What is pre-qualifying?

When you pre-qualify for a loan, you will receive a likely chance that you will be approved for a loan. This is different from being pre-approved for a loan where you will be guaranteed a loan. Why choose pre-qualified over being pre-approved? First, with pre-qualifying, you can get a quicker answer which allows you to start shopping right away. Also, pre-qualifying only requires a soft-pull of your credit which will not adversely affect your overall credit score.

How do you pre-qualify?

Before you take a look at the benefits of pre-qualifying, you should understand how you can go about getting pre-qualified for a car loan. Here's a quick overview of how you can get pre-qualified today:

1). Shop different lenders

The first thing that you will want to do is shop at different lenders. Since you will not have to deal with a hard credit pull, you can apply at a number of lenders and see who is likely going to give your the best loan terms.

2). Check interest rates

While shopping for lenders, you will want to check out the interest rates that each one offers. You will find that the more lenders you look at the more variance in the interest rates. Ideally, you will want to use the lender that will provide you with the best interest rate.

3). Provide the required information

Finally, you will want to make sure that you provide the lender with all the information that they will need to pre-qualify you for an auto loan. Typically, the lender will want the following information:

• Income - You can use your 1099 or W-2 for the last two or three years to show how much income you have earned.
• Employment information - You will also have to show your source of income. If you are self-employed, then you should have the proper documentation to show where you receive your income.
• Identity - In most cases, providing your government-issued ID and social security number should be enough to prove your identity.
• Current debt obligations - Finally, a lender will want to check your current debt obligations. This will include any mortgage loans, student loans, and any outstanding credit card balances.

Some lenders may require more information. However, these four listed items are typically what you will need when applying with most lenders.

Benefits of pre-qualifying

Now, let us take a look at the benefits of pre-qualifying for an auto loan. Typically, there are five big benefits to getting pre-qualified before shopping for a vehicle:

1). You have better-negotiating power

When you are pre-qualified, you will have better-negotiating power with the dealership. That's because dealerships will get lots of browsers with only a few serious buyers. Salespeople usually spend a good amount of time trying to determine if the person is serious about a vehicle purchase. If you show that you are pre-qualified, then the salesperson knows that you are serious. Therefore, the salesperson and the manager are going to give you a better offer in order to secure the purchase during the initial visit.

2). Know how much you can afford

One of the biggest mistakes that people make is buying more vehicle than they can afford. Of course, you don't want to get stuck with a vehicle that becomes a burden. That's why it is important to get pre-qualified. When you have a lender look over your debt and your income, they can give you a pretty good idea of how much vehicle can fit comfortably in your budget. This will give you a better idea of what type of vehicle is going to be right for you. Also, you will be able to better narrow down your choices when you go car shopping.

3). You can better compare interest rates and get the best rate

One of the biggest things that can determine how much you pay for a vehicle is the interest rate. In fact, a 1% difference in the interest rate can potentially add thousands of dollars to the cost of a vehicle. Therefore, you will want to pre-qualify, so you can get a chance to secure a low-interest rate. Typically, when you pre-qualify for a loan, you will be able to get the best interest rate based on your income and your debt. This interest rate is typically good for a couple of weeks while you shop for your vehicle.

4). Protects you from dealership mark-ups

You want to make sure that you get the best deal for your vehicle. That means not having to deal with dealership mark-ups that can occur during the financing part of the deal. When you show up pre-qualified, you don't have to deal with potential dealership mark-ups in the financing offers. This can potentially save you thousands of dollars on your deal.

5). Makes the overall purchasing experience easier

Finally, when you are pre-qualified, you don't have to worry about how much vehicle you can afford and whether you can receive financing. You will know what your budget is, and you can simply walk;k into the dealership and consider the vehicles that are within your budget. This will not only save your time, but you will also feel much more comfortable during the entire purchasing experience.

Get pre-qualified for your next vehicle purchase

If you are looking for a simpler way to shop for your vehicle, then be sure to pre-qualify for your loan. Be sure to shop around for the best interest rates and have all the information you need for the lender.