Walking into a dealership with a pre-approved car loan not only helps you know your budget, but it gives you bargaining power to get the best rate. Banks, credit unions and online lenders can offer car loan pre-approval.
What does pre-approval mean on a car loan?
Car loan pre-approval is a way for lenders to assess your eligibility and estimate the type of loan, amount and interest rate that you’re likely to be approved for. Pre-approval typically happens before you submit a full financing application where the lender looks at all of your finances, like income and full credit history, to give you a loan offer.
Why would I get pre-approved a car loan?
Getting pre-approved for a car loan before starting car shopping can help you in a number of important ways.
Firstly, it can help you know exactly how much financing you can qualify for. That way you’ll know the maximum amount you can afford to spend on a car before you start shopping, which can help you avoid wasting time on cars you can’t afford.
That said, one of the biggest advantages to getting car loan pre-approval is the negotiating power it gives you with other lenders. You can use your pre-approval to benchmark other financing offers, and if necessary, negotiate better loan terms – potentially getting a lower interest rate, for example.
How to get pre-approved for a car loan in Canada
Find out your credit score.
Knowing your credit score will give you an idea of what you qualify for. You can get a free copy of your credit report from Canada’s credit bureaus, Equifax or Transunion.
Compare car loan lenders.
Check the interest rates, loan amounts, loan terms and eligibility requirements of the lender. You can easily compare lenders here. Since some lenders will run a hard credit check when you apply, only apply for loans you’re eligible for.
Apply for car loan pre-approval.
The information lenders require will vary, but generally, you’ll need to provide your name, address, date of birth and employment details.
Review and submit.
Make sure details on your car loan pre-approval application are correct because errors could result in a rejection. Once you submit your application, wait for a team member to contact you.
Get pre-approval.
The team member will discuss rates and terms with you.
Compare lenders that offer pre-approved car loans
1 - 5 of 5
Where can I get car loan pre-approval in Canada?
People often turn to online lenders, like the ones listed here, to get pre-approved on a car loan. That’s typically because many online lenders offer pre-approval with very quick applications and fast approval times.
Alternatively, you may be able to get pre-approval from a bank or credit union. If you’re already a customer, the application process may be easy if the bank or credit union can reference the personal information they have on file. However, these institutions will be less likely to approve borrowers with low credit scores, and may also do a hard credit check during the pre-approval process.
Does car loan pre-approval mean I’m guaranteed a car loan?
No, pre-approval does not mean you’re guaranteed the car loan. If you wish to proceed with a car loan, the lender will ask for supporting documents, like pay stubs and government-issued ID, to verify your information and do an in-depth review of your finances. This includes a hard credit check. The lender will also need to verify the car’s worth with the dealership.
Once the loan officer or underwriter is satisfied with all of the information, the loan can be unconditionally approved. Basically, even with a pre-approval on hand there are still some hoops for you to jump through!
How long does it take to get pre-approved for a car loan?
You can expect pre-approval turnaround times that are as quick as minutes up to 1 business day, depending on the lender you’re working with.
With online lenders, you can get pre-approved car loans online by filling in their applications within minutes and receiving a decision almost instantly with a list of loan offers from various lenders. In other cases, a lender may need to contact you for more information before making a decision.
If you’re working with your bank, which already has access to your financial information, including your salary and assets, the process may be more streamlined.
Does car loan pre-approval affect my credit score?
It depends. Most of the time, lenders are able to pre-approve potential applications via a “soft pull” on your credit information, which does not affect your credit score. However, if you end up getting pre-approvals from multiple car loan lenders who do hard credit pulls, your credit score could temporarily go down.
That said, most credit bureaus spot “rate shopping,” where they consider multiple applications for the same type of loan as one. They group these similar credit pulls together especially if they are done within a space of 2 weeks up to a month, so your score may not decrease significantly.
What happens after I get pre-approved for a car loan?
After you get pre-approved for a car loan, most lenders allow you to shop around for around 30 days to find the right car. Some might offer pre-approval for as long as 60 days. Either way, you have a window of time to work with while your pre-approval still stands. If you don’t make a decision during that time frame you can apply for another car loan pre-approval. Ideally, your financial situation hasn’t changed much since then so it’s a smooth process.
Why would I be denied a car loan after pre-approval?
The most common reason you may be rejected for a car loan after getting pre-approved is that your financial circumstances have dramatically changed since you applied for pre-approval, such as:
A loss of income
Drop in credit score
Increased debt load
Filing for bankruptcy
Another reason you may be rejected for financing after getting pre-approved for a car loan is if the lender finds a discrepancy between your supporting documents and the information you submitted on your application.
