What Is An Auto Loan Pre Approval: Our Top Tips Before You Shop

line of automobiles what is an auto loan pre approval

What Is An Auto Loan Pre Approval

Purchasing a new car is a big deal for many people because they will need to finance an auto loan. This can be a scary process, especially if you have bad credit. Even if you have good credit, securing the perfect auto loan isn’t always just so easy. There are a few things you should know about what is an auto loan pre approval before you walk into the dealer. The more you know about what is an auto loan pre approval, the more satisfied you will be with your purchase overall.white gmc yukon

Here are a few key insights that will help you better prepare to purchase your next car, truck or SUV.

Do Your Research

Just as you should research the features and mechanisms of the new vehicle you plan to buy, you should research what is an auto loan pre approval.

You can shop for loans online or with your personal banking institution. Credit unions often offer incredibly low rates for their members. Knowing what the prevailing interest rates are ahead of time can also help you gain some leverage in the process.

If you can avoid it, don’t let the dealer do your loan shopping. You want negotiating power before you even choose your vehicle. Take an interest rate with you that you’ve already found in your research and see if the dealer can match it or beat it.

Remember that several hard pulls on your credit at the same time for the same purpose only counts as one hard pull. Do your loan shopping within a specific time period, not long before you head to the dealer.

Know Your Limits

So you’ve done your research to find the best possible rate but do you know what you can actually afford?

There are few different factors to consider when making the final decision on an auto loan pre approval.

Interest rate

If you’ve found a good interest rate, that’s terrific! But is it in line with your budget?man writing one hundred percent

You’ll need to calculate the interest rate into the life of the loan but also tally it against your monthly budget.

Be careful with dealers or an auto loan pre approval that offers a great rate so that you don’t overspend on the vehicle itself. Just because the rate is lower doesn’t make the cost of the vehicle any less.


Most terms are 36 to 60 months, or three to five years respectively. There are six-year terms available but in the long run, you’ll be paying more in interest with this option.

Aside from your monthly budget, you need to be thinking long-term into the future with your finances for an auto loan with a payment that won’t go away for at least three years. If you plan to make other big purchases in the near future, you need to think about how this term will affect your credit as well.


Payment calculations occur based on the term of the loan and the interest rate assigned.

Be wary of a dealer that promises low monthly payments, especially on more expensive vehicles. This probably means there are longer terms and maybe even options taken off the vehicle.

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The recommended monthly payment amount is 10% of your gross monthly income minus your monthly insurance premium.

Total Cost of the Loan

One factor that some people overlook at signing is the total cost of the loan. This number includes taxes, fees, and other charges that are on top of the sticker price of the vehicle. You need to know the price of the vehicle going in.  In addition you should account for these other costs over the life of the loan.

Remember the longer your term, the more interest charged, totaling more cost in the end.

Lease Options

If you’re having trouble understanding what is an auto loan pre approval or can’t get one, there is always a lease option availablelease contract signing

Leases often come with lower monthly payments and in some cases, no down payment required. The lender allows this for the depreciation of the vehicle while you’re driving it instead of owning it. They still take your credit into account when deciding your interest rate. But the manufacturer controls the terms of the leasing programs.

A leasing company may also look at your debt to income ratio as well as the lease to value ratio of the vehicle you intend to drive.

A lease might be a convenient option if you don’t plan to keep your vehicle longer than three years. One drawback is that you may pay higher insurance premiums with a lease.

Managing Your Credit Before an Auto Loan Pre Approval

Before you can even think about car shopping, you need to be sure your credit is in good standing order. This will ensure the best interest rates available and could even have an impact on the term of your loan.

Managing your credit can be a tedious and frustrating process. If you don’t know what can impact your credit you’re at a disadvantage with lenders and auto dealers alike.

There are many itemization’s that banks and lenders review when you’re searching for an auto loan pre approval. You need to know what those itemization’s are and which ones affect your score. In addition, you should also learn more about how each item impacts your credit score. This way you can focus on your spending and financial priorities.

