How to get car loan pre-approval

Wouldn’t it be nice if you could compare offers from multiple auto lenders without affecting your credit score? Car loan pre-approval lets you do just that. When you get pre-approved for a car loan in Canada, lenders do a quick, initial assessment to determine your credit-worthiness and loan eligibility.

It’s usually free, and you can get auto loan pre-approval before committing to buy a car.

How to get pre-approved for a car loan in Canada

Wondering how car loan pre-approval works? Here’s a quick breakdown of the process.

1. Find out your credit score. Get a free annual credit report from Canada’s credit bureaus, Equifax or Transunion. Generally, you need a good credit score of 660+ to qualify for a car loan with competitive rates and terms, but there are lenders who offer auto loans for bad credit.
2. Compare car loan providers.
   Shop around for lenders that offer car loan pre-approval in Canada. Check interest rates, amounts, terms and eligibility requirements that work for you.
3. Apply for auto loan pre-approval.
   Apply for car loan pre-approval from each of the lenders you’re interested in. You may have to provide basic personal and employment information, rent or mortgage figures and trade-in details, if applicable. Lenders may conduct a soft credit check. Unlike a hard check, this won’t affect your credit.
4. Review pre-approval offers. It typically takes hours up to one business day to get pre-approved for a car loan. Compare the pre-approval offers you received, and choose one with favourable rate and terms. Remember that you can lower monthly payments with a long term, but your interest costs will be lower with a short term.
5. Complete a loan application process. Contact your chosen lender to complete the application process. You’ll have to provide additional information and consent to a hard credit check, which will impact your credit score. This often takes one or two business days. Pre-approval does not guarantee final approval. If the full application process reveals any red flag, you might not get a loan.
6. Buy a car. Pre-approval often expires after 30 days (sometimes longer). Start hunting for your next vehicle, leveraging your loan eligibility to land a competitive price. When you’re fully approved for auto financing, contact your seller to finalize the transaction and secure your new car.

Compare lenders to get pre-approved for a car loan

Many online lenders offer fast applications for pre-approved car loans without affecting your credit score. You might also be able to get auto loan pre-approval from a bank or credit union, but bad credit borrowers aren’t likely to qualify and applying might hurt your credit score.

Car loan pre-approval vs. pre-qualification vs. conditional approval

Getting pre-approval for a car loan lets lenders assess your eligibility and estimate the loan amount and interest rate you’re likely to be approved for. Pre-approval typically happens before you submit a full financing application.

Although people sometimes use the terms interchangeably, getting pre-approval for a car loan is different to getting pre-qualified or conditionally approved. Here’s what you should keep in mind when you come across these terms.

Car loan pre-qualification

Auto loan pre-qualification determines your loan eligibility based on information you provide. The lender assumes this information is true without verification.

• Does it guarantee financing? No.
• Does it affect your credit score? Usually, no.
• Can it be used to negotiate with lenders? No. Pre-qualification isn’t based on verified information, so you’ll have a tough time convincing lenders that you could get better rates and terms elsewhere.

Car loan pre-approval

Auto loan pre-approval relies on basic, verifiable information about you to determine your loan eligibility. This information typically comes from a soft credit check, which doesn’t affect your credit score.

Compared to pre-qualification, pre-approval more reliably predicts what you could receive, because it’s based on provable facts.

• Does it guarantee financing? No.
• Does it affect your credit score? Usually, no.
• Can it be used to negotiate with lenders? Yes. You get pre-approved for a car loan before committing to financing, so you can use pre-approval from one lender to leverage better rates and terms elsewhere.

Conditional approval

Getting a car loan with conditional approval means you’ve been fully approved for financing as long as you meet certain requirements. To get conditional approval, you must submit a full application and (likely) consent to a hard credit check, which impacts your credit score.

• Does it guarantee financing? Yes, if conditions are met.
• Does it affect your credit score? Usually, yes.
• Can it be used to negotiate with lenders? Yes. This counts as full loan approval (if you meet certain conditions), so you can use it to leverage better rates and terms elsewhere.

How long does car loan pre-approval take?

You can get preapproved for a car loan in Canada in as little as minutes up to one business day.

It takes minutes to fill out an application for pre-approved car loans from online lenders, and you’ll get a decision almost instantly. In some cases, a lender may contact you for more information before making a decision.

If you’re working with your bank, which already has access to your financial information, including your salary and assets, the process may be more streamlined.

What happens after I get pre-approved?

After getting pre-approved for a car loan, most lenders allow you to shop around for around 30 days to find the right car. Some might offer pre-approval for as long as 60 days. If you don’t make a decision within that time frame, you can reapply for car loan pre-approval.

Can I apply for a pre-approved car loan without affecting my credit score?

