RETIRED – Benefits of prequalifying?

You’ve carefully examined your family budget in order to buy a new vehicle from Preston Hood Chevrolet. So, after spending some time with our knowledgeable sales consultants and test driving a few models, you’ve settled on your perfect Chevy.

You head to our Finance Department to apply for a loan. Unfortunately, after checking your credit, our team discovers that you do not qualify for the car of your dreams. The amount that you can afford is much lower. If you want to drive home in a vehicle today, you’ll have to choose a less expensive model or go with a used version of the vehicle you want.

You can avoid all this heartbreak by prequalifying before you come to our dealership.

Basics

Prequalifying means checking your creditworthiness to give you an estimate of the rates and payments you can get when you shop for a car. This is not an automatic loan approval since you will still need to fill out a loan application. However, it does give you an idea of what you can be approved for.

Also keep in mind that there is a difference between prequalification and preapproval.

• For prequalification, the lender uses a soft credit inquiry, which does not affect your credit score because it simply relies on your word. The only information you submit is your name and address.

• For preapproval, you are conditionally approved for a loan. This counts as a hard credit inquiry that can affect your credit rating. It asks you to submit such information as your social security number, tax documents, and outstanding debt amounts.

Factors

Whichever route you choose, pay attention to the following factors:

• Loan amount because this ultimately affects what you can afford.

• Annual Percentage Rate, which is the interest rate of the loan including the cost of obtaining the loan.

• Loan term or how many months the loan lasts.

• Monthly payment is the minimum payment you have to give each month.

Benefits

Prequalifying grants you two main benefits.

Knowing what you can afford.

Arguably, the most important benefit is that you know how much you can finance. You won’t have to worry about falling in love with a car that you cannot afford. Instead, you can focus your attention on vehicles that meet your loan qualifications.

You also get an idea of what your interest rate and monthly payments are going to be. Keep in mind that you do not have to apply for the maximum amount that you qualify for. You can easily go for a less expensive car if you want to keep the rest of the amount in reserve.

Better negotiating power.

If you get prequalified from several lenders, you can pick the one that’s best for you. This gives you plenty of leeway in negotiating with us to choose a price that matches your options. You also won’t have to go with the financing that we offer you, although you may discover that we can give you terms that are better than what you can get with other lenders.

Improving Your Chances

You can improve your chances of being prequalified for a higher amount by taking the following steps before you fill out any prequalification form.

1. Check your credit. You can find out the state of your financial affairs by asking for a credit report from AnnualCreditReport.com. By law, you can ask for one free credit report each year from each of the main credit bureaus: Equifax, TransUnion, and Experian.

2. Examine your credit report. If you find any errors, let the merchant who reported the error know as soon as possible so they can take steps to fix it.

3. Find your credit score. Your credit report will not contain your credit score. However, you can usually get your score from your credit card issuer or financial institution. You can also get it for free by registering with CreditKarma.com. The score is a number between 300 and 850 with higher numbers being better.

4. Improve your credit rating. If your credit card is low or your credit report is less than ideal, you can improve both by paying your bills on time and eliminating as much debt as possible.