What Does Pre-Approved Mean When Buying a Car?

A pre-approved loan makes it easier when you go to buy a car.

A pre-approved loan makes it easier when you go to buy a car.

Getting pre-approved for a car loan, meaning that you have already found a lender who has agreed to loan you money for a car, can save a lot of hassle when you head out to buy your next vehicle. Having the financing in place before you shop for a car makes it much easier to focus on finding the right car without having the price of the vehicle negotiated along with the terms of your loan. For many people, it removes much of the anxiety from the process and helps them to stay within their budget.


When getting pre-approved for a car loan, it pays to shop around, checking interest rates and terms before you settle on a lender. Know your credit score ahead of time and be aware that the lower your score, the higher the interest rate you’ll have to pay. Typically, the lender will specify the amount you are pre-approved for, including the terms, before you shop for your car. Some lenders will require the car’s make, model and year before they will pre-approve your loan. The lender must typically also make a final approval of the vehicle you’ve selected before you actually get the loan.


Most lenders that offer car loans are willing to work with you on setting up a pre-approved loan. Talk to your bank or credit union or check with lenders that specialize in auto loans, including auto dealerships. You may be able to get pre-approved over the phone, but you will need to provide the loan officer with accurate information regarding your income and expenses. Ultimately, you can expect that you will still have to sit down with the lender and provide documentation of all of your income and expenses before the loan is finalized.


Having a pre-approved loan means that you can focus on the total cost of the car when you are at the dealership. This can help you stick to your buying budget and not succumb to sales pressure to get a car that is more than you can afford. By shopping around, you can take advantage of the best interest rates and terms, which can help to keep the overall cost of your car down in the long run. This helps you to avoid getting tripped up by sales tactics that can lead to spending more than you had planned.


When shopping for a car with a pre-approved loan, don’t let the salesperson know about the loan until you have a firm price in place for the car. Since the dealership typically makes money when people sign up through it to make car payments, giving it a way to hide extra costs, salespeople are likely to be less flexible if they know you won’t be going through the dealership for your loan. A pre-approved amount can help you keep an eye on the bottom line and watch out for all the extras dealers often throw in, such as service contracts and unnecessary insurance.


About the Author

A recipient of a business and technology degree from the master's program at West Coast University, Cindy Quarters has been writing professionally since 1984. Past experience as a veterinary technician and plenty of time gardening round out her interests. Quarters has had work featured in Radiance Magazine and the AKC Gazette.

Photo Credits

  • Thinkstock Images/Comstock/Getty Images