Auto lenders are particularly selective when it comes to credit scores and history.

Be prepared before you secure a loan. Contact us with questions and to learn more about how to properly monitor your credit and finances.

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  1. This was a very interesting post to read. It was really helpful as it will prepare me for when I shop for a new car.

    I really appreciate the way you linked to other valuable content in the post.

    I really was unaware of the advantages of having an auto loan pre-approval before starting my search for new transportation.  I learned having a pre-approval gives you more leverage when comparing the dealers auto financing.

    This information is surely gonna help me when I finance my next car.

    Thank you for the informative post and have a Happy New Year.


    • Prayrit,

      Thank for your comments on post.  Hopefully you can use this information to setup the best financing situation for you when looking for a vehicle loan.

      Being pre-approved for an auto loan gives you negotiating advantages when engaging with an auto dealership.  It also shows the dealer you are serious about buying. 

      Use the pre-approval to negotiate a lower rate with the dealer using their in house financing programs.

      If you have a good credit score you might be able to nail a better interest rate, which will save hundreds of dollars over the life of the auto loan.

      Glad you found this post useful.


      Credit Squared

  2. Very well written and laid our post. Lots of good information regarding the auto loan pre approval process! 

    My wife and I just purchased a new vehicle, about a year ago and if we had gotten an auto loan pre approval we would have saved more money.

    I can tell you for sure the next time I talk to someone about a loan, credit card or cleaning up their current bad credit, I will definitely send them to this website!!

    Best to You Wayne

    • Hi Wayne,

      Thanks for commenting on the post.

      Before you start shopping for a car you need to know your current credit standing.  You should also know your credit score.

      Here are couple of free resources to help you do that.

      Free Annual Credit Report

      Credit Karma Free Credit Score

      Lenders (including card dealerships) will be looking at all the things that impact your credit report.  That information can effect the interest rate you pay for your auto loan.

      So, next time you are in the market for an auto loan, get a preapproval first.  This will give you leverage before you start negotiating with the dealer on price, and in the long run save you money on your auto purchase.

      All the best



  3. Thanks Patrick for this very informative post.

    I found it really helpful, you make it quite clear how a lot of this is about anticipation, knowing what items will affect your credit score.

    By the way, your other post on ways to increase your credit score is also really interesting.

    Thanks so much for putting together this helpful great posts. I feel better informed and I now have road map on how to improve my credit score.


    • Your Welcome Jerome,

      Knowing your credit situation before you start shopping for a car is the most important thing you can do. Once you know your credit standing, understanding what you can afford is the next important step.

      You will be in the best position to know what you can afford by getting an auto loan preapproval first. Once you have that in hand, you can use it with the dealership to negotiate the best interest rate.

      Most of all make sure you understand the term of the loan, what the payments will be and the total all in cost of the loan. This will help you know if you can afford the car loan and if it fits into your monthly budget.

      Here is a link to a site that can help you with these concepts.

      Creating a Car Budget

      Best of luck,



  4. There is a plenty of practical advice here about what is an auto loan pre approval.

    Many people do not know how to manage their credit.

    Many banks will often include free credit checks as often as you like. They also show you the weight of each factor. 

    Here are some additional tips that may come in handy before you shop. 

    1.) Keep your debt to credit limit low. 

    2.) Make payments on time.

    3.) Do not overextend yourself

    Thanks for the great information.

    • Thanks Ernest,

      It does make sense to be prepared before starting the auto buying process.

      Most folks are not very informed about the credit approval process.  One way of doing that is going through the auto loan pre approval process first.

      It’s true banks will help you out by evaluating your credit score and will determine your interest rate based on the result.

      Once you are pre approved for a car loan, you have some negotiating power with the dealership, to see if they can beat your banks rate.

      Just be careful to fully read the dealers financing agreement before signing on the dotted line.

      Thanks for providing the additional tips.  Here is a post that expands on some of those same ideas.

      How To Improve Credit Score In 30 Days




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