When you’re considering a major purchase of any kind, it’s always a good idea to know where your finances stand and whether you’re likely to be approved for a loan. If you’re thinking about buying a new or used car but need to borrow money to do it, consider applying to get pre-qualified for a loan. You may be thinking, “Why would I want to get pre-qualified for an auto loan?”
What Does it Mean to Be Pre-Qualified?
Getting pre-qualified means the lender has done an initial review of your creditworthiness. This assessment lets you know if you’re likely to be approved and if so, what loan amount and interest rate are you likely to be getting. For pre-qualification, a lender asks for basic information about your financial situation such as your income and housing costs. Some lenders may pull a soft credit check, which won’t hurt your credit.
Is Pre-Qualified the Same as Pre-Approved?
Many people use the terms “pre-qualified” and “pre-approved” interchangeably, but they’re not exactly the same thing. Getting pre-qualified is based on the minimal information that allows a lender to estimate how much you may be able to borrow. Since not much information is required to get pre-qualified, there’s a chance you’ll be turned down for the loan once you apply.
To obtain a pre-approval, most lenders require a hard credit check. They may require pay stubs or tax returns to give them a clear picture of your financial situation. Once they review the information you provide, they’ll let you know the maximum loan amount you qualify for and what the rate and terms will be.
Reasons to Get Pre-Qualified
Even though getting pre-qualified doesn’t result in a firm loan offer, it’s still a good idea to take this step. When you apply for pre-qualification, you know ahead of time what your credit score is and whether it’s good enough for an auto loan. If there’s a problem with your credit, you’ll know before you’ve taken the time to look at cars.
Getting pre-qualified gives you a clearer idea of what type of financing you may qualify for before you actually apply for an auto loan since a hard inquiry can affect your credit score. This information can help you narrow down which vehicles to consider, and it prevents you from getting an unpleasant surprise at the dealership.
Know What’s on Your Credit Report
Another way to have a good idea whether you’ll be approved for a car loan is by knowing what’s on your credit report. Consumers are entitled to receive a copy of their credit report from each of the three main credit bureaus each year. Look over what’s on your credit reports and make sure the information on them is accurate. Incorrect negative items on your credit report can bring down your credit score and make it hard to get a car loan.
Any errors you find on your credit report should be disputed immediately. If you want help with this process, reach out to Dovly, an automated credit repair engine that can help you track, manage, and fix your credit. Try it risk-free with our free membership tier. Contact Dovly today.