Are you planning to buy your first car? If you’d like to obtain your vehicle through an independent lending firm, there are a few considerations to make when deciding whether to apply for a loan or car financing pre-approval. For example, the status of your credit score will affect whether you’re more likely to qualify for a loan or if car financing is more suited to your circumstances.
Below, we’ll discuss the different qualifiers for car financing vs car loans, how your credit score fits into the equation, and which you are most likely to obtain pre-approval for. Keep reading!
How Car Loan Pre-Approval Works
Applying for a pre-approved car loan is very similar to the process of applying for a mortgage and has several hoops to go through before a driver can secure funding. When you apply for a car loan, the first thing the lender will do is examine your financial status. They’ll look at your current income, your debts, and – you guessed it- your credit score.
Having a base knowledge of your financial health and history will help the lender determine whether offering you a loan will be a high-risk venture. For example, if you have a pile of debt, are regularly behind on your bills and credit card payments, and other financial blunders, the lender may feel you aren’t reliable enough to pay back your loan in a timely manner. Therefore, if your credit score ranks quite low, the lender may recommend that you take time to increase the score before you apply again.
How Car Financing Pre-Approval Works
Car financing pre-approval is a faster process than applying for a loan and is offered directly from car dealerships. With car financing, there is more flexibility regarding down payment terms, which is beneficial for drivers who have little to no funds to spend on a car outright. Unlike a loan, where you are given a full sum of money to be paid back, car financing allows you to pay for the vehicle month-to-month, similar to a rental agreement.
Your credit score plays a smaller role in determining your eligibility for car financing, as the requirements for approval are much lighter. If you have a poor credit score, your application will likely be accepted, but the terms of your loan may be much stricter depending on the lender your dealership works with.
What Is a Better Option for My Credit Score?
Drivers who have a lower credit score may have an easier time securing preapproval for car financing as opposed to a loan. For newer, younger drivers who don’t have the money to pay for a vehicle in full, car financing offers more flexibility. In contrast, in order to secure a loan, drivers need to have the majority of funds upfront, only requiring a certain amount to bridge the gap for the remaining sum.
Unlike a loan, where you claim ownership over your vehicle upfront, those who opt for financing will not own their vehicle until it is fully paid off. You will also pay more interest on a financed vehicle than on a loan. However, if you need a vehicle immediately, financing may be a more practical choice.
Get Preapproved for Car Financing with AutoLoan Hub
Are you hoping to get preapproved for car financing or a loan? Partner with AutoLoan Hub and secure your vehicle with our hassle-free process! Fill out our Get Pre-Approved application portal and we’ll handle all the logistics, from finding you an affordable vehicle to securing funds from a reputable lender.
Visit our How it Works page to learn more.
