Many buyers pursue auto loan pre-approval as a key first step when they’re in the market for a new vehicle. It’s also a smart first step, as it can help provide negotiating leverage, saving you time and money during the vehicle-buying process. At Island Federal Credit Union, we make the auto loan pre-approval process easy and convenient, while offering competitive rates and personalized service. Read on to learn more about the benefits of auto loan pre-approval and how to seek pre-approval for an auto loan:
What is Auto Loan Pre-Approval?
Simply put, auto loan pre-approval is a financing offer obtained before purchasing a vehicle that provides clarity and understanding of what you can afford. Just think of it as a conditional commitment for a specific loan amount.
Not to be confused with pre-qualification, pre-approval is more in-depth than just self-reported financial information. It involves a comprehensive assessment of your financial standing and a hard credit check. While pre-qualification is ideal for the early stages of the buying process to give buyers a general idea of what they can afford, pre-approval helps solidify your financial standing and can carry more negotiating weight during the buying process.
Benefits of Getting Pre-Approved Before Shopping
There are several key benefits of getting pre-approved for a car loan before shopping for a new vehicle. These include:
- Negotiating leverage: Pre-approval often means more negotiating power with dealerships.. Not only are you viewed as a serious buyer with financing already in place, but pre-approval can also help you negotiate better terms and lower interest rates.
- Streamlined car-buying process: Since your financial information has already been verified and approved, you can often streamline the process and zero in on the vehicles you know you can afford.
- Saving time and money: Pre-approval empowers you to do pre-work and shop rates before visiting a dealer. This can help you save time and money throughout the buying process.
How to Get Pre-Approved for an Auto Loan with Island Federal
Getting pre-approved for an auto loan is fast and easy when you work with Island Federal Credit Union. Simply head to the Island Federal website or visit your local branch to begin the application process. We’ll need to gather some personal information and verify your source of income. We’ll also perform a hard credit inquiry to help assess your financial standing. After receiving all the proper documentation, we can decide — typically within minutes of finalizing the application.
Required Documents for Pre-Approval
To help speed the pre-approval process, it helps to gather some of the necessary documentation we’ll need to assess ahead of time. This includes:
- Social security number
- Housing information and proof of residency, including your monthly housing payment
- Proof of income and employment (i.e., recent pay stubs, W-2s, etc.)
- Desired loan amount and terms
This documentation helps a lender assess your ability to repay the loan and will be carefully weighed.
Understanding Your Pre-Approval Terms
If you’re pre-approved for an auto loan, there are various terms that you’ll want to understand. These include:
- Maximum loan amount: This is the maximum amount that you’ve been approved for.
- APR: Annual Percentage Rate (APR) includes interest rate and fees.
- Loan term: This is the length of the loan you’ve been approved for. Most auto loans range from 24 to 96 months.
To help you understand whether your pre-approval terms are competitive, compare them against the standard terms that car dealerships offer buyers.
Most pre-approvals last for 30-60 days, allowing ample time for you to shop for a new vehicle.
Pre-Approved vs. Dealer Financing: What’s the Difference?
Pre-approval through a financial institution is typically a better option than dealer-arranged financing. Car dealerships, for instance, form strategic partnerships with financial institutions, which can often lead to interest rate mark-ups to drive more profit. Conversely, when you seek financing through a credit union, you can ensure the institution has your best interests in mind. This tends to translate to lower interest rates and more favorable loan terms.
How Pre-Approval Affects Your Credit Score
Pre-approval involves a hard credit check, which can temporarily lower your credit score by several points. A hard credit check is when a lender pulls your credit report to help confirm or analyze your financial information when seeking financing. Though a hard inquiry will temporarily impact your credit score, the benefit of receiving pre-approval typically outweighs the negatives associated with this.
Shopping for a Car with a Pre-Approval in Hand
Receiving car loan preapproval empowers you to navigate the car shopping process more effectively. For instance:
- It helps you understand exactly how much you can afford.
- You can negotiate better financing terms through dealer financing, helping you save money.
- You can compare offers and shop around for the best deal.
- You can work on negotiating the total price of the vehicle and not have to worry about the monthly payment terms.
After Pre-Approval: Finalizing Your Auto Loan
If you’re ready to convert loan pre-approval to the final loan, you’ll need to provide the lender with all vehicle details, including sales price, and then review and sign loan documents before taking possession of the vehicle. We finance new or used vehicles, and after you select your vehicle, finalizing the loan details can be done in a few hours. This allows you to figure out how much you can borrow, what your monthly payment amount will be, and take possession of the vehicle as quickly as possible.
Drive Away Confident with Island Federal Pre-Approval
For more information on Island Federal’s auto loan preapproval process and the benefits of getting pre-approved for an auto loan, contact us today. With some of the lowest rates available on new or used cars and various other incentives like our First Time Car Buyer Program, we’ll get you pre-approved quickly to help you boost your bargaining power when shopping for a new vehicle and have peace of mind that financing is secured. Contact us today to get started.
FAQs
How long does auto loan pre-approval take at Island Federal?
At Island Federal, auto loan pre-approval is typically done in minutes.
Does getting pre-approved guarantee I’ll get the loan?
While it doesn’t guarantee you’ll get the loan, it indicates your ability to secure financing. Think of pre-approval as a key preliminary step in making any major purchase.
How long is my pre-approval valid?
Pre-approval is typically valid for 30-60 days.
Can I get pre-approved with less-than-perfect credit?
Yes, though the terms may be less favorable than those of someone with good credit.
What’s the difference between getting pre-approved online versus in a branch?
The only difference is the process of seeking pre-approval. Online approval can be fast and convenient, while visiting a branch allows for a more personalized experience with additional support.
Can I use Island Federal pre-approval at any dealership?
Yes, showcasing your Island Federal pre-approval can help negotiate your next vehicle purchase and show dealerships that you’re a serious buyer.
Will shopping around for pre-approvals hurt my credit score?
If it’s done within a short timeframe, no. The credit bureaus often recognize that you may be shopping to compare different rates and tend only to count multiple hard credit pulls as a single inquiry.
What if I want to finance more than my pre-approved amount?
There are a few options you can pursue. For starters, work to improve your financial situation by increasing your income or paying down debt. You could also explore saving more to put toward a larger down payment.