Getting pre-approved for an auto loan is a very good idea, whether you’re shopping for a new car or a used vehicle. Pre-approval is just what it sounds like.
You go to a bank or credit union, inform them about the details of your total budget and desired loan amount. Then, they look at your finances. If you qualify for a loan, they will then issue you a “pre-approval letter” that states their lending terms, such as loan repayment schedules, APR, and other details.
When you’re shopping for a used car or a new car, this pre-approval letter is a sign to dealers that you’re totally prepared to buy – and that makes the entire process much easier, especially if you have bad credit in Canada.
But often, Canadians only apply to one bank or credit union for loan pre-approval. However, there are several benefits of applying to multiple lending agencies. Let’s discuss these now.
1. Multiple Credit Inquiries Don’t Affect Your Credit Score (If They’re Done Quickly!)
One of the biggest myths about applying for loan pre-approval is that multiple “credit inquiries” performed by banks have a negative impact on your credit score.
Now, there is a grain of truth to this. If you apply for multiple pre-approvals over a span of weeks and months, your credit score will be negatively impacted. But if you apply for them within a very short span – about a week – each individual inquiry will be lumped into a single inquiry.
Your credit score will be affected by only one “inquiry” – which will have a minimal-to-nonexistent impact on your credit score.
2. You Increase Your Chances Of Success If You Have Bad Credit
Even if you have bad credit, it’s worth trying to get pre-approved for a loan. It makes the shopping experience much easier, and can also help you understand the sort of APRs and repayment schedules you can expect from auto dealers and their lending partners.
Most larger banks are going to be a bit wary of lending to individuals with bad credit, but if you can provide documentation that proves you can afford your loan, you may get lucky and get pre-approved.
And if you’re denied at a large bank, you can try a local credit union, or a smaller bank. Smaller community banks and credit unions are often more flexible about lending terms, and may be more willing to cut you a deal.
If you apply to more banks for pre-approval with bad credit, you increase your chances of success – it’s as simple as that.
3. You Can “Shop Around” And Get A Better Deal On Your Loan
Whether you have great credit or poor credit in Canada, getting pre-approved by multiple lenders can help you get a better deal on your auto loan.
Even within the same city and region, APRs offered by different banks may vary by 1-2% – or even more, if you have average or low credit. Each bank calculates risk differently, and this means that you may be able to find a better deal on an auto loan if you visit multiple banks and credit unions.
“Shopping around” like this is a fantastic way to get a better deal on your loan – and even if your chosen auto dealership uses their own lenders, they’ll likely match the rates that were offered to you by your pre-approved lender.
4. Dealers Are More Likely To “Play Ball”
If you can prove that you’ve been pre-approved for an auto loan by one or more banks, you’re going to be able to get a better deal – whether you’re buying a used car or a brand-new vehicle.
A pre-approval letter shows auto salesmen and dealers that you’re serious about buying a car, and you’ve got the resources to pay for it. This means they’re more likely to cut you a deal and eliminate unnecessary fees, or may even be willing to negotiate better loan terms and a lower monthly payment.
Need A Loan For A Used Car In Canada? Got Bad Credit? Come To Ride Time!
At Ride Time, we specialize in helping Canadians with bad credit get the transportation that they need. We partner with over 15 different lenders to ensure we can provide reasonable auto loans to all of our customers – whether they have good credit, bad credit, or no credit at all!
Whether you have a pre-approval letter or not, we’d love to hear from you! So visit us at our new Winnipeg location now, or browse our stock of vehicles online – with our totally-online sales process, we can ship your vehicle to you anywhere in Canada!