What Do You Need for a Pre-Approval for a Loan?

Some car loans require loan pre-approval.

In order to be approved for any loan, from a car loan to a mortgage, a borrower must provide certain documentation during the pre-approval process. Loan pre-approval involves a lender determining the amount of a loan that a borrower could qualify, prior to closing on the loan.

Income

First and foremost, a lender will verify the income of the borrower by asking for income statements, W-2 forms, pay stubs or recent tax returns. The lender may take this one step further and require IRS verification of the completed tax returns, in the event of a mortgage pre-approval.

Debt

Next, the lender will examine the borrower's outstanding loans. The lender is looking to see if the addition of the new debt will unnecessarily burden the borrower, making him unable to pay each month. The lender compares the current debt payments to the borrower's income and then adds in the new debt payment to determine the new debt load.

Credit Score

By checking a borrower's credit, the lender determines his credit score. This credit score is used to gather a picture of a borrower's past repayment history. The credit score may also be used in determining the potential rate that the borrower will receive if he chooses to close the loan.

Collateral

Lastly, the lender will look at the potential collateral for the loan. Obviously, he will not lend the borrower more than the value of the collateral. An appraisal may be needed in order to complete the pre-approval process.

References

• Realtor.com: Get Pre-Approved Loan
• CarsDirect.com: Advantages of Car Loan Pre-Approval