Another instance where this may happen is if you’re dealing with a car loan scam, commonly called a “yo-yo scam”. With these scams, a dealer leads you to believe you’ve been approved for financing, then tells you you’ve been denied and then comes back with less favourable loan offer. To avoid this altogether, do your research and only work with reputable lenders.
Am I eligible for car loan pre-approval?
While specific eligibility requirements will depend on the lenders you reach out to, most lenders will be willing to assess you for pre-approval as long as you meet some basic qualifications. To get a loan, you have to be at least 18 years old and a permanent resident or Canadian citizen. You also have to have a steady, paying job and be able to afford your loan repayments.
What credit score do you need to get pre-approved for a car loan?
It’ll be easiest to get pre-approval for a car loan with a good to excellent credit score from 660 to 760 or higher. A credit score above 660 is typically considered “good” for car loans. If you have a lower credit score there are many lenders who offer pre-approval to bad credit borrowers. Read our full guide to bad credit car loans to learn more.
When should I apply for car loan pre-approval?
Ultimately, it’s up to you and depends on your situation. You might want to get pre-approved if some of the following applies to you:
You’re new to lending. Getting pre-approved can give you an idea of what type of loan you can actually get without the commitment.
You want to stick to a budget. A pre-approval is a great way to know how much you can borrow and to stick within those parameters. You’ll know which cars are out of reach and you can narrow your search accordingly.
You want to negotiate. Going to a lender with a pre-approved rate in hand is key to making a solid case for yourself.
You aren’t set on a dealership. Having a pre-approved car loan effectively makes you a cash buyer. If you don’t like what the dealer is offering, you can move on to the next.
You want to save time. You’re one step ahead of the game if you’re armed with a pre-approval. You can save yourself the time going through a dealership’s finance office to figure out an ideal loan if you already have a pre-approved loan in hand.
You want to focus on car shopping. With the financing out of the way, you can zero in on finding the best car for your needs. Instead of running the numbers in your head, you’ll know how much you can afford.
You want to buy a car within 30 to 60 days. Pre-approval is only valid for a certain period of time, so apply when you’re ready to buy a car.
Can I get a pre-approval on a car loan with bad credit?
Yes, you can. While it’s pretty easy to obtain a pre-approval with a great credit score and a down payment in hand, people in bad credit situations can get pre-approved for a car loan too. In fact, there are online lenders that specialize in providing car financing for any type of credit situation, including no credit, poor credit and bankruptcy. You can apply online just as you would if you had good credit and you can receive your decision on a pre-approval within minutes.
What are the advantages of pre-approved car loans?
If you’re on the fence about taking the initiative and getting pre-approved for a car loan, there are some benefits worth taking stock of:
Confidence in your financial situation. Because the lender assessed your finances and gave you the green light to purchase a vehicle, you don’t have to stress about securing financing.
Bargaining power. Knowing how much you can spend gives you the upper hand when negotiating a price at the car dealership because you can use the money you conditionally have to convince the dealer to give you a good price. For example, if your pre-approval is for 11% APR, offer the salesperson 8%. If they come back with 9%, you’ve scored a better deal for yourself.
Receive a lower interest rate. If the pre-approved loan came with an interest rate, you can haggle with the dealership to see if they can offer you a more competitive in-house financing deal — let them make the first offer. If they want your business, they might work to one-up the offer you got from the outside lender. Learn more about car loan interest rates.
Increases loan options. Because you’ll already have a loan, you won’t be stuck with whatever financing package you’re offered. Pre-approval can protect against dealership markups.
Avoid up-sales. Pre-approval gives you a specific amount you have to spend. When the salesperson tries to upsell you with GAP insurance or an extended warranty, you’ll know if you can afford it.
Is there a difference between getting pre-approved for new and used cars?
There isn’t a striking difference between pre-approvals for new and used cars. The major disparity is the amount you may be asking to borrow because new cars will come with a bigger price tag. In this instance, it may be easier to get pre-approved for a used car compared to a new one since you can ask for a smaller loan.
Car loan pre-qualifying vs. pre-approval vs. conditional approval
Pre-qualifying, pre-approval and conditional car loan approval are a few terms commonly used by lenders to describe qualifying for auto financing, and can be easy to confuse. Some people use these terms interchangeably, while other lenders only use one term to refer to all of them.
Still, these car loan terms are technically not the same. Here’s are some things to keep in mind when you come across these different terms.
Pre-qualifying
Pre-approval
Conditional approval
How does it work?
Gives you an estimate of what you might qualify for based on basic eligibility requirements.
Helps you know what you’re likely to be approved for before an in-depth look at your finances.
After submitting a full application, the lender will give you a car loan as long as certain conditions are met.
Guaranteed financing?
No
No
Yes, given the conditions are met
Affects credit score?
No
Not typically
Possibly, yes
Can be used to negotiate with other lenders?
