Pre-approval question

[seruby]

So I'm not sure how the whole pre-approval process works, since last time I bought a car, it was financed at the dealership, but I have a question:

Say I want to buy a car that costs $25,000, and I go a bank or CU and get pre-approved, but they only pre-approve for $20,000.  Does that mean I have to buy a car that costs $20,000 or less, or can I put $5,000 down on the $25,000 to bring it down to $20,000?

[Bluedog23]

It means THEY will loan you 20000. They don't care how much you add on out of pocket to bring that loan down to 20000.  If the actual price of the car is 25000 remember that you'll also pay tax, title, and license on that amt so you'll need more than an additional 5000, depending on the tax rate where you live. For example if your tax rate is 6.5% you need another 1700 or so. 

[seruby]

Thanks.   I was hoping that's how it was. It seemed logical that's how it would work, but sometimes the logical way isn't always the actual way.

[pizzadude]

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@seruby wrote:

So I'm not sure how the whole pre-approval process works, since last time I bought a car, it was financed at the dealership, but I have a question:

Say I want to buy a car that costs $25,000, and I go a bank or CU and get pre-approved, but they only pre-approve for $20,000.  Does that mean I have to buy a car that costs $20,000 or less, or can I put $5,000 down on the $25,000 to bring it down to $20,000?

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This would generally qualify as an approval, rather than a "pre-approval".   Once they agree to loan you a certain amount within their T&Cs no further approval would be required.

[seruby]

Huh?  Aren't a pre-approval and approval the same thing in regards to actual definition of the words (i.e. they both approve you for an amount)...just that pre-approval happens before you actually shop for the car?

Also another question:   If I want to get an auto loan from somewhere (i.e. a credit union), do I have to a customer there,  or does that just make it easier, but not necessarily required?

[Bluedog23]

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@seruby wrote:

Huh?  Aren't a pre-approval and approval the same thing in regards to actual definition of the words (i.e. they both approve you for an amount)...just that pre-approval happens before you actually shop for the car?

Also another question:   If I want to get an auto loan from somewhere (i.e. a credit union), do I have to a customer there,  or does that just make it easier, but not necessarily required?

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As pizzadude said, once you go to cu/bank and apply, the give you a yes or no and an amt. you're done then. Doesn't matter what you call it. To next question, no you don't need to be a customer at a bank to app for loan. Could help only if you're marginal. If you've got great credit, it won't matter.  At a cu you don't have to be a member to apply, but before getting the loan you'll need to become a member. At DCU, you need to apply for membership BEFORE applying. They've been know according to others on this site to approve a loan and then deny membership if your identity can't be verified. Then you've wasted two hard pulls because they do a pull for,membership and a seperate pull for loan product. 

[Anonymous]

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@pizzadude wrote:

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@seruby wrote:

So I'm not sure how the whole pre-approval process works, since last time I bought a car, it was financed at the dealership, but I have a question:

Say I want to buy a car that costs $25,000, and I go a bank or CU and get pre-approved, but they only pre-approve for $20,000.  Does that mean I have to buy a car that costs $20,000 or less, or can I put $5,000 down on the $25,000 to bring it down to $20,000?

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This would generally qualify as an approval, rather than a "pre-approval".   Once they agree to loan you a certain amount within their T&Cs no further approval would be required.

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It is a pre-approval because they won't sign-off until they know what the loan is secured against. When I bought a car with a penfed used car loan, I was pre-approved for $45k, bought a car for $32k, and they refused to fund more than $31k (rough estimates because I can't recall the exact numbers) based on the make/model/year/options

[seruby]

Another question - didn't feel like starting another thread for it:

When you get pre-approved, does it state the length of the loan?   Like, "we pre-approve you for $25,000 at an APR of 1.99% for 48 months"....or does it just give you the rate and amount and you can choose the length?    Sorry if these sound dumb, but the only other time I did financing was through a dealer, so I've never tried pre-approvals.  And once you're pre-approved, can you negotiate for better terms with the same lender?  Like if a lender offers you 2.49%, can  you try to negotiate for 1.99% with that same lender or is it 2.49% and that's that?

[Anonymous]

Generally its an approval for no more than a certain amount, for a certain length and APR. Usually, if you request a longer term (60 or 72 months) your interest rate will be higher.

[seruby]

Great, thanks.   Trying to suck it all in for when I get ready to buy.