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Auto Loan

7 Reasons to Get a Preapproved Car Loan Before You Go to the Dealership

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It may not have been previewed, commissioned or otherwise endorsed by any of our network partners.

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A preapproved car loan could prevent a dealership from overcharging you. It isn’t hard to get preapproved for a car loan — it simply means a lender reviews your credit and tells you how much you may borrow and what interest rate you could expect. An auto loan preapproval may seem like an extra step, but it will actually expedite your car-buying journey.

7 advantages of getting preapproved for a car loan

1. Knowing your budget

When you apply for a preapproved auto loan, you’ll typically list the amount you want to borrow along with personal information, such as income, the name of your employer and housing costs. If your bank, credit union or online lender approves you for that amount, you’ll start your car shopping knowing the total amount you can borrow, what your maximum monthly car payment would be and the price range you should be seeking.

Shop below your preapproval amount

Just because you can borrow up to a certain amount doesn’t mean you should. Aim for a vehicle priced 8%-10% below your preapproval amount to account for taxes and fees. There’s wiggle room here if you plan to make a down payment that would effectively cover those costs.

2. No more markups

Many car shoppers skip the preapproval step and go straight to the dealership to arrange financing. But dealerships can and often do raise customers’ loan rates beyond what the lender charges, taking the difference as profit. A 1%-2% APR increase can send hundreds or thousands of dollars from your pocket into the dealer’s wallet. An auto loan preapproval cuts out the middleman, giving you a huge advantage.

3. A stronger negotiating position

One of the biggest mistakes people make when buying a car is focusing on the monthly car payment. By getting an auto loan preapproval and knowing your total possible loan amount, you’re set up to focus on total price instead. That makes it harder for the salesperson to pad the deal with extras you might not even want. The dealer may even lower the car price to meet your budget.

Negotiate for a lower APR

In addition to negotiating a lower car price, leverage your car preapproval for a lower APR. Dealerships may be able to beat your preapproved rate, especially if they want to keep your business.

4. Protection from add-ons

Extras like rustproofing and window tinting are easier to slip into your car loan if you’re only focused on the monthly car payment. You might not notice a $5 increase in your monthly payment, but you’d probably raise an eyebrow if the total cost jumped by $900. If the dealer wants to upsell you, they’ll have to explain why the total price has changed.

5. Freedom to find another dealer

With an auto loan preapproval, you can act as a cash buyer. Rather than being tied to the one dealership where you did a credit application with its particular lender partners, you can comfortably check out multiple dealerships if you want. An auto loan preapproval is portable.

6. Save time

No one likes to spend time at a dealership, but car buying can take the entire day if you’re not prepared. When you have an auto loan preapproval, you can cut to the chase — you already know your price range, down payment amount, maximum monthly payment, lender and APR. By doing what is arguably the most difficult part of car buying ahead of time, you should be able to cut down on time in the sharkpool.

7. Less stress

Having a preapproved car loan lessens the stress of making a major purchase. You know what you qualify for and won’t be fooled into paying a higher price or APR than you deserve.

How do preapproved car loans work?

When a lender preapproves your auto loan, it means the lender agrees to finance a car for you up to a certain amount, at a certain APR for a specific time.

Preapproval vs. prequalification

A prequalification is a soft offer in which most lenders do not pull your credit. This means your actual loan offer might be very different, because lenders will perform a hard pull on your credit and get a fuller picture of your credit history once you fill out the full loan application.

A preapproval, on the other hand, is a firm offer by a lender. The offer will include a loan term, APR, the maximum amount to be borrowed and an estimated payment. Some lenders require that you choose a specific car for the preapproval, but you could change the vehicle after you test-drive and decide on the car you want.

Preapproved Car Loan

How to get preapproved for a car loan: 5 steps

Step 1: Figure out how much you want to borrow

You probably don’t need to know the exact car you want to buy, but it helps if you’ve got a figure in mind for how much money you want to borrow from the bank, credit union or online lender.

Step 2: Gather documentation

The preapproval application may ask for:

  • Personal details, such as address, date of birth and Social Security number
  • Employment information, including where you work and how much you make each month
  • A basic idea of the vehicle you want (i.e. new or used)
  • Loan information, including how much you want to borrow and for how long
  • Your assets and debts, such as how much you have in your checking and savings accounts, or the value of your stocks, bonds and debts

Step 3: Fill out the application

Visit the lender’s website or go to a bank or credit union branch in person. You can request a preapproval from multiple lenders, which is a smart way to get the best deal possible. Some lenders, such as LightStream, even have a program where they’ll agree to beat any competitor’s rate you can find that’s lower than theirs.

