If you’re in the market for a new car, getting preapproved for an auto loan is a financially responsible first step. Getting preapproved helps you know exactly how much you can afford. It also simplifies the buying process while empowering you to negotiate without worrying about financing. We can walk you through the benefits of getting preapproved for an auto loan and how to go about getting approved, so you can make the process as smooth as the ride in your future new car.

Why should I get preapproved for an auto loan?

• Know — and commit to — your budget before you start shopping. Getting preapproved for an auto loan helps you set a clear budget for your car purchase. Once you know the maximum amount you’re eligible to borrow, you can focus your search on vehicles within your budget and avoid falling in love with a car beyond your budget limit.
• Have more negotiating power. Being preapproved gives you a negotiating edge, as you can focus on the true “out-the-door price” of the car without the uncertainty of financing looming over the conversation. It also helps you avoid upsells dealers often throw in at the last minute.
• Save time and energy. Car shopping can be exhausting, especially when you combine the two separate aspects of buying a car — what car to purchase and how to pay for it — into one by walking into a dealership without having financing in place. With a preapproved auto loan, you’ll already know your loan terms, interest rates and monthly payments so you can focus solely on finding the perfect car.

What steps should I take to get preapproved?

1. First, check your credit reports and credit scores. Before starting the process, check your current credit scores and get copies of your credit reports. You can often get your credit score for free through your bank or credit card issuer, and you’re entitled to free weekly online copies of your credit report from each of the reporting bureaus (Equifax, Experian and TransUnion) at AnnualCreditReport.com. If there are any errors on your credit report, you may want to get them corrected before applying for preapproval. Once you’ve determined your credit scores, you can check the internet for average car loan interest rates, taking your scores into consideration.
2. Next, start shopping auto loans. Once you’ve gathered your income information (credit score, proof of income, employment verification, and information about your current debts) you can begin shopping for an auto loan. Start with your own bank or credit union, as they may give you a preferred rate, and there are usually no loan fees or early payoff fees. As an example, if you’re a Commerce Bank customer, you can get 0.25% off your interest rate if your payments are automatically deducted from your Commerce checking or savings account.¹
3. Understand the difference between prequalified offers and preapprovals. Lenders only do a “soft credit pull” to get you prequalified, meaning that a prequalified offer is an estimate of car loan terms that you might qualify for based on limited information the lender has about your credit history. The upside is that soft pulls do not lower your credit score. The downside is that, since the lender doesn’t have your detailed credit history, the terms you are provided may change if the lender finds unfavorable information when they move to your preapproval. Preapprovals require a “hard credit pull” that may temporarily lower your credit score, so you want to be thoughtful about both when and how often you initiate a preapproval, as outlined in section 4.
4. Get preapproved for your auto loan. Once you’ve narrowed your search down to a handful of lenders, you can begin to get offers with interest rate quotes for comparison purposes. Don’t hesitate to let lenders know you’re shopping for rates. Lenders may use criteria from your credit report differently, so know that the offers may end up varying dramatically. Make sure to complete all loan applications within ten business days of each other, because multiple credit inquiries close together typically count as one inquiry, lessening the potential impact on your credit scores.
5. Know your terms, rate and any fine print. Make sure you understand the terms and conditions of the preapproval, including the interest rate, loan duration and any potential fees, as well as how long the preapproval is good for. Also double-check any fine print before you head out to the dealer: some lenders include requirements and stipulations, like not financing discontinued models or cars from certain manufacturers.
6. Start shopping — within your budget! Once you’re preapproved, you’ll know exactly how much you can borrow and what your budget is. It’s time to start shopping! As you begin to narrow down your favorites, don’t forget to consider insurance, as some vehicles are much more expensive to insure than others, as well as costs like maintenance and fuel. And remember: while it's tempting to go for the dream car, be realistic about your budget. The preapproval amount is the maximum you can borrow, not necessarily the amount you should borrow.

It’s time to get preapproved and hit the road.

Getting preapproved for an auto loan is a smart first step in your car-buying journey. It not only provides clarity on your budget but also gives you the upper hand when negotiating with dealers. So buckle up and enjoy the ride, knowing that your preapproved auto loan will pave the road to a smoother, easier car-buying experience.

Interested in getting preapproved with Commerce?

We look forward to helping you! You can finalize financing as soon as today. Apply online, over the phone or at your favorite local branch.