When should I tell the dealer? Most finance experts suggest holding back the fact that you have a pre-approval until you've settled on the price of the vehicle. Once you have the selling price settled, you can discuss financing options later.
Preapproval means a lender has reviewed your credit report (not just the score) and other information to determine a loan amount and rate you're likely to receive. Preapproval quick facts: Hard credit pull. You'll likely get the offered rate (your car must also meet the lender's criteria).
Many car dealerships consider a buyer with an auto loan preapproval as essentially a cash buyer. Since a prequalification might not affect your credit score like a preapproval can, getting prequalified might be a good first step if you're still in the early stages of looking for a car and a lender.
Prequalification typically involves a soft credit inquiry, which does not affect your credit score, though some lenders may skip this altogether. You may also need to provide basic information like your annual income and monthly expenses.
Go shopping
Once you've received preapproval for an auto loan from several lenders, you can take the best offer to the dealer and start shopping. But don't wait too long. Preapprovals are typically valid for 30 to 60 days.
Not only will your credit score sink, but your cosigner will be legally responsible for taking over the debt. Unless they pay the loan, their credit score will also drop, making future loans more difficult for them to land.
In general, lenders look for borrowers in the prime range or better, so you will need a score of 661 or higher to qualify for most conventional car loans.
What is a good APR for a car loan with my credit score and desired vehicle? If you have excellent credit (750 or higher), the average auto loan rates are 5.07% for a new car and 5.32% for a used car. If you have good credit (700-749), the average auto loan rates are 6.02% for a new car and 6.27% for a used car.
Bank financing
The primary benefit of going directly to your bank or credit bank is that you will likely receive lower interest rates. Dealers tend to have higher interest rates so financing through a bank or credit union can offer much more competitive rates.
Because a preapproval isn't legally binding, you can simply walk away. Out of courtesy, you may just want to call the lender to tell them what's happening. Not only will this provide a better rapport for future loans, but you can also avoid an onslaught of follow-up phone calls from the lender.
Does a Preapproval Letter Expire? Once you have your preapproval letter, you may be wondering how long it lasts. Your income, credit history, interest rate — think about all the different ways your finances can change after you get your letter. For this reason, a mortgage preapproval typically lasts for 60 to 90 days.
Credit reporting companies recognize that many people shop around for a mortgage, so even if a lender uses a hard credit check for your pre-approval, there won't be any further impact to your credit score if you complete multiple mortgage pre-approvals within 45 days.
When it comes to a down payment on a new car, you should try to cover at least 20% of the purchase price. For a used car, a 10% down payment might do.
NEVER tell them you're paying cash!
If they keep hounding you, tell them you're interested in financing but that you want to agree on the price of the car first. If you tell them you're paying cash, they will automatically calculate a lower profit and thus will be less likely to negotiate a lower price for you.
If you're buying a new car at an interest rate of 2.9% APR, you may be getting a bad deal. However, whether or not this is the best rate possible will depend on factors like market conditions, your credit background, and what type of manufacturer car incentives there are at a given point in time on the car you want.
In finance, generally the more risk you take, the better potential payoff you expect. For banks and other card issuers, credit cards are decidedly risky because lots of people pay late or don't pay at all. So issuers charge high interest rates to compensate for that risk.
A high APR (“annual percentage rate”) car loan is one that charges higher-than-average interest rates. The legal limit for car loans is around 16% APR, but you will find lenders that get away with charging rates of 25% or more.
A good credit score to buy a car is often above 660, as you're then considered a "prime" borrower. There's no industry-wide, official minimum credit score in order to qualify for an auto loan. Generally, the higher your credit score, the better terms you're likely to get on the loan.
It's typically recommended that you buy a car worth no more than 35% of your gross annual income— so if you make $60k per year, you can afford a new car that is worth $21,000 or less.
You are free to decline the lender's offer if you do not like the terms of the loan, or even if you just change your mind. Although you do not have to accept a personal loan whenever offered, it's not the best decision to decline in most cases.
A mortgage pre-approval affects a home buyer's credit score. The pre-approval typically requires a hard credit inquiry, which decreases a buyer's credit score by five points or less.
Pay off the car loan
But if you have the financial backing to pay it off, you can walk away and get rid of the financial stress of even more potential debt. One way to pay off your loan is to pay one large lump sum. Before going ahead with this route, be sure to confirm with your lender the amount owed.