What Is a Car Loan Pre-approval? (And What’s The Best Way To Get One?)
As exciting as shopping for a new or new-to-you vehicle can be, there’s no question that the traditional car-buying journey can be more than a little stressful.
You might do a lot of research comparing cars and trucks you like, trying to find the one that will best suit your needs. You might visit several dealerships and take several test drives. You’ll likely even do some quick math to determine whether you can afford a certain vehicle based on your income.
After doing all of that work and zeroing in on your perfect next car, SUV, or truck, it can be crushing when the salesperson comes back and says “Sorry, you haven’t been approved.”
Yikes! Not only is that situation highly embarrassing, you’ve also gotten your hopes up for nothing and wasted a lot of your own precious time.
Luckily, this awkward scenario can be easily avoided by getting pre-approved for a car loan before you start looking at specific vehicles. Everyone, no matter what their financial situation is—whether they have bad credit or excellent credit—should get a car loan pre-approval before they do anything else.
But how exactly does it work in Canada anyway?
How a car loan pre-approval works
An auto loan pre-approval works a lot like other loan pre-approvals, such as a mortgage. The lender takes a look at your income, debts, and credit score to determine whether they’re willing to offer you a car loan. If they are, the pre-approval will tell you the maximum loan amount they’re willing to offer you, and maybe the interest rate too. These are the terms you’re likely to get should you move forward with a finance application on a specific vehicle.
You might also get a breakdown of how much the monthly or bi-weekly payments would be. If you don’t receive this information, visit a car loan calculator to work out a rough estimate in seconds.
Most lenders will not ask for a driver’s licence, proof of income, or consent to a hard credit check until you decide to move ahead with a finance application for a specific vehicle. Sometimes lenders will also ask for additional documentation to verify your identification, such as a utility bill with your name and address on it.
The benefit of a car loan pre-approval
Once you have a pre-approval in hand you can shop for a vehicle more confidently. You’ll know exactly what you can afford so you’ll only consider vehicles in your price range. It also means you won’t have to stress about securing financing after a long car hunt. There are other great benefits of getting pre-approved for a car loan.
Where can you get pre-approved for a car loan?
You can get pre-approved for a car loan a few different ways. Historically, most car buyers have done their pre-approvals through the dealership, which may have its own in-house financing or network of lending partners.
Another traditional option for car buyers has been to get a car loan pre-approval through a bank or credit union. One benefit of going this route is—if you’re working with your own bank—they’ll already have most of the required information on file for you, making the process more straightforward. However, if you have a low credit score, many dealerships, banks, and credit unions may not be prepared to work with you.
Getting pre-approved online is an increasingly popular option: either through an online lender or vehicle retailer. The benefit of getting a car loan pre-approval online is the low effort and low commitment involved; you can usually complete the process in a matter of minutes—without leaving your home. Additionally, some online providers (such as Canada Drives) are connected with a variety of trusted online lenders (as well as some of the Big Five banks), making it easier to get approved for the best possible rate regardless of your credit situation.
How long does a car loan pre-approval take?
Getting pre-approved for a car loan can take as little as a few minutes or up to several days, depending on the lender you’re working with and day of the week. Traditionally, lenders need at least one business day to complete the process, so if you submit the request on a Friday you might not hear anything until after the weekend.
If you’re going through a dealership, bank, or credit union, the pre-approval application may need to be done in person but it can sometimes be done online or over the phone. Once the process begins the lender may come back to you with a request for more information or documentation, such as a mortgage statement or utility bill. All in all, you might be waiting for up to a full business day to learn whether you’ve been pre-approved and for how much.
With online lenders and online vehicle retailers the pre-approval process is much faster. You can get pre-approved for a car loan online by filling out a short application—which only takes a few minutes—and you’ll get a pre-approval decision almost instantly.
Can I get pre-approved with Canada Drives?
Yes! Canada Drives can get you pre-approved for a car loan online in minutes!
With your pre-approval in hand, you’ll be able to shop with more confidence and less stress. You’ll know your exact pre-approved budget, so you don’t have to worry about anything falling through at the last minute.