Step 4: Shop with your preapproval

If you are preapproved, the lender will tell you how much financing you qualify for, your loan APR and term. The preapproval offer is likely good only for a certain time, typically 30-60 days, so it’s time to get shopping.

If the dealership beats your preapproval offer with a lower rate, or you change your mind about that particular lender or decide not to buy a car, you’re under no obligation to use the preapproval; simply let it lapse.

Here’s what else you’ll need to bring when buying a vehicle.

Step 5: Use your preapproval

If and when you use your preapproval, contact the lender and supply it with the information it needs about the exact car you purchased: year, make, model, mileage and VIN.

The lender will guide you through finalizing the loan.

Where to find a preapproved auto loan

Many lenders offer preapprovals for auto loans, including most of those on our list of best auto loans. Start with your current bank, but check with the competition, too — some of the lowest rates can be found at credit unions and online lenders.

It won’t hurt your credit to apply to multiple lenders any more than it does to apply to one, as long as you do so within a 14-day window. Some credit-scoring models allow up to 45 days. It’s smart to apply to a few places so you can compare offers. Don’t just fill out one application and think that’s the best you can get.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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Auto Loan, Reviews

Capital One Auto Loan Review

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It may not have been previewed, commissioned or otherwise endorsed by any of our network partners.

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A Capital One auto loan could be good for car buyers seeking to prequalify for an auto loan on a new or used car from a dealership. If you’re going into the dealership without first shopping around for an auto loan, then you may be leaving money on the table. That’s because the dealership may not offer your best rate.

However, Capital One Auto Finance won’t be a good fit for those interested in buying a car from a private seller or even a wider selection of dealerships than those on the Capital One network.

What is Capital One?

Capital One is the eighth largest bank in the U.S. by assets. It offers personal banking products including deposit accounts, credit cards and loans, as well as small business and commercial banking products. Its auto financing arm provides loans for new and used vehicles as well as refinance loans. You could even search for cars near your location through Capital One’s website, apply for prequalification and finish up the paperwork at the dealer.

Capital One auto loan details

Capital One Auto Loan Rates and Terms
New and UsedRefinance

Starting APR

3.39%

4.07%

Terms

36-84 months

24-72 months

Amounts

Starting at $4,000

$4,000-$40,000

Fees

No application fee or early payoff penalty

Vehicle Restrictions

10 years old or newer with fewer than 120,000 miles

7 years old or newer and not currently financed through Capital One

Do you qualify for a Capital One auto loan?

The rate you receive depends on the vehicle, your loan term and amount, credit history and loan-to-value ratio. Capital One considers a wide range of credit scores. If you’re looking to refinance your car loan with Capital One, you will need to be up to date on your current car payment and if applicable, your mortgage loan. Your current auto lender must be insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Association (NCUA).

Capital One Auto Navigator

Rather than speculate on whether you could be approved for an auto loan, you could prequalify online with the Capital One Auto Navigator program. You could also apply for a Capital One auto loan at one of its participating 12,000 dealership partners – search the directory here.

No matter how you apply, you will need to meet the following criteria:

  • Be 18 years or older.
  • Have a valid address in 48 states, excluding Alaska and Hawaii.
  • Earn a minimum monthly income of $1,500 to $1,800, depending on your credit qualifications.

How it works

One of the advantages of using the Auto Navigator program is that it has no impact on your credit score. Keep in mind that a prequalification is different from a preapproved car loan — your final rates and terms could change, depending on your full credit application.

1. Apply at Capital One Auto Navigator

On the online form, you will need to supply:

  • Personal information: Name, email, phone number and Social Security number.
  • Residential information: Address, duration at current address, whether you rent or own and monthly house expenses.
  • Employment information: Employer, length of employment and gross annual income.

You may be asked to upload proof of your residence or employment such as a copy of a utility bill or pay stubs.

2. Find a car on the Auto Navigator site

Capital One only finances vehicles from partner dealerships. But it partners with about 12,000 dealerships, so it shouldn’t be hard to find one near you.

3. Visit the dealer

Take your prequalification offer with you and test-drive the car or cars that attracted you to see if they’re up to snuff. Here’s our advice on how to negotiate car prices.

