Your Complete Guide to Car Loan Preapproval

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A preapproval helps you lock in the best interest rates and avoid overpaying at the dealership.

When shopping for a car, securing preapproval for a car loan is a step that can have a positive impact on your finances for years to come. Not only will a preapproval often help you lock in the lowest possible interest rates, but it often means sticking to a price point that you can reasonably afford.

Luckily, it’s relatively straightforward to learn how to get preapproved for a car loan.

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What Is Auto Loan Preapproval?

Car shoppers looking for financing often seek out a preapproval. Essentially, being preapproved for a car loan means a lender has reviewed your qualifications to determine an interest rate and loan amount they are willing to offer you.

Instead of waiting until the point of purchase to run the loan application, a preapproval gives you confidence that you’ll likely get the funds you need. Although it’s not the same thing as getting an official loan, it gives you clear parameters about what loan size and interest rate a lender is most likely to provide.

Why Should You Get Preapproved for a Car Loan

When you obtain preapproval for a car loan, there are several benefits you’ll enjoy. Here’s a look at a few of the most helpful reasons.

Determine a car shopping budget

The average price of both new and used cars is on the rise. As cars get more expensive, most of us have to stretch our budgets to get into a vehicle that works for our lifestyle. A preapproval can help bring our budgets back into the realm of reality.

When you get preapproved, you’ll have a firm idea of what a lender is willing to loan you. Plus, you’ll have a good idea of the monthly car payments based on the attached annual percentage rate (APR). With these numbers in mind, you can start car shopping with a realistic purchase price in mind.

Without a preapproval, it’s all too easy to dive into car shopping with an unrealistic budget. Ultimately, an unrealistic budget can lead to disappointment at the finish line when you aren’t approved for a bigger car loan.

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Lock in better loan terms

Seeking a preapproval gives you the time you need to shop around. Instead of seeing what the dealership can offer you, you can scour the market for the best possible auto loan rates.

With this comparison shopping, you could save thousands over the life of your loan.

Avoid expensive dealership financing

Car dealerships have a reputation for expensive auto financing arrangements. Although they can help many customers get into the car of their dreams, it’s usually at the expense of a higher payment.

When you get preapproved at a bank or with another lender ahead of time, you can avoid haggling over the monthly loan payment at the dealership. Instead, you can focus your negotiation effort on getting the best price for the vehicle itself.

Have a firm top dollar for negotiations

When you hit the lot, you’ll have a firm idea of what a lender is willing to loan you. And with that, you’ll know exactly how much you can really spend on a vehicle. It’s a useful way to avoid buying a more expensive vehicle.

Plus, you can use the top dollar limit to your advantage by telling the dealer that’s all you have available to spend. If you don’t have any wiggle room, that could work out in your favor. Just be sure to tell the salesperson that you really can’t go above the line, based on the lender. You can repeat this logic if offered add-ons.

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What’s the Difference Between Pre-qualified and Preapproved?

The biggest difference is that prequalification is only an estimate, rather than a loan offer. It only requires a soft credit inquiry (or no inquiry at all) meaning it will have little to no impact on your credit score.

When preapproved for a car loan, the lender will have put your financial details under the microscope. During the preapproval process, you’ll agree to a hard credit inquiry, which can have a negative impact on your credit score.

In contrast, getting pre-qualified is only an estimation of what the lender thinks they might be willing to lend you based on unverified financial information. You won’t undergo a hard credit check in order to get pre-qualified. But the estimated loan amount is subject to change when your lender takes a closer look at your finances. If you already have an auto loan, you can get pre-qualified for a refinance without a hard credit inquiry.

Steps To Get Preapproved for a Car Loan

As you move forward with a car purchase, seeking preapproval before heading to the lot is often a good idea. Here’s a look at the steps you’ll need to take to obtain a preapproval.

Shop around for the best rates

When financing a car, the interest rate can make or break your budget. That’s because a higher interest rate pushes your monthly payment higher, while a lower interest rate could keep your monthly payment within reach.

With that said, it’s critically important to comparison shop your auto loan offers before jumping straight to the application. A few places to explore include online lenders and financial institutions, like banks and credit unions.

As you look for the right auto loan for your situation, look for the lowest interest rates and most affordable fees. Consider whether or not a lender offers the loan term you are looking for.

Plus, if they are willing to lend money to someone with your credit score. Although there is no minimum credit score for auto loans across the industry, most lenders set their own credit score requirements. Before submitting an application, make sure your credit score matches up with their requirements.

Gather your information

Once you find an auto loan that checks all of your boxes, it’s time to gather the information you’ll need for the application. A few of the things you’ll need to have on hand include:

  • Personal details: Be prepared to provide your name, date of birth, Social Security Number, email address, phone number, and other contact information.
  • Income information: Of course, the lender needs to know what your gross annual income is. In some cases, they’ll ask for a way to verify this income.
  • Employment information: You’ll need to provide details about your employment status. If you are self-employed, the lender might ask for more details. If you have a traditional employer, lenders might want contact details to confirm that information.
  • Housing situation: The lender will want to know your address, your monthly housing payments, and whether or not you rent or own the residence.
  • Down payment information: How much are you able to put down on the car loan?
  • Trade in information: If you are trading in a vehicle, you might need to include that information on the application.

In addition to all of the information above, you’ll need to indicate how much you want to borrow and the loan term you would prefer.

It’s critical to think carefully about how much you want to spend on the car before submitting your application. Kelley Blue Book reported the average price of a new car sitting at $47,148. Even the average price of a used vehicle is rather high, recorded at $28,219 in July 2022. So you’ll need to decide what’s the right amount to spend for your budget.

Since buying a car is one of the most significant purchases we make, it’s normal to take some time to work out a price range you are comfortable with.

What rate can I get? What rate can I get?

Submit your application

After you submit an application it’s time to sit back and wait. With all of the information on the table, the ball is in the lender’s court.

The preapproval process can take anywhere from a few minutes to a couple of days, but the exact timeline will vary based on the lender’s unique processes. Plus, the process will slow down if they have any additional questions about the information you included on your application.

As the lender weighs the decision, they’ll likely conduct a credit check to see where your credit stands. This is often a hard inquiry that takes a close look at your credit report on file with the credit bureaus. Like other credit applications, such as a personal loan or credit card application, this hard credit check will show up on your credit report and cause a small (5 to 10 points), temporary drop in your credit score.

As with other loan types, borrowers with good credit can expect lower interest rates and higher chances of receiving the preapproval they seek. Borrowers with bad credit have a lower chance of getting approved. But even with a poor credit history, it’s possible to get the funding you are after.

If you receive a preapproval, take a close look at the details. In most cases, the lender will set a time limit on the preapproval. Many lenders set a time frame of around 60 days. With that, you’ll have until the expiration date to obtain a vehicle and finalize the car buying process.

A Preapproved Car Loan Can Help You Stay On Budget

Getting preapproved for a car loan can help you stick to a realistic budget and achieve your financial goals. Plus, you can shop around with different lenders to find the best interest rates around before your test drive. But remember, if you aren’t happy with the interest rate you get, it’s always possible to refinance.

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About The Author


Sarah Sharkey

Sarah Sharkey is a personal finance writer who loves diving into the details to help readers make savvy financial choices. She has written for numerous finance publications, including Business Insider, Smart Asset, and Money Under 30. She lives in Florida, with her husband and dogs, and enjoys exploring a new stretch of coastline whenever she can.


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