If you’re considering purchasing a new or used car, one of the first steps you may want to take is to prequalify for your auto loan. There are numerous benefits to taking this step including:
- Shopping with confidence
- Knowing your budget
- Increased negotiation power
Understanding Auto Loan Prequalification
It’s important to understand that prequalifying for an auto loan does not mean automatic approval.
Before your auto loan is approved, your member services representative will pull a final credit report, approve the vehicle you are purchasing and verify your income.
Prequalification is free. You have nothing to lose, and the benefits far outweigh the risks.
Shopping with Confidence
One of the drawbacks of car shopping is the uncertainty associated with not knowing what monthly car payment you can afford. When you add in the costs associated with car insurance and maintenance, the amount is even more ambiguous.
If you take the time to prequalify for an auto loan, your credit union member services representative will factor in these expenses. This gives you a better idea of how much you can afford to spend on a vehicle. The total amount you can spend would be the amount you are able to put towards a down payment and the amount of the loan in which you are prequalified.
Knowing your Budget
When you request an auto loan prequalification, your member services representative will review your current income, savings, and existing debt. This allows for a better understanding of how much income you have available to service a new auto loan and the other costs associated with purchasing a vehicle.
There may be two options available to you, the price you can afford for a new car, and the price you can afford for a used car. The prequalification process allows you to properly budget your finances for this purchase.
Increased Buying Power
While you will still have to go through a final credit check, and income verification, if you go to a new, or used car dealer with a prequalification in hand, you may be able to negotiate a better price on your vehicle.
Dealers have confidence in the fact that you have found a lender who is willing to finance your car loan, and they already have an idea of how much money you can spend to make your dream of a new vehicle a reality.
3 Tips Before Prequalifying for an Auto Loan
Before you meet with your credit union representative about prequalifying for an auto loan, there are some specific steps you can take to make sure that you’re getting the best possible information.
1. Check your credit report
Pull your credit report and check it for mistakes. Keep in mind, if there is erroneous information in your credit report, you will want to correct it before you are approved for a loan. Mistakes in your credit history can result in higher interest rates.
2. Review your finances
Your finances are important to discuss with your member services representative. Prequalification often does not require you to provide pay stubs or tax returns, so you will want to review these documents on your own and ensure you are providing accurate information during the application process.
Remember, even small discrepancies can be problematic during the final approval process. If you overstate your income by $100 a month, it could mean a higher interest rate or a larger down payment requirement for you to get a final auto loan approval.
3. Get auto insurance quotes
Speak with your insurance agent before applying for an auto loan and obtain estimates on a couple of scenarios. While the cost of insurance may vary, if you get an estimate for a new vehicle and a used vehicle, you will at least have a good idea of what to expect. This will also make your prequalified loan amount more accurate.
3 Tips After Prequalifying for an Auto Loan
While there are several tips to consider before prequalifying for an auto loan, there are a few things you should do after submitting a prequalification as well.
1. Don’t take on new debt
After you have prequalified for an auto loan don’t take on any new debt. This changes your debt to income ratio which could have an impact right up until the time you close on your new auto loan.
2. Pay down existing debt
Whenever possible, pay down outstanding credit card debt while you shop for a car, the less debt you have at the time of closing, the better your final interest rate may be on your new car loan.
3. Notify bank of employment changes
Should your job change after prequalifying, contact your member services representative and find out if it will affect your auto loan application. If you stay in the same field and your income is the same or slightly more, there’s likely no issue. Yet, a sudden change of field, or less income could be problematic when it comes to final approval.
Get Prequalified for an Auto Loan
If you’re considering the purchase of a new or used vehicle, you can save yourself a lot of time by prequalifying for your auto loan. This process will help you get a better deal when you find the car you want and allow you to thoroughly understand your budget.
Unlock your power in the car buying process.