Are you in the market for a new or pre-owned vehicle? If you answered ‘yes’ — and you’re one of the many car buyers who can’t afford to pay cash — you’re likely thinking about the ins and outs of an auto loan. Have any of the following questions crossed your mind?
- How much can I afford to put down?
- Should I get pre-approved for a loan, and what does that entail?
- What will my monthly payment look like?
There’s good news — the pre-approval auto loan process doesn’t have to be burdensome and overwhelming, especially if you’re prepared ahead of time. Our checklist will help, so keep reading!
A Quick Auto Loan Overview
Many prospective car buyers need to take out an auto loan to purchase a car. Your monthly payment will depend on a few factors, including:
- Loan amount
- Length of loan
- Interest rate
- Your credit score
- Whether your vehicle is new or used
Even though those factors will determine your specific monthly car payments, here are some numbers and points to keep in mind:
- NerdWallet estimates the average monthly car loan payment in the United States at $667 for new vehicles and $515 for used vehicles. BankRate’s average is $677 for a new car and $515 for a used car. Business Insider recently reported that the average U.S. car payment climbed to $712, which is a record. The recent jump in numbers is due to increased car prices and higher interest rates.
- Auto loans are the #3 debt category in the U.S. behind mortgages (#1) and student loans (#2).
- If you aren’t sure where to begin, a monthly loan payment calculator is a good option that can help you estimate your costs.
Why Should I Get Pre-Approved for a Car Loan?
Pre-approval for a car loan means you are eligible to receive a loan before purchasing your new or pre-owned vehicle. It tells the dealership that you’re ready to go, which can put you in a good position for negotiation.
Pre-approval will also help you learn how much you can borrow, which allows you to focus on the vehicles within your price range.
Ready to get started?
Your Auto Loan Pre-Approval Checklist
It’s not as difficult as you think to obtain pre-approval. Here are the steps you should take:
- Gather everything you need in one place. No matter how you choose to obtain a car loan, there are certain types of information you should have at your fingertips. It may differ depending on the lender, but just in case, gather all your personal information, in addition to your driver’s license, pay stubs, employer details, amount you want to finance, preferred loan terms, and trade-in information (if applicable).
- Check your credit score. Once every 12 months you can request a free copy of your credit report from each of the national credit bureaus (Equifax, TransUnion, and Experian). But before you do, check your credit card or other financial statements to see if your score is listed anywhere. Also, be mindful of the differences between hard inquiries vs. soft inquiries. If you find any errors or problems, look into this right away. The bottom line — the better your credit score, the better your interest rate and loan terms.
- Shop around for different loan terms and interest rates. There’s no rule that says you need to go with the first lender on your list. Now is the time to do your research and start comparing banks, credit unions, and financing departments at dealerships.
- Fill out and submit a pre-approval application. Depending on the lender, this can be done online, in person, or over the phone, and you should receive your results quickly — within 24 hours. Pre-approval offers typically last anywhere from 30–60 days. Also, here’s a good tip from NerdWallet: Submit a few pre-approval applications within 14 days of each other since it will count as one “hard inquiry” into your credit history.
That’s it! You’ll receive a printout that will detail the terms of your pre-approval, including the amount you’re eligible to borrow and the length of the terms. And there’s nothing that says you have to use any of these pre-approvals, either. If you decide to wait, or you can’t find the car you’re looking for and want to postpone your search, that’s fine, too.
Pre-approval isn’t necessary to purchase a car, but it can make the process a smoother one, giving you a good idea of what you can afford and your estimated monthly payments. Buying a new or pre-owned vehicle can be a lot to handle, but hopefully, the pre-approval process is now one less thing for you to worry about.
About the Author, Dawn McQueeney
Dawn McQueeney serves as Marketing Manager at Merchants Auto. Joining in 2020, she brings with her more than 15 years of marketing experience, and originally started as a Marketing Coordinator. McQueeney has helped elevate the customer experience in the dealership showroom so that every visit is positive.