What Does Pre-Approved Mean When Buying a Car?

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Pre-approved when buying a car means that you have met with a lender and gotten a financing commitment for a vehicle purchase up to a certain amount. Taking this step gives you more comfort and bargaining power at the dealership, since you're not depending on dealer financing to complete the purchase.

Pre-Approval Basics

  • Banks, credit unions and auto lenders typically offer pre-approvals for car loans. You can go to the bank or sometimes fill out an online form to get pre-approved. The lender runs your credit report and reviews your income to determine your credit worthiness.

    Based on your credit, you may receive pre-approval for a certain amount of funds at a particular interest rate. Being pre-approved for a $25,000 loan, for instance, means you can go to the dealership armed with financing up to that level.

Benefits

  • A primary pre-approval benefit is that you know before you visit the car dealer and get excited about a car that you can afford it. Pre-approvals also prepare you for negotiations in that the dealer knows that you can buy the car.

    You also don't have to worry about waiting for a dealer to run your credit and determine your financing options. If you do apply for dealer financing as well, it may result in the dealer coming back with better loan terms, since it knows it has to beat the offer already on the table.

References

  • Photo Credit Dirima/iStock/Getty Images
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