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How Do Auto Loan Pre-Approvals Work?
Whether you’re looking to buy a small bug or a big truck, it’s always exciting to start a journey with a new ride. It’s a good idea to explore your financing options before shopping for vehicles online and hitting the dealership floor to gear you up for car-buying success, which usually begins with an auto loan pre-approval from a credible lender like Space Coast Credit Union. In this article, we’ll cover the nuts and bolts of how auto loan pre-approvals work!
Learn more about auto loan pre-approvals at SCCU.
Auto Loan Pre-Approval vs. Pre-Qualification
What is an auto loan pre-approval?
A pre-approval means that you provide the lender with your personal and financial information along with your permission to do what’s called a “hard credit pull” so that they can give you information about how much money they’re willing to issue to you for a car loan along with interest rates for various loan terms—often in the form of a letter. The “hard credit pull” involves the lender looking at your credit file to determine your “creditworthiness” and how “risky” it would be to issue money to you.
Unfortunately, a hard credit pull usually follows with credit reporting companies docking you a few points on your credit score. But, if you make multiple hard inquiries in a two week period, it won’t affect your credit score as much because they’ll only count as one inquiry. So, it’s best not to start applying for auto loan pre-approvals until you’re more serious about buying a car within a month from receiving that greenlight first.
Does pre-approval guarantee a car loan?
Keep in mind, this offer doesn’t guarantee funding, but it’s more of a sure thing than a prequalification.
What is an auto loan pre-qualification?
A pre-qualification involves a “soft credit pull,” which does not affect your credit score. In this case, the lender would only give you a ballpark figure of the loan amount you’d qualify for, which helps you in the beginning stages of the car-buying process because you can get that estimate without hurting your credit.
Dealerships won’t always take pre-qualifications seriously because it doesn’t demonstrate that you can secure financing with as much certainty as you can with an auto loan pre-approval.
Why get an auto loan pre-approval?
An auto loan pre-approval in hand can help reduce the guesswork for your budget and potentially offer you more leverage when buying a car (and hey, maybe even more confidence and peace of mind). So, let’s take a closer look at why it’s a good idea to get an auto loan pre-approval:
1) Helps you set your auto loan budget.
The word “budget” may send chills down your spine, but it’s important to determine your expectations for what kind of car you can buy. Once your lender has approved you for a certain loan amount and interest rate, you can better calculate what loan term works best for you based on how much you can budget for your monthly auto loan payment. Plus, once you know what you qualify for, you can narrow down your vehicle options more realistically to fit within that price range.
Our auto loan calculators can help you explore what works best for your financial needs. Here, you can experiment with various down payment amounts, trade-in values, loan terms, etc. You can also see what you’d be paying in interest for the life of the loan.
When you buy any car, we recommend subtracting 10% from the loan amount to account for the full “out-the-door price,” which involves the sales price of the vehicle plus taxes, registration fees, title fees, documentation fees, extra features, and other financial products. Dealers may try to upsell the deal with add-ons, so knowing your loan amount in advance can help you keep sellers in check with what you can realistically afford.
"I purchased a vehicle very recently and SCCU had the BEST interest rate of all other financial institutions."
Mike V.
2) Gives you negotiation power
An auto loan pre-approval can help set you up with more sway at the negotiation table when it comes time to talk shop. Since you’ve already done the hard part of getting the interest rate you can qualify for, knowing this amount will help you avoid the possibility of a receiving a marked up rate, which could cost you a lot more in the long run.
Make sure you do your research beforehand to estimate your trade-in amount (value of your old car) to help you get the best deal and reduce your loan amount.
3) Widens your range for dealership choices
Last but not least, an auto loan pre-approval in hand means you’re not tethered to one dealership’s financing terms. With an offer from SCCU, you can shop at a variety of dealerships in Florida and find the best car for your money. If you decide to take care of your financing at the dealership instead of getting a pre-approval auto loan letter beforehand, be sure to ask for SCCU!
How long are auto loan pre-approvals good for?
A car loan pre-approval at SCCU is good for 30 days. If you need an extension beyond that time, give us a call and we’ll see what we can do. One of the best parts? You can apply online for free! Not to worry, you can also decline a car loan pre-approval if it’s not for you.
If you’re an educator, first responder, military member, medical professional, or law enforcement professional, be sure to take advantage of our Hero Auto Loan discounts!
How to Buy a Car with a Pre-Approved Auto Loan
Now to the main event. We’ll break down how auto loan pre-approvals work step by step with some helpful tips sprinkled in too.
1) Check your credit report.
You can go to AnnualCreditReport.com to look at your credit reports from the three credit reporting bureaus: Experian, TransUnion, and Equifax (for free once a year). If you notice any errors, you can reach out to them for corrections. This will help avoid any surprises when it’s time for a pre-approval.
