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A new vehicle is a big purchase. If you plan to buy a new or used car with a loan, applying for prequalification helps you set your budget and get an idea of the long-term cost of the purchase.
Prequalification can help you determine whether you might be approved for a loan, and it can give you an estimation of rates you might receive when shopping for a car. Getting prequalified doesn’t mean you’ll automatically be approved for the loan. You’ll still need to fill out a formal loan application for the lender to review.
Benefits of prequalifying for an auto loan
There are many pros to applying for prequalification for an auto loan. Here are some of them.
- Knowing your credit is good enough for a car loan — It would be tough to go pick a new car only to get turned down for an auto loan because of your credit scores or credit reports. Getting prequalified gives you an indication of whether you can get the green light for the loan, though you’ll still need to submit a loan application to find out if you’re approved.
- Having an idea of your budget before you go shopping — Just like getting turned down for a loan, picking your dream car only to find out you can’t afford it can be a major disappointment. When you have an idea of what you can borrow, you can focus on cars you can afford.
- Skipping dealership financing — Once you choose a car and negotiate a price, you don’t need loan approval from the dealership, which may cost more than going directly to a lender yourself.
What information you’ll need to apply for prequalification
Getting prequalified for a loan is similar to getting approved for a loan. Lenders typically require your personal information and a soft credit inquiry.
For personal information, lenders will usually want to verify the following:
- Employment information
- Current debt obligations
It’ll probably also be handy to have your Social Security number, driver’s license, proof of income and housing payments.
To check your credit, the lender may use a soft inquiry or a hard inquiry to pull your credit reports and scores. A soft inquiry doesn’t affect your credit scores, while a hard inquiry may have a small impact on your credit scores. If you’re shopping around for the best rate, check if you’re dealing with a soft or hard inquiry first.
If you’re ready to start the prequalification process, first you’ll need to decide the best type of auto lender for you. Then, you’ll want to make sure to comparison shop across different lenders to find the best rate you can. Make sure you come prepared with all the information you’ll need, along with the type of car you’re looking at and the budget you’re aiming for.