How Does Car Loan Pre Approval Work?

Car loan pre approval simply means you have shopped for your loan prior to shopping for your vehicle. You may be pre approved for a loan at a bank, dealer or alternative lender.

Guaranteed Approval

Some lenders will offer guaranteed approval, meaning all borrowers are essentially pre approved for a loan. These lenders are often used by low credit borrowers who cannot get a loan from a traditional source. In exchange for the guaranteed approval, the borrower pays a very high interest rate and is stuck with unfavorable loan terms. Guaranteed car loans are not a wise decision for borrowers unless they have exited a recent bankruptcy or have no other options.

Basic Pre Approval

If you are able to secure a loan based on the merits of your credit and income, then you may seek pre approval so you learn how much you can afford to borrow. Approach banks and dealers to ask for a pre approval application. You will be evaluated based on your financial profile and approved for a loan of a given size. From there, you can shop for a car that fits within the budget you have been given by your lender. Getting pre approved will help you stick to a budget and understand which cars you can truly afford.

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