4. Finalize the application

The dealer will finalize your Capital One auto loan application with the price you negotiated on your car, the price you got on your trade-in (if applicable), any add-ons you want and all appropriate taxes and fees.

Pros and cons of Capital One Auto Finance

A prequalification that doesn’t involve a hard credit pull is a nice perk, but that prequalification offer is only good at participating dealers. You’ll have to look elsewhere for financing if you’re searching for a private party auto loan. Here are other areas where Capital One auto loans stand out or fall short.

Capital One auto loan pros

  • Easy prequalification. Prequalification can be done online and doesn’t affect your credit score.
  • Rates. Capital One offers competitive rates, but be sure to get multiple loan offers to compare.
  • Terms. Capital One offers a wide range of terms to fit your needs.
  • Fees. Capital One does not charge any fees to apply for an auto loan.

Capital One auto loan cons

  • Personal use only. You won’t be able to purchase a vehicle for business use with Capital One.
  • No specialty vehicles. You can’t finance a boat, RV or motorcycle with a Capital One auto loan.
  • Vehicle restrictions. Capital One finances cars, SUVs and trucks up to 10 years old with 120,000 miles. In some cases, you may be able to finance a slightly older vehicle with fewer than 150,000 miles. Capital One does not finance Oldsmobile, Daewoo, Saab, Suzuki or Isuzu vehicles.
  • No lease buyouts or private party auto loans. To finance with Capital One, you’ll need to buy a new or used car from a dealership, not from a leasing company or private person.
  • Limited dealerships. Keep in mind that although Capital One has a large network of dealerships, it may not include the particular dealer you had in mind.

Comparable auto loans

Capital One ranks among the best auto loans listed on our site, but it’s always a good idea to see how it stacks up to other lenders.

Capital One vs. Chase

Chase auto loan APRs (annual percentage rates) may offer a chance at lower APRs than Capital One, as low as 3.04%. APRs can be higher or lower depending on your credit, location, term and loan amount as well as the type of vehicle you’re buying.

Like Capital One, Chase offers a way to browse vehicles through its Chase Auto Preferred program, though it’s currently only offered in Arizona and Texas. You can get prequalified online or apply online. A benefit of going through the full application online is that you will not need to apply for credit again at the dealer. Chase auto loans start at $4,000 but terms aren’t quite as generous as Capital One’s – Chase loan terms start at 48 months instead of 36, so may be best for those who plan to buy a newer car for a larger amount.

Capital One vs. Bank of America

Bank of America auto loan APRs start as low as 2.69%, the lowest of all when compared with Capital One or Chase. Like its competitors, you’ll need to take one of its auto loans to an approved dealership. However, unlike Capital One or Chase, you may use a Bank of America auto loan to buy from a private seller. You can also buy out your leased vehicle, something Capital One doesn’t allow.

Like Capital One, you may shop for a car online where it’s also possible to apply for financing. Bank of America does not offer a prequalification process.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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Auto Loan

How Much Car Can I Afford: Auto Affordability Calculator

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It may not have been previewed, commissioned or otherwise endorsed by any of our network partners.

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If you’re asking “How much car can I afford?” use our auto affordability calculator. Television and radio ads talk about getting you into a beautiful new car right now, but it’s smart to see how much you can afford first. Budget methods such as the 20/4/10 rule can give you more guidance.

Auto affordability calculator

Input your desired monthly payment, down payment and other relevant details below to find out how much car you can afford.

Other MagnifyMoney auto loan calculators

After you use our affordability calculator, have our auto payment calculator available on your smartphone when you talk to dealerships. The calculator allows you to estimate your car payment based on a vehicle’s price. This way, you could double-check any quotes a dealer gives you to see whether they’re being accurate or trying to slip in extra products.

If you’re unsure whether you want to get a new car or if refinancing your current vehicle would be more in line with your budget, check out our auto refinance calculator. It allows you to see the estimated savings you would have over the life of your car loan if you refinanced. If your credit score has improved since you first took out your auto loan or loan interest rates have decreased, it may pay off to consider refinancing.

How to use our auto affordability calculator

You need to know a few things to get started, such as your down payment and how long you want the loan term to be. Play around with inputs and adjust various terms to see different results.

Find your desired monthly payment

To figure out what you can afford, first look at what you’re already buying. You should first determine your month-to-month expenses. It’s easy to know how much you make each month, but it’s important to know how much you spend in the same period.