Yes. Most of the time, lenders can pre-approve applications using a soft credit check, which does not affect your credit score. Your score only goes down if a car loan provider conducts a hard check to view more detailed information.

Most credit bureaus count multiple credit checks conducted around the same time as a single credit pull. This helps minimize the impact to your score while you shop around for competitive rates.

What credit score do I need to get auto loan pre-approval?

It’ll be easiest to get pre-approval for a car loan with a good to excellent credit score of 660–760 or higher.

People in bad credit situations can get pre-approved for a car loan too. In fact, there are online lenders who offer auto loans for any type of credit, including no credit and poor credit. You can apply online just as you would if you had good credit and you can receive your decision on a pre-approval within minutes.

What are the advantages of pre-approved car loans?

If you’re on the fence about getting pre-approved for a car loan, consider the following benefits:

• Know what you can spend. Because the lender has assessed your finances and has given you the green light to purchase a vehicle, you don’t have to stress about securing financing.
• Increase your bargaining power. Knowing your spending limits gives you the upper hand when negotiating the price of your car at the dealership. For example, if your pre-approval is for 11% APR, offer the salesperson 8%. If they come back with 9%, you’ve scored a better deal for yourself. Learn more about car loan interest rates.
• Increase your loan options. You’re not stuck with whatever financing package the dealer offers.
• Avoid dealership upselling. Pre-approval gives you a specific spending amount that can’t be exceeded even if a salesperson tries to upsell you with GAP insurance or an extended warranty. If you can’t afford it, it’s off the table.

Why was my car loan application denied after I was pre-approved?

Getting pre-approved for a car loan doesn’t guarantee you’ll get financing.

The most common reason you’d get rejected for a car loan after getting pre-approved is that your financial circumstances have significantly changed since you applied for pre-approval. This could happen if:

• You lost income
• Your credit score dropped
• Your debt increased
• You filed for bankruptcy

You might also be denied if the lender discovers risk factors while processing your full loan application. Make sure you provide accurate, up-to-date information when applying for pre-approval to avoid disappointment down the road.

Another possibility is that you’re the victim of a “yo-yo” car loan scam, where a dealer leads you to believe you’ve been approved but denies you and offers a less favourable loan. Learn more about car loans scams and legitimate lenders.

What to do if you can’t get auto loan pre-approval

If you’re having trouble getting pre-approved for a car loan, don’t worry. You can turn your situation around by improving your credit or getting a cosigner.

Make full, on-time debt repayments and avoid maxing out your available credit. Pay off debt as much as you can—every little bit helps! Within months, your credit score should go up.

Another way to get pre-approval for a car loan is to ask a family member or close friend to cosign your application. The catch? If you default on payments, your cosigner will have to pick up on your loan, so make sure they know what they’re committing to.

When should I apply for car loan pre-approval?

Ultimately, it’s up to you and depends on your situation. You might want to get pre-approved if any of the following applies to you:

• You’re new to borrowing. Getting pre-approved can give you an idea of what type of loan you could get without committing to financing.
• You want to stick to a budget. Auto loan pre-approval provides financial limits to guide your vehicle shopping. You can narrow down you search by avoiding unaffordable cars.
• You want leverage to negotiate. Going to a lender with a pre-approved rate in hand might help you land a better rate through in-house dealership financing.
• You want to save time. Getting pre-approval begins the full application process, so there are less steps to complete when you’re ready to buy.
• You’re ready to buy a car within 30–60 days. Pre-approval is only valid for a certain period of time, so apply when you’re ready to buy a car.

Related: Explore the best car loans in Canada

FAQs about car loan pre-approval

• Where can I buy a car with a pre-approved car loan?

  You can buy a car anywhere with a pre-approved car loan, including from dealerships, private sellers and auctions. But lenders have criteria applicants must meet and might restrict financing for certain types of vehicles. Check with your lender before to find out what restrictions apply to you.

• How long does car loan pre-approval last?

  Auto loan pre-approval periods vary between lenders, but it's often around 30 days. This means you have 30 days after getting pre-approved to find a car and submit a full application for financing. Afterwards, you'll have to reapply for pre-approval if you still want it.

• Is car loan pre-approval different for new and used cars?

  No. The process of getting pre-approved for a car loan in Canada is the same whether you want to buy a new or used car. The difference is the amount you might be asking to borrow, given that new cars come with bigger price tags.

• Does pre-approval affect car loan interest rates?

  Yes, pre-approval can affect car loan interest rates in two ways: you find out what rate you qualify for and can use this knowledge to negotiate a lower rate with a different lender.

  Pre-approval doesn't commit you to getting a loan, so if the dealership offers you a lower rate, take it. If not, find another dealership that will offer you a better rate or stick to your original loan.