach car loan preapproval, you should be fine.
What To Do if You Are Rejected for Preapproval
Even if you are careful about your application, there is still a chance that you might be rejected for preapproval. If this happens, don’t worry. This doesn’t mean that you are doomed to never get a car loan preapproval.
However, if you have been rejected, then this means that there is likely something wrong with your credit report. Most importantly, you may have a very low credit score. As mentioned before, there are some lenders that will accept people with low credit scores, but even those lenders have their limits.
If you have a bad credit score and an overall bad credit report, then you will need to fix a few things before you apply for another preapproval again. The first thing that you need to do is get better at paying off your debt on time. Your credit score will plummet if you are always late when paying off credit card payments, loan payments, or other similar types of debt.
What to Know
On the other hand, if you get in the habit of paying everything off on time, then you will find that your credit score will make a huge recovery in a relatively short period of time. While doing this can be challenging at first, it is very important if you want to eventually get approved for a car loan. This is especially true if your credit score is very low.
Besides your credit score, another reason why you may be rejected for preapproval may have to do with certain mistakes in the application. If you accidentally misspelled a word or name in your application, this may result in a rejection of your application. While this isn’t common, it can certainly happen if you don’t pay close attention while you’re filling out the application.
You’ll also want to make sure that your employment history is in good shape. If your employment history is sparse, then you may have a harder time getting preapproved since you won’t have proof of a reliable income.
All About Car Loan Preapproval
Car loan preapproval doesn’t have to be impossible to obtain, but there are certain factors you will need to consider to make sure you have relatively good chances of being accepted.
For example, if you want to get preapproved, then you should have a relatively good credit score, even when applying to lenders that accept lower credit scores. Even bad credit lenders will often have a limit as to what credit score they will accept.
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