The credit reports won’t show your FICO® Score, which is what many lenders use. At SCCU, you can check yours for free in your Online Banking account. What’s the minimum credit score you need to get an auto loan? In most cases, you’ll need a minimum credit score of 661 to qualify for an auto loan. The higher your credit score, the lower your interest rate.
If you’d like to improve or build your credit, this article provides numerous helpful tips.
2) Define the monthly auto loan amount that works best for you.
The best place to start is with a budgeting spreadsheet like this one that identifies your total monthly income and expenses to see what you can comfortably afford for your auto loan monthly payment. Then, with your estimated trade-in value and down payment, you’ll have an easier time calculating your monthly loan amount, like comparing a 60- vs. 72-car loan term, in our auto loan calculator.
3) Gather personal and financial documentation.
Pump the brakes, don’t apply for a pre-approval just yet! First, get your ducks in a row with your documentation to ensure that you have everything you need (and because some information may take longer to obtain than others) to be prepared. Some documents you’ll need include:
- Government-issued identification
- Social Security number
- W2s or other income verification
- Proof of employment status
- Proof of assets
4) Find the best auto loan lender for you.
Take a look at a few auto lenders’ websites to evaluate and compare auto loan rate ranges and qualifications. Hint hint, credit unions usually have the best auto loan rates in your area because they exist to serve members, not shareholders.
You can also give auto lenders a call to see if their loan offerings would specifically work for your financial needs. Ask them if they do any auto loan pre-qualifications so you can get an idea of what loan amount you’d get before you jump in with an auto loan pre-approval application.
Once you’ve selected your top lenders, then it’s time to apply for an auto loan pre-approval. Then, review the loan amount, rates, terms, and estimated monthly payment on the pre-approval letter. See our essential guide to car loans to learn more about what to look for in a lender.
| Payment Period | Purchase APR* "As Low As" | Minimum Loan Amount | Payment per $1,000 |
|---|---|---|---|
| Up to 48 Months | 5.99% | No minimum loan amount | $23.48 |
| Up to 66 Months | 6.49% | $10,000 | $18.06 |
| Up to 75 Months | 6.99% | $12,000 | $16.50 |
| Up to 84 Months | 7.24% | $20,000 | $15.21 |
Rates shown are fixed Annual Percentage Rates for vehicle model years 2024 and newer. Rates are subject to change. Your actual rate and terms are affected by your creditworthiness, term selected, vehicle type, and model year. Certain restrictions apply. You may be asked to furnish a down payment. Florida loans are subject to Documentary Stamp Tax. The tax amount is not included in the quoted APR.
5) Shop around for a car that suits your financial needs.
Now that you have your letter and terms, you can better compare used or new car options online (CarMax, Carvana, iSeeCars.com), hit dealership floors, take some cars for a drive, and close the deal within that auto loan pre-approval letter timeframe. Here are our top tips for buying used cars. Then buckle up for some fun in your new ride!
Auto Loan Pre-Approval | Space Coast Credit Union
At SCCU, you can expect low auto loan rates for new and used vehicles8, fast approval decisions, and flexible terms9. If you meet our qualification of living or working in one of these counties, but you’re not a member, not to worry! You can still apply for an auto loan at SCCU, and we’ll set up your membership for you (with a $5 deposit to a share savings account, which fun fact, makes you a shareholder at SCCU). You can easily apply online or in a branch. Have any questions? Feel free to contact us via one of our many methods that work best for you.
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APR = Annual Percentage Rate
¹CALCULATOR: The information provided by these calculators is intended for illustrative purposes only and is not intended to purport actual user-defined parameters. The default figures shown are hypothetical and may not be applicable to your individual situation. Be sure to consult a financial professional prior to relying on the results.
²TERMS: Terms available up to 84 months for auto loan purchases and auto loan refinances, up to 240 months for boat and RV loan purchases, and up to 72 months for motorcycle loan purchases and are based on your credit quality, vehicle type, model, and year. Our usual credit criteria apply. Your term may be different. Qualified borrowers only.
³RATES: Rates are subject to change. Rates shown are fixed Annual Percentage Rates and are affected by your credit quality, model year, term selected, loan-to-value (LTV), and payment method. Your rate may be different. Qualified borrowers only. Our usual credit criteria apply. You may be asked to furnish a down payment. Rates shown for auto purchases/auto refinances are fixed Annual Percentage Rates for vehicle model years 2024 and newer. Rates shown for motorcycle purchases are fixed Annual Percentage Rates for vehicle model years 2021-2025. Florida loans are subject to Documentary Stamp Tax. The tax amount is not included in the quoted APR.