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How to get preapproved for an auto loan and gain negotiation power

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When it comes to vehicle financing, you want to do all you can to be in control of negotiations. One way to have an edge when purchasing a vehicle is to apply for auto loan preapproval. Getting preapproved for a car loan only takes a bit of additional time ahead of car shopping. It ensures that you have a firm idea of what you can spend and the interest rates and terms you’ll likely be offered.    

What is auto loan preapproval? 

Car loan preapproval is the ability to get approved for a loan of a specific amount before purchasing a car. It means that the potential lender has looked at your credit history, application and required documentation and is willing to give you a formal offer. Simply put, it is being approved for an auto loan before having the vehicle to go along with it.  

Prequalification differs from preapproval, though the terms are used interchangeably at times. When you prequalify for a loan, the lender only does a soft credit check, and approval isn’t guaranteed until you submit the full application. Getting preapproved for an auto loan provides you with the added security of having a formal loan offer without the pressure of choosing a vehicle right away.  

How to get preapproved for an auto loan 

You can get preapproved for a car loan by going through online lenders, banks or credit unions. Although the process varies slightly by the lender, the steps are similar. 

Step 1. Organize the necessary documents 

Gather the following documents before you start your search.  

  • Personal information, like your name, Social Security number, driver’s license, contact information and home address. 
  • Income, including your employer, its contact information and your annual income. 
  • The amount you want to finance and the preferred auto loan term. 
  • Information about the age and mileage of the vehicle if you’re buying used. 
  • Trade-in information, if applicable. 

Step 2. Shop around for loan options 

Just as you will shop around for your vehicle, you should compare lenders. Your interest rates are determined by your credit history and a combination of other factors — all of which vary to some degree by lender. Check out Bankrate’s winners for the best auto loans to start your search. 

To get the most favorable rates, fill out applications with multiple lenders. Keep in mind that preapproval applications will temporarily reduce your credit score if they require hard credit inquiry. It’s best to submit all applications within a two-week period so that they only count as a single inquiry.  

Step 3. Submit the preapproval application 

Depending on the lender, the application process will be similar to that of a typical full loan application. It can likely be completed online and will be fairly straightforward.  

Some lenders have requirements regarding credit score or vehicle age and mileage, so look for specifics on lender websites prior to applying.  

Benefits of auto loan preapproval  

There are many benefits to car loan preapproval, including putting you in the driver’s seat when it comes to negotiating the best deal and getting the most competitive interest rates available.  


Dealerships can feel very overwhelming and the car buying process itself can be daunting. Entering this process with an offer in hand gives an added layer of comfort and ease. It also prevents you from having to do math on the side to calculate potential monthly payments. Instead of worrying about finding vehicle financing you can focus on choosing the right vehicle for you and your lifestyle.  

Protection against unnecessary add-ons 

Many times, dealers will push for their own financing or focus on the monthly payments — which can set buyers up with long loan terms and bad interest rates. By coming in with a preapproval you already know that you have a competitive interest rate and a firm number for what you can afford. This can make it much easier to say no to additional add-ons or warranties offered when it comes time to sign paperwork.  

Better grasp on expected cost   

The true cost of vehicle ownership tends to be higher than expected for first-time buyers. Having a solid number for what you can borrow will make it that much easier to budget and keep your expectations grounded when shopping. It is recommended you calculate various potential auto loans in advance so you know the amount you can comfortably borrow.  

Stronger negotiation power 

Although dealership financing can be a good idea for some drivers, preapproval means that you won’t feel pressured to use the salesperson’s suggested financing options. Dealers will also see your commitment to getting a vehicle and will likely be willing to negotiate to get your business. They may even be able to offer a more competitive rate from their network of lenders.  

Next steps  

Although it is a good idea to wait to apply for preapproval until you are serious about purchasing a vehicle, the offer isn’t set in stone. Most lenders will give you time to decide if the loan is right for you. Use your preapproval status as leverage in negotiations to get the best deal and know that you can walk away if your terms aren’t met. 


Written by
Rebecca Betterton
Auto Loans Reporter
Rebecca Betterton is the auto loans reporter for Bankrate. She specializes in assisting readers in navigating the ins and outs of securely borrowing money to purchase a car.
Edited by
Auto loans editor