No
Yes
Yes
What to do if you can’t get car loan pre-approval
If you’re having trouble getting pre-approved for a car loan, don’t fret. You can turn your situation around by taking on these measures:
Improve your credit
A major reason why lenders may be turning down your pre-approval request is your credit history. If you have a history of making late payments, missing payments altogether or maxing out your credit card, your credit score may reflect these mistakes. Take your time to rebuild your credit, pay off your debts as much as you can and make sure you’re staying on top of all your debt repayments. Within 6 months’ time, your credit score should see a boost from all of your efforts.
Look into getting a cosigner
Another way to successfully get pre-approved is to ask a family member or close friend to cosign on your loan and act as a guarantor. The catch? If you default on payments, your guarantor will have to pick up on your loan, so make sure they are aware of what they are committing to. Both of your credit scores will take a hit if you default on your loan.
5 tips to get a good deal when buying a car
Beyond getting pre-approved for a car loan, there are other things you can do to get a good deal on your car loan. Here are a few tips to keep in mind before buying a car:
Research your car. The make. The model. The year. The colour. How much it will cost to insure. Also take gas efficiency costs into consideration because that will be your next biggest expense after your car loan repayments.
Check your financial standing. Car loans are a serious financial commitment. Be sure that a loan is something that you can realistically fit into your budget. You don’t want to be in a situation where you can’t keep up with your payments and your credit score takes a hit.
Test drive your car. Taking the car for a test drive helps you determine if there are any issues.
Take the car to a mechanic. Even if it costs a little extra, having a mechanic eyeball your car for any problems under the hood could save you a boatload of money down the line.
Shop around. Your next car may be available from several dealers — it would be good to shop around and find out which dealership is offering the most competitive deal for your preferred vehicle.
Bottom line
When you’re searching for a pre-approved car loan, keep in mind that not all loans offer pre-approval as an option. If you want the security of knowing what your car budget is and what you can approach a dealer with in order to negotiate, it’s important to know exactly which lenders will pre-determine this information for you.
Frequently asked questions about pre-approved car loans
Pre-approved car loans can technically be used to buy your car anywhere, including from dealerships, private sales or at auctions. That said, a lender may have restrictions around the cars or sellers it's willing to finance. Check with your pre-approval lender to see if they have any rules about where you can buy a car.
Each lender will have a set period of time for how long your pre-approval stays in place. While this varies, it is usually around 30 days.
Yes, pre-approval can affect car loan interest rates in two ways: It allows you to learn what rate you can qualify for and gives you a tool to help negotiate a lower rate with a lender.
For example, say you were pre-approved for 11% APR. You can walk into a dealership and offer the salesperson 8%. They might come back with 9% or 10%.
Pre-approval isn't a commitment, so if the dealership can give you a lower rate, take it. If you can't get a better deal, you can walk away, find another dealership that can, or stick with the original loan.
When buying a new or used car with a loan, you'll need to pay sales tax on the vehicle's sticker price. You also have to pay for any costs or fees surrounding the loan, licensing and registration and insurance so that you can legally drive.
You should choose a car based on the features you want and then pick one that's in your budget. There are benefits and drawbacks to both new and used car purchases. For instance, used cars can be a bargain but can come with unknown mechanical problems, while new cars come with a factory warranty but depreciate very quickly after you buy them.
Carmen Chai is a freelance writer at Finder, specializing in financial products. She is an award-winning Canadian journalist who has lived and reported from major cities such as Vancouver, Toronto, London and Paris. She has reported on personal finance, mortgages, and banking products for nearly a decade.
Who is currently offering zero percent financing on cars in Canada? See offers from popular car brands in Ontario, BC, Alberta and more.
Feedback
How likely would you be to recommend finder to a friend or colleague?
0
1
2
3
4
5
6
7
8
9
10
Very UnlikelyExtremely Likely
Required
Thank you for your feedback.
Our goal is to create the best possible product, and your thoughts, ideas and suggestions play a major role in helping us identify opportunities to improve.
Advertiser Disclosure
finder.com is an independent comparison platform and information service that aims to provide you with the tools you need to make better decisions. While we are independent, the offers that appear on this site are from companies from which finder.com receives compensation. We may receive compensation from our partners for placement of their products or services. We may also receive compensation if you click on certain links posted on our site. While compensation arrangements may affect the order, position or placement of product information, it doesn't influence our assessment of those products. Please don't interpret the order in which products appear on our Site as any endorsement or recommendation from us. finder.com compares a wide range of products, providers and services but we don't provide information on all available products, providers or services. Please appreciate that there may be other options available to you than the products, providers or services covered by our service.
We update our data regularly, but information can change between updates. Confirm details with the provider you're interested in before making a decision.
