Should You Apply for a Car Loan Before Going to the Dealership?

Should You Apply for a Car Loan Before Going to the Dealership?

It's generally a good idea to shop for car loans before visiting a car dealership. Once you find a good loan offer, you may be able to apply for the loan and get preapproved.

This step allows you to explore your options and provides other benefits, including:

• Greater negotiating power: If the dealership is handling your car loan, the salesperson may try to negotiate the price of a car based on your monthly payment budget—often in a way that costs you more money in the long term. Having your preapproval offer beforehand allows you to focus on just the price of the car.
• Preview your monthly payments: After gathering preapproval offers with a loan amount, term and rate, you can use a car loan calculator to estimate your monthly payment. Check that it fits into your budget, or make adjustments based on what you can afford.
• Identify credit issues early: Getting prequalified before shopping for a car gives you time to address problem areas in your finances, like lower credit scores. You might consider taking steps to boost your credit scores to help improve your chances of qualifying for the loan.
• Secure more favorable terms: When you get financing at a dealership, it may mark up your interest rate as compensation for shopping your loan and handling the transaction. Getting a loan before you head to the dealership allows you to avoid these markups.

How to Apply for a Car Loan Before Going to the Dealership

Before hitting the dealership, you can review your finances and research your loan options based on your personal needs. Here's how to apply for a car loan before heading to the dealership:

1. Assess Your Credit

Lenders use your credit score to assess whether you qualify for financing. A good credit score for an auto loan is generally one that's at least 661. Having a higher credit score may help you secure competitive terms.

For example, according to Experian's State of the Automotive Finance Market report for the fourth quarter of 2024, borrowers with credit scores of 781 to 850 received an average rate of 4.77% on new car loans. Borrowers with scores of 501 to 600 received an average rate of 13.08% on the same type of loan.

Before applying for a car loan, consider checking your FICO^® Score^☉ for free from Experian. If your credit score needs work and you're not in a rush to buy a car, take time to pay down credit card balances, check your credit report, bring any past-due accounts current and make all debt payments on time to see if you can improve your score.

2. Determine Your Budget

A car loan can add hundreds of dollars to your monthly budget—so before applying, you'll want to consider how you'll afford it.

You can use Experian's car payment calculator to check your monthly payment based on an estimated loan amount, repayment term, down payment and interest rate. Check the payment against your budget to see what you can afford to pay.

If you think the payment won't fit into your budget, here are some potential solutions:

• Extend the loan term to lower your monthly payments (though you'll pay more interest over the life of the loan).
• Buy a cheaper car or a used car so you can borrow less.
• Increase your down payment to lower your loan amount.
• Improve your credit score to qualify for a better interest rate.

Car payment calculator

3. Compare Multiple Lenders

Once you've determined the amount you'd like to borrow, prequalify for an auto loan with multiple lenders. Many lenders offer prequalification with a soft credit check, which makes it easy to compare quotes without impacting your credit scores.

Get quotes from several types of lenders, including credit unions, online banks and community banks. These institutions may provide lower interest rates, charge fewer fees or take individual circumstances into account when reviewing loan applications.

Or, if you have an existing relationship with a large national bank, you may qualify for special deals.

Learn more: The Best Way to Finance a Car

4. Lock In Your Rate and Get Preapproved

Depending on the lender, you may get preapproved for a certain amount and then finalize the loan when you choose the car at the dealership. Preapproval usually involves filling out the application, providing documentation to verify your identity and income and sharing details about the car (if you have one picked out).

Consider getting preapprovals from more than one lender to help you choose the best offer. When getting preapproved, keep your applications to a 14-day period if possible to minimize impact to your credit.

If the lender preapproves you, you'll receive a written loan offer that you'll finalize after visiting the dealership and buying the car (assuming you don't get a better offer from the dealership). The offer may have a time limit on it, such as 30 days, so be sure to visit the dealership and make your car choice before the deadline approaches.

Tip: Loan preapproval is a conditional approval. Once you get preapproved and make an offer on a car, you'll officially apply for the loan, which may involve additional steps. Terms could be slightly different from the preapproval if the vehicle or your financial circumstances have changed.

What to Do if You Can't Qualify for a Loan Before Going to the Dealership

If you can't apply or qualify for a car loan before visiting the dealership, you have a few other options.

• Wait until your credit score improves. Having low credit scores may prevent you from qualifying for a car loan or receiving a favorable interest rate. Consider taking steps to improve your credit and then apply for a car loan when your financial situation gets better.
• Pursue dealership financing. If you don't have time to shop for loans or you're focused on convenience, working with the dealership can be a good option. It may also be helpful if you have poor credit and need financing options banks don't offer.
• Consider online dealers. Buying a car from an online dealer removes a lot of the pressure that comes with negotiating with a dealer in person. Plus, the streamlined process can also save you valuable time. Once you choose a car, though, make sure you test drive it before signing the paperwork.

When Should You Wait to Apply for a Car Loan?

Applying for a car loan before visiting the dealership is almost always beneficial, but there are a few situations where it may not be ideal.

• You're still deciding which car to buy. Lenders typically need an estimated loan amount to preapprove you for a car loan. You won't have that information if you haven't chosen the car you want to buy, so you might need to hold off and apply when you've made a decision.
• Your financial situation will be changing soon. If you're due for a raise at work or you're paying off a big debt soon, an improved financial situation can help you get a better car loan rate. The opposite is true, too—you might put off major purchases if you're uncertain about your financial future.
• Your credit score is close to improving. The lowest interest rates often go to borrowers with the highest credit scores. If you're focused on saving money, waiting for your credit to improve can help you get a better car loan.

The Bottom Line

Getting preapproved for a loan before heading to a car dealership is usually helpful for borrowers. After checking your credit profile, shopping for loans and comparing terms, you can choose one or more lenders and request preapproval. This step allows you to find the best deal and avoid negotiations with the dealership's finance department. The only transaction you have to focus on is the purchase itself.

Before applying, check your credit report and credit scores for free to see where your credit stands. If necessary, address any issues or inaccuracies you find on your report and take steps to improve your credit.