Buying a new car is one of the most exciting experiences you can have. However, it is important to organize yourself financially before taking that step. It doesn’t matter whether you have enough money or not, there are a number of lenders who are always willing to finance your car purchase.
But before you start the loan application process, it is advisable to apply for prequalification so that you understand what you are getting into.
What is prequalification?
Prequalification is important because it can give you a clue whether you will be approved or not. Besides, prequalification can also give you a rough estimate of rates that you are likely to receive when looking for a car.
For example, if you want to purchase a new car but don’t have adequate funds, then you can easily finance it with a loan. The good thing with prequalification is that it can offer a clue with regard to the approval odds. It is good to work with a lender during the prequalification process as this can help you build a long-lasting relationship.
Benefits of prequalifying for an auto loan
There are many advantages of prequalifying for an auto loan. Below are some of these benefits:
1. It helps you know if your credit is perfect for a car loan
It would be unfortunate to go purchase a new car only to be turned down because of your poor credit scores. But getting prequalified offers you a hint as to whether your loan application will be approved or not. This will give you the confidence to go ahead with the loan application or an opportunity to start repairing your credit score.
2. It helps you budget in advance
Similar to being turned down by a lender, selecting a dream car that’s beyond your financial capability can be frustrating. But when you know how much you can borrow, you are able to select a car that is more affordable to you.
3. Helps you avoid dealership financing
As long as you have identified your preferred car and negotiated on the price, then you don’t need a dealership to approve anything. Besides, going through a dealership can cost you more compared to approaching the lender by yourself.
Is there a difference between prequalification and preapproval?
Both preapproval and prequalification can offer you a hint with regards to the terms of the loan and whether the loan will be approved by the lender. Technically, prequalification means that the lender will be more lenient as opposed to pre approval.
What information you’ll need to apply for prequalification
Lenders usually ask for your personal information when carrying out prequalification and preapproval. Some of the personal information that you will be asked for include employment information, income, current debt obligations, and identity.
What to watch out for with loan prequalification
Always keep an eye on the terms of the loan before signing the loan agreement. Some of the things you should watch out for include interest rate, loan amount, monthly payment, and loan term.
According to Lantern by SoFi, refinancing your car loan can “lower your car loan payments and free up some cash”. In general, there’s a lot of information that you should know on how to refinance a car loan. This information is crucial for anyone who intends to take a car loan in the near future.