You’re Approved!

The first step towards getting financing for your vehicle is to get pre-qualified or pre-approved. For some borrowers, a pre-qualification is a better option over a pre-approval. While some lenders use these two terms interchangeably, the difference between them is knowing which will have an impact on your credit score.

Pre-qualify: The process when a lender reviews a potential borrower’s basic financial situation. The lender may ask for estimates on bank accounts, annual income, and monthly payments. Some lenders may require a soft credit pull as well.

Pre-approve: The first step in a loan application that requires documents to support a borrower’s creditworthiness, including proof of income and a hard credit check. A pre-approval is generally valid for 90 days.

What does it mean to be pre-qualified vs. pre-approved?

Both pre-qualifications and pre-approvals are great tools to demonstrate buying power in the dealership market. Sales professionals will take a car shopper more seriously when they see that the customer has verified how much they can afford.

Even though a potential borrower is pre-qualified or pre-approved, it does not guarantee that they are automatically approved for a loan.

First, you should consider where your credit stands. The smart move would be to get pre qualified before applying for a pre-approval so that your credit score doesn’t take a hit from the hard inquiry

Credit

• Reliable source of income
• Proof of identity and residence
• Down payment/trade in
• Debt to income ratio: preferred below 36%
  
  • 0% - 35% GREAT
  • 36% - 49% Not bat but should consider credit counseling
  • Over 50% BAD Seek counseling and debt relief

Vehicle details

• Age of car and mileage on car
• Value of the vehicle
• Vehicle's intended use (commercial, personal, delivery etc.)
• Condition of the vehicle

• Income
• Proof of identification
• Monthly debt obligations
• Proof of employment

The main benefit from getting a pre­ qualification is that you will have an idea for how much you can spend as well as an estimate on the interest rate you’ll qualify for.

Another benefit to the pre­ qualification process is that if a lender says that you may be denied, you can take the opportunity to improve your financial situation to be approved for financing later.

There are many factors that can make or break an auto loan after the pre-approval. One of the most common reasons is if the borrower’s financial situation changed from the time they applied for the pre-approval. That could mean any of the following: 

• Decrease in credit score
• Recently made a big purchase
• Change in income
• Applied for a loan more than pre-approved amount
• Incorrect information on loan application

If you have been denied an auto loan, instead of viewing it as a negative event, you should view it as an opportunity to improve your financial situation.