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What is car loan pre-approval and what can it do for you?

What is car loan pre-approval and what can it do for you?

You will often see pre-approval used with car loans. It is just one of the many terms you need to become familiar with if you are to fully understand the loan process. As Car Nation Canada likes every customer to know exactly what they are getting into before making a decision, let’s cover pre-approval and what it can do for you.

What is loan pre-approval?

Pre-approval is a loan in principle. A way of seeing how much a lender would be willing to give you if everything you told them is true. It’s a dry run if you like. You tell the lender all about your finances and the lender will offer a loan in principle, or pre-approval.

Pre-approval is not guaranteed. It is a sign of intent from a lender that says if everything you put on the application form is true and nothing changes, the lender is very likely to provide a loan of the stated size and rate.

You should know that pre-approval results in a hard inquiry on your credit report. If you’re shopping around for a loan, make sure you only apply for one or two loans at most.

How does loan pre-approval benefit car buyers?

Car loan pre-approvals have a lot of benefits. For one, they show you exactly how much you can borrow given your current circumstances. This is an important psychological tool to help manage your expectations. Knowing that you can afford a specific level of car should prevent you test driving and falling in love with something you simply couldn’t afford.

Getting pre-approved for a loan is a gesture of intent. It demonstrates to the dealership that you can pay for the car you’re interested in and shows that you are creditworthy. It’s a small thing but means you will often be treated much more seriously by a sales person!

Bargaining with pre-approval

Pre-approval also gives you bargaining power. It essentially turns you into a cash buyer. You have a source of funds to buy a car already and can then work on getting discounts, upgrades or other goodies to sweeten the deal.

It also shows you how competitive the dealership is. If you already know how much you can borrow and at what interest rate, you can compare what the dealership offers in much more detail. You will know how much they have marked up your offer and use your pre-approval to get a better rate.

Whether you go for pre-approval or not, there are distinct benefits to it. Either way, rest assured that Car Nation Canada will always treat you fairly and always offer the very best rate we can. It’s all part of the service!

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