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Canadians typically use car loans to help them finance the purchase of a vehicle. But even before you start searching for a car, you may want to consider getting pre-approved for a car loan first. 

Let’s go into more detail about car loan pre-approval and why you should take this extra step before starting the search for a new vehicle. 

Pre-Qualification Vs. Pre-Approval For An Auto Loan

Car loan ‘pre-qualification’ and ‘pre-approval’ both sound like pretty much the same thing, but they’re slightly different. It’s important to understand how these concepts differ, especially as they pertain to your chances of getting a car loan approval. 

Car Loan Pre-Qualification 

A car loan pre-qualification means the lender has conducted a basic review of your finances and creditworthiness to determine if you’re likely to qualify for a car loan. Based on the information you provide, the lender will offer you an estimate on the loan amount and interest rate you may be eligible for. 

Car Loan Pre-Approval

A car loan pre-approval is a more in-depth evaluation than a pre-qualification. With a pre-approval, the lender will conduct a more comprehensive review of your loan eligibility based on your financial health and credit score. The lender will use this information to offer you a specific loan amount and interest rate. 

A car loan pre-approval usually happens before you formally apply for a car loan, but it is not guaranteed approval. If things change with your finances or credit score, or too much time has passed since you were offered pre-approval, you may no longer qualify for the loan terms offered. 

How To Get Pre-Approved For An Auto Loan

Being pre-approved for a car loan will give you an advantage when you’re shopping for a car and looking for financing to cover this big purchase. To get pre-approved, follow these steps:

Step 1. Check Your Credit Score 

You should know what your credit score is before you apply for any type of loan. This will give you an idea of your chances of getting approved for a loan. You can check your credit score with either credit bureaus in Canada or any third-party credit score provider

In general, a credit score of 660 and up can help you secure a car loan, that too with affordable rates. If you have bad credit, you should work on improving your credit scores to maximize your chances of loan approval at a low-interest rate. 

Step 2. Gather Required Documents

The lender will not only require that you fill out a loan application but submit certain documents to help them verify your identity and your financial health. Lenders typically ask to see photo identification, employment letter, pay stubs, and bank statements. 

By having all this information ready to hand in, you can expedite the pre-approval process. 

Step 3. Compare Car Loan Lenders

Your goal is to find a lender who will offer you the lowest interest rate possible based on your financial and credit profile. A lower rate can save you thousands of dollars over the life of the loan. And the best way to find the lowest rate is to do some comparison shopping.

The easiest way to compare lenders is to use an online loan aggregator. Once you input a few details about yourself, your income, and your credit score, the aggregator will populate a list of lenders available, along with their respective loan rates and terms. 

All you need to do is complete one application form to get several options to compare loan pre-approvals.

Step 4. Buy Your Car And Complete The Financing Process

Armed with a pre-approval letter from your lender, you can head to the car dealer to find a vehicle that fits your budget. Pre-approval helps you determine the most you can spend on a vehicle purchase, so you can narrow down your options based on what you can afford. 

Once you find a car you want to buy, you can complete the loan application with the lender, and the final loan process will be carried out.   

Car Loan Pre-Qualifying vs. Pre-Approval Vs. Conditional Approval 

Lenders may provide ‘conditional’ loan approval after you’ve submitted a loan application, which means certain conditions must still be met before final loan approval is granted. But how does conditional approval compare to pre-qualification and pre-approval? The following chart explains.

Pre-QualificationPre-ApprovalConditional Approval
How it WorksThe lender provides you with an estimate of how much you could qualify for based on basic eligibility criteria.The lender will tell you what you’re likely to get approved for prior to a more comprehensive review of your finances and credit.The lender will offer you a car loan after you submit an application, as long as certain conditions are met.
How It Affects CreditNo effectNo effectPossible negative effect
Are You Guaranteed ApprovalNoNoYes, if certain conditions are met

What Happens After You Get Pre-Approved For A Car Loan?

Once you’re pre-approved for a car loan, you only have between 30 to 60 days to finalize a deal. Otherwise, the pre-approval will expire and you’ll need to repeat the process to get pre-approved again. 

However, if something changes with your income, employment, or credit score, you may still need to go through the pre-approval process again, even if the expiration date hasn’t passed yet.

What Happens If I’m Denied A Loan After Pre-Approval?

There are several reasons why your lender may still turn you down for a car loan even after you’ve been pre-approved, and most have to do with changes to your income, employment status, debt, and credit score. 

Here are a few examples that could prompt your lender to deny your loan application after pre-approval:

  • You switched jobs
  • You took a pay cut at work
  • You applied for other loans or credit products and added to your debt pile
  • You missed a couple of bill payments, causing your credit score to tumble

Any changes like these could impact your eligibility to get approved for a car loan and will require the lender to reassess your finances and creditworthiness.

What Are the Benefits of Pre-Approved Car Loans?

