Whether you have good credit or bad credit, getting pre-approved for an auto loan can be very useful when you’re looking to buy a car. Although most car dealerships prefer to use their own lending partners, getting a pre-approved loan from your bank or credit union allows you to get better leverage when negotiating, and can often help you secure a better rate on your vehicle.
But getting pre-approved can be a bit confusing – so we’ve put together this step-by-step guide to help you through the process.
1. Check Your Credit Score
Your credit score is a big deal when it comes to applying for an auto loan. Because of this, you should definitely know your credit score – whether it’s good or bad. If you haven’t applied for your yearly free Canadian credit report from TransUnion or Equifax, you should do so before you start shopping around for an auto loan.
If your credit is good, you’ll be able to get a great rate on an auto loan. And if your credit is not-so-great, you’ll at least understand why, and you’ll be able to understand what sort of lenders and interest rates you will be working with when you set a budget. Speaking of which…
2. Do Some Research On Lenders And Their Rates
Now that you have your credit score, you’ll be able to do some basic research on the rates you can expect from a bank, credit union, or other lending institution.
If you plan on using your bank, check out their website, or call them to ask about their current auto lending rates. You can also contact other banks and credit unions in the area, to see if they may offer better rates.
If you have excellent credit, you can probably expect interest rates of 4-6%. If you have bad credit (A FICO score of 620 or lower) you’ll probably be paying up to 15% APR on your auto loan. This is why it’s important to understand your credit score before shopping around for an auto loan – you’ll have a better idea of what kind of rates to expect.
3. Decide On A Reasonable Budget
Now that you’ve got a couple of prospective lenders and a good idea of the interest rates you can expect to pay, it’s time to sit down with your finances and form a reasonable budget for your car purchase.
As a rule of thumb, you don’t want to spend more than 25% of your monthly take-home pay on transportation expenses. This includes fuel, car insurance, and loan payments. To calculate what you can spend on a car, you should use a tool like the CIBC auto loan calculator. You can check rates and total costs of different loan repayment terms and interest rates, and determine how much you can spend on your auto loan.
4. Prepare Your Personal Documents
Before you go to a bank to apply for loan pre-approval, you’ll want to get your documents in order. The bank is going to have to perform some credit checks and background checks before they approve your loan, and they’ll want proof that you’re employed, among other things. Here’s a list of information you should bring to a bank when applying for loan pre-approval.
- Social Identification Card (SIN)
- Proof of current address
- Employment histories
- Proof of employment
- Proof of income (bank deposit statements, pay stubs, etc)
- Financial information about current debts
Most banks and credit unions in Canada will require some combination of these items. They’ll also perform their own credit check during the process, so don’t worry about bringing in your credit report.
Proof of income and employment are especially important if you have bad credit. If you can’t prove that you’re employed and making the income that you claim, you’re unlikely to be approved for a loan.
5. Shop Around For A Good Deal – But Do It Quickly
You know what interest rates to expect, how much you can spend, and you have all the information you need to get pre-approved. It’s time to start shopping around. Head to your top 2 or 3 lending institutions, and discuss your pre-approval options with a lending professional.
You should discuss loan amounts, repayment terms, and interest rates. If you’ve gotten a better offer from another institution, let them know – they may try to beat it.
After visiting all of your prospective lenders, it will probably be quite easy to pick the best lender. Choose that lender, and apply for auto loan pre-approval!
NOTE: If you plan on applying for multiple preapprovals, do so within a 14-day window. Credit checks and inquiries can have a slight negative impact on your credit score. However, any credit inquiry performed within a 14-day window will be lumped together, and treated as a single inquiry. This means that you should shop around quickly, to avoid impacting your credit score.
6. Get Approved – And Get To The Dealer!
Usually, the pre-approval process takes about 24 hours, and your pre-approval is usually valid for 60 days, though there are some exceptions.
If you’ve already decided on the car you’re interested in, head over to the dealership! Since you’re already pre-approved, you’ll have an easy time shopping, and you’ll be able to negotiate a better deal on your loan.
If you haven’t picked out a car, now is the time to start shopping around! Your pre-approval guarantees that you’ll be able to get a good deal on a great car, so find the perfect vehicle, and shop with confidence!
Got Bad Credit? Need A Used Car Without Pre-Approval? Come To Ride Time!
Pre-approval is a great way to get a better rate on a car if you have bad credit – but if you come to Ride Time, you don’t even need to get pre-approved!
Ride Time is a used car dealership located in Winnipeg, and we serve the entire country of Canada. We specialize in selling fantastic used cars – especially to Canadians with bad credit.
If you can give us proof of 3 months’ employment, make at least $1,500 a month before deductions, and have a valid Canadian driver’s licence, our network of specialized lenders can help you get a loan – even if you’re not pre-approved.
So whether you’re pre-approved for a loan or not, come on down to Ride Time, or take a look at our stock of vehicles online – we can deliver our cars anywhere in Canada!