Get in the Driver's Seat Faster
According to Globe Newswire, the industry has grown from $1.85 trillion in 2022 to $2.08 billion in 2023, with a compound annual growth rate of 12.3%. In other words: the auto loan industry is growing at a pace three times faster than most other industries – and it’s projected to keep that pace up for another five years at least. In the USA, the average monthly new car payment is a whopping $716, up from $480 in 2015.
The auto loan industry, however, can be incredibly confusing. We’re here to help guide you through the process of being pre-approved for a car loan so that you can understand how to get the best bang for your buck.
What is a Pre-Approved Auto Loan?
A pre-approved auto loan lets you know how much car you can afford, how much you’ll have to repay each month and for how long.
This puts you in a much stronger position when it comes to negotiating. Otherwise, if you find a great car that a lot of other potential buyers are interested in, you might not be able to put an offer in on time.
Steps to Getting a Pre-Approved Car Loan
Get Your Paperwork and Identification Sorted
First, there’s a difference between being “prequalified” and “preapproved.” A prequalification letter essentially states that you’ve submitted your information to the lender and, if it’s true, then you can afford the loan that they’re willing to offer you. A pre-approval, on the other hand, means that the lender has already checked your numbers and made sure that they’re accurate.
That means, to be preapproved for a car loan, you’ll likely need:
- US Driver’s License.
- A couple of months of pay stubs.
- Tax returns over the past year.
- Social Security Card.
Check Your Credit Score
A credit score is a three-digit number that lenders use to assess your ability to repay a loan. A lower credit score means that you’re risky; a higher credit score means that you’re less risky.
Having a high credit score, therefore, can greatly impact how expensive of a car you can afford and how expensive your monthly payments will be.
What’s a good credit score for an auto loan? Generally, the following applies:
- Poor: 300-579.
- Fair: 580-669.
- Good: 670-739.
- Very good: 740-799.
- Exceptional: 800-850.
As of this writing, the difference between an exceptional credit score (7% interest rate) and a fair credit score (12% interest rate) is roughly $4,500 throughout the loan.
You can check your credit score by signing up for an account at Experian.
Which Companies Offer the Best Auto Loans?
Bank of America (Best Large Bank Option)
Bank of America is the second largest bank in the country. They offer a variety of services to both individuals and businesses. Consumers can open checking and savings accounts, get debit cards and apply for loans like mortgages and auto loans.
Since they’re a large bank, they’re familiar with all different types of financial situations. If you have low credit, low income or some other type of atypical financial situation, they’ll work with you to see what they can do to get you pre-approved. As of April 2024:
- The starting APR for new cars is 6.25%
- The starting APR for used cars is 6.65%
- Loan terms range from 48 to 72 months.
USAA (Best Option for Veterans and Their Families)
USAA (United Services Automobile Association) is a financial services company specifically designed for those who serve or have served, in the United States military, as well as their families. Unlike traditional banks open to the public, USAA membership is limited to this specific group. However, if you’re a military veteran or you’re related to a military veteran, this is a fantastic option.
USAA has the lowest rates in the nation:
- The starting APR for new cars is 6.09%
- The starting APR for used cars is 6.19%
- Loan terms range from 12 to 48 months.
Alliant Credit Union (Best for Fast Approval)
Alliant Credit Union is a not-for-profit financial cooperative. Membership is open to anyone who meets their eligibility requirements, which often include living or working in a specific geographic area. Alliant offers a variety of financial products similar to banks and that includes auto loans.
Most importantly for those looking to get preapproved for a car loan fast, though, they offer same-day approval.
- The starting APR for new cars is 7.05%.
- The starting APR for used cars is 7.87%.
- Loan terms range from 24 to 84 months.
Learn how to get the right car insurance.