There are several perks to getting pre-approved for a car loan before you start shopping, including the following:

Shop Within Your Budget

Knowing how much you can spend on a car based on what your lender has pre-approved you for will help you focus on vehicles that fit within your price range. This will save you time and disappointment from looking at cars that are out of your budget

Boost Negotiating Power

Having a pre-approval in hand will show the dealer that you’re a serious and qualified buyer. Dealers may be more open to spending time working out a deal with buyers who have already taken steps to get their financing in order and who have the financial means to carry out a transaction. In this way, your initiative may give you some power to wheel and deal with the salesperson to shave a few bucks off the vehicle price.  

Get A Lower Interest Rate

You can negotiate with the dealer to give you a lower interest rate on their in-house financing compared to what’s on your pre-approval letter. For instance, if your pre-approval rate is 10%, you might bargain with the dealer to offer you 7%. Even if they come back with a slightly higher rate of 9%, you’ve still managed to score a slightly better deal.

Avoid Spending More

With an upper limit written on paper, your pre-approval will help you avoid spending more than you can afford. Without knowing how much you can realistically get approved for, you could be vulnerable to upsells from the dealer without giving the final price much thought. With a pre-approval, you can steer clear of committing to a price you can’t comfortably cover. 

How To Shop For A Car After Pre-Approval

Once you’ve been pre-approved for a car loan, you can shop with more confidence. Use the loan limit on your pre-approval letter to guide you when you shop. That way, you can focus only on vehicles that fit within your budget.

Start your search for a vehicle online. Many car dealers have comprehensive websites that list all the vehicles they have in their fleet, along with all the specs and prices. This makes it easier to narrow down your options before checking out the vehicles in person and taking them for a test drive. If you’re so inclined, you may be able to buy your car completely online.

Once you’ve decided on a vehicle to buy, the final car loan approval process can be carried out. At this point, you and the lender can iron out all the details of the loan, including the rate and term.

Tips For Negotiating Using An Auto Loan Pre-Approval

You can boost your negotiating power with loan pre-approval. When bargaining with your lender, be sure to negotiate the following:

Interest Rate

Car dealers typically network with several lenders and can often do some rate shopping on your behalf. That means they may have some clout when it comes to the rate you’re offered. Negotiate with the dealer for a lower interest rate than what you were initially offered as per your pre-approval.

Loan Term

Extending your loan term will give you more time to repay your loan, which means lower monthly payments. While this means you’ll probably pay more in interest over the loan term, it also makes the loan easier to fit with your budget. 

When Should I Apply For Car Loan Pre-Approval?

Consider the following scenarios to determine when to apply for loan pre-approval:

You Want To Know How Much You Can Afford 

You may have an idea of how much you can realistically spend on a car based on your income and current debt load. 

But a loan pre-approval will give you a more precise figure to work with. This will help make car shopping more efficient. You’ll save time and disappointment by sticking to a specific price range.

You’ve Never Applied For A Loan Before

If you’re new to the world of lending, getting pre-approved for a car loan can help you get familiar with the type of loan you can get approved for without committing. 

You Want More Negotiating Power

As mentioned, having a pre-approval letter in hand when shopping for a car will put you in a stronger bargaining position. This can help you negotiate a lower price and interest rate to keep your purchase as affordable as possible.

You’re Ready To Make A Deal

Pre-approvals don’t last forever. They typically expire within 30 to 60 days, so you need to make a deal before that time lapses. As such, getting pre-approved is best if you’re ready to make a purchase and work out a deal for a loan.   

Car Loan Pre-Approval FAQs

Does pre-approval affect my credit score?

Getting pre-approval will only affect your credit score if the lender conducts a “hard credit check” But this effect is only temporary. Otherwise, your score will not be affected if the lender doesn’t check your credit.  You’ll need to inquire with the lender to verify whether or not they’ll be pulling your credit report. 

How long does it take to get pre-approved for a car loan?

A car loan pre-approval can take as little as a few minutes or up to a few days, depending on the lender. That said, online lenders typically provide loan pre-approvals on the same day as the loan application.

What do I need to be eligible for car loan pre-approval?

Specific qualification requirements will differ slightly based on the lender. That said, most lenders require that you be the age of majority in your province or territory, be a Canadian citizen or permanent resident, have a steady job, earn a sufficient income, and meet minimum credit score requirements.  

Can I get pre-approved for a car loan with bad credit?

Yes, you can still get a car loan pre-approval despite having a low credit score. Your best bet is to apply with an online lender that specializes in bad credit loans. 

Final Thoughts

There are plenty of perks that come with car loan pre-approval. You can get a clear idea of how much you can afford, and can speed up the final loan approval process, among other things. Before you start searching for your next vehicle, consider getting pre-approved for a car loan first.

Lisa Rennie avatar on Loans Canada
Lisa Rennie

Lisa has been working as a personal finance writer for more than a decade, creating unique content that helps to educate Canadian consumers in the realms of real estate, mortgages, investing and financial health. For years, she held her real estate license in Toronto, Ontario before giving it up to pursue writing within this realm and related niches. Lisa is very serious about smart money management and helping others do the same.

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