See how much you spend by adding your fixed expenses or using a budget app. Based on how much you have remaining (and how much you want to continue saving), you’ll know how much you have available to spend on a car payment. If you don’t have much left over, you’ll need to make changes to your spending (or find ways to earn more money) before trying to fit in a car payment.

Keep in mind that a car will cost more than its payment — auto insurance, gas and maintenance should be in your budget, too. These costs highly depend on which type of car you have and how you use it.

  • If you have an older car and a long work commute, you may have to budget a lot for gas, but it may be cheap to insure.
  • If you have a newer car with great gas mileage, you may pay less in gas and maintenance but more in taxes and insurance.

Determine your down payment

The conservative rule of thumb, based on the 20/4/10 rule, is to put down 20% on an auto loan. If you can do more, that’s great!

IMPORTANT: You should still maintain a rainy-day fund. You should have extra cash on hand in case something on the car breaks or you want to take a vacation.

If you can’t put down 20% and need some help saving for a down payment, here are the best money-saving apps. Try to cover the taxes and fees on the car and any negative equity from a trade-in so that you don’t finance more than what the vehicle is worth.

Most states charge a sales tax, and your municipality might, too. You should expect to pay 8% to 10% of the vehicle’s sales price in taxes and fees.

Of course, not all things that a dealer presents as fees are necessary. For example, GAP insurance and an extended warranty are optional products. But some fees are nonnegotiable, including:

  • License
  • Registration
  • New-car delivery fees

Dealers will often say their document fee is nonnegotiable. Depending on the state and the dealership, document fees can range from $200 to near $1,000. If the total takes your breath away, ask them to reduce the car’s price to make up for it. You can read about dealer fees to know when buying a car. And here’s how much to put down on a used car.

Obtain your trade-in value and amount owed on trade

Look up how much your car is worth as a trade-in on a free industry guide site such as Kelley Blue Book. You’ll see a range of trade-in values, depending on the condition of your car — from fair to great.

If you don’t owe anything on your trade, input zero into the affordability calculator. If you still have a lien on your vehicle, contact your lender and ask for the current payoff, which is how much it would cost to pay off your auto loan. Here are further tips and tricks on what to know before you trade in your car.

Look up your credit score

Your credit score is a vital factor in the auto loan interest rates you could get. Typically, the better your credit score, the lower the APR. It’s easy to view your credit score for free. Some businesses also offer free credit score monitoring, so check with your credit card provider or bank.

If your score isn’t where you’d like it to be, here are six ways to improve your credit score. This usually takes some time, however. If you need a new car now, you could consider bad-credit car loans, though you’re likely to get a shorter repayment term and higher APR.

Estimate your interest rate

Now that you know your credit score, here are average APRs broken up by credit score that you could plug into the car loan calculator.

Choose your loan term

Based on the 20/4/10 budgeting rule, you shouldn’t finance a car for more than four years. The longer a car loan is, the more you’ll pay in total interest.

However, many people find a shorter term loan to be a challenge. The average car loan term in the U.S. is just less than six years. If you can, keep your car loan term short. If you can’t, get a longer loan and aim to pay it off faster.

As you pay it off, don’t deplete your savings. If you can, set aside money for unexpected car expenses, such as repairs or traffic tickets (though you should do your best to avoid those). Keep in mind repairs aren’t limited to old cars. For example, the car’s age doesn’t matter much if you run over a nail and need a new tire. Even if a repair is covered by insurance, you may still have to pay a deductible.

Look at more than just the monthly payment

When you pick out and buy a vehicle, the best way to stick to your budget is not to focus on the monthly payment. Instead, focus on:

The total price of the car

It can be easy to justify increases in monthly payments. You may think of a $40 payment increase being equivalent to a nice meal once a month. But $40 a month for four years, even without interest, is almost $2,000. (To avoid costly errors like this, you could read up on the common car loan mistakes many people make.)

The total price of financing

Many people only have eyes for the APR, but a longer loan with a lower APR can mean that you will pay more in interest. Compare the total interest charges of different loan offers as part of judging how much car you can afford.

The total ownership costs

Car ownership also involves paying for gas, insurance, maintenance and, eventually, repairs. The last part of the 20/4/10 rule states that your total transportation cost should be less than 10% of your monthly income.

Take the time to shop around for cars, car loans and even car warranties and insurance, and don’t be afraid to negotiate. You could fill out an online form at LendingTree and receive up to five potential auto loan offers from different lenders, depending on your creditworthiness.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.