Getting approved for auto financing can be tedious, but it doesn’t have to be. By being prepared and taking concrete steps before applying, you can speed up the loan approval process and get the keys to your new ride in less time.
Consider these smart ways to get approved for a car loan faster.
Boost Your Credit
One of the best ways to get financial institutions to approve your car loan faster is to have good credit. The higher your credit score, the faster you can get loan approval, and the better your loan terms and rates will be.
To be approved for financing to buy a car, many lenders require that you have decent credit. While every lender determines creditworthiness a little differently, some lenders won’t consider approving you for an auto loan if you have poor credit. In this case, you’ll have a smaller pool of lenders to choose from when shopping for an auto loan, which can make the process of finding a lender even more time-consuming.
While you may still be approved even if you have bad credit, poor credit history can delay the car loan approval process. When a borrower has a lower credit score, many lenders will require additional documentation to prove they have been able to pay bills on time for several months. This extra documentation will inevitably slow down the process even further, or worse, you may not get approved at all.
There are several ways you can boost your credit score to ensure quicker car loan approval, including:
- Paying your bills on time
- Avoiding credit limits by keeping your credit balances to a minimum
- Limiting applications for new credit
- Building your credit history
You can monitor your credit health by obtaining your credit report from any of the three major credit reporting bureaus or utilizing free credit monitoring services.
Reduce Your Debt-to-income Ratio
Besides boosting and maintaining your credit score, it’s helpful to have a low debt-to-income (DTI) ratio to get faster approval for a car loan. Your DTI is the amount of debt you owe compared to your overall income.
Regardless of your credit score, if your DTI is too high, you may not be eligible for a car loan. This is because a high DTI can indicate to lenders that you cannot pay your debts or that you’re in some other kind of financial trouble.
You can improve your DTI by focusing your efforts on paying down debt, such as credit cards, student loans, or other personal loans. While not all lenders have stringent DTI requirements, reducing your debts will help show you are a reliable borrower and help get you approved more quickly.
Make a Bigger Down Payment
A substantial down payment can be a strong indicator of your commitment to paying off your car and can make it easier for you to get approved when applying for a car loan. A more significant down payment can signal to lenders that you are a responsible borrower who knows how to save money and means you will have to borrow less money to pay off the loan. Plus, you can get lower interest rates that benefit you in the long term.
Borrowers who make down payments tend to be viewed more favorably by lenders than those who don’t, and this is especially true for borrowers who put down 20% or more of the car’s purchase price. Putting extra money down will help you reduce your car loan amount and secure more favorable interest rates so that you can make extra payments to pay off the vehicle sooner and own your car outright.
Trade In Your Vehicle
If you don’t have the money saved up for a hefty down payment, trade-ins are another convenient way to speed up the loan approval process. Depending on how much your car is worth, trading in your vehicle can be an expedient way to reduce your loan size and get loan approval quicker.
Consider a Cosigner
If you don’t have excellent credit, you can speed up your chances of approval by having a family member or other trusted party cosign on your car loan. When you apply with a co-borrower, the lender will consider not just your credit history but the person you are cosigning with. If they have excellent credit, this can help you get approved faster.
Of course, it’s important to select a cosigner who understands and can afford the terms of the vehicle loan. Be sure to talk through the financial risks associated with cosigning and ensure you and your co-borrower are on the same page before moving forward.
Shop Lenders for Best Deal
If your credit situation needs improvement, it’s still possible to get approved for a car loan. In fact, you may even find lenders who specialize in serving customers with poor credit. However, you’ll need to do a bit more shopping around to find them.
Because some banks and credit unions don’t offer auto financing for those with low credit scores, you’ll have to do some research to narrow down which lenders will offer auto loans to those with poor credit. After you’ve found some, you’ll also want to look into whether they provide pre-approvals and what types of rates and terms they offer to ensure you’re still getting a good deal.
Even if you have great credit, you should invest some time shopping around for the right lender who will give you the best rates and terms. Plus, finding lenders who offer pre-approvals will make the loan approval process go even more quickly.
Once you’ve identified the lenders you are most likely to get loan approval with, you can speed up the loan approval process even further by being prepared to provide additional documentation requested by the lender.
Getting pre-approved for a car loan can be a real time saver and help you budget for your new purchase. The pre-qualification process will determine how much you are eligible to borrow, including what interest rates and terms you qualify for, as well as help you stick to your budget.
Additionally, if you seek pre-approval from multiple lenders, you can better understand your chances of approval and compare offerings to pick the right lender and auto loan for you. Because lenders only run soft credit checks for auto loan pre-approvals, it won’t hurt your credit either. If you don’t get pre-approved by a lender, you can move on to another lender without wasting time applying for a car loan.
You can get pre-approved online with most lenders and get the decision in as little as 20 minutes. This time-saving step is a smart way to take the stress out of knowing how much you qualify for and may enable you to purchase your vehicle sooner.
Knowing what to expect when you apply for a car loan, especially the necessary documentation, can further speed up the approval process. When you don’t have the proper documentation, it can be a stressful scramble to get it all together and, ultimately, delay your approval.
Like most other financing processes, you should be prepared to provide your ID, name, address, social security, and employment information when you apply for a car loan. Beyond that, you may need items such as proof of residence and source(s) of income, including W-2s and paystubs, and proof of employment.
While purchasing a car from start to finish can be a lengthy process, there are smart ways to get approved for a car loan faster. Before getting approved, make sure you have a good credit score, little debt, and money saved up for a down payment.
If you need a car before you’re able to make a significant down payment or improve your credit, consider getting a cosigner. Finally, seek pre-approval to save money, take the guesswork out of how much you qualify for, and prepare the necessary documentation.
You can apply online at T&I Credit Union to begin the pre-approval process and hit the road sooner. Call us at (248) 397-9471 to get started.