I’m trying to get a newer car and every website for research told me I should have this before I go to a dealership. I got a “conditional approval” back and it says that I will need a purchase order that includes all info on car. Well how am I supposed to purchase the car without having the actual loan first?
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There’s basically 2 parts to every loan secured by an asset, qualifying the borrower and qualifying the collateral.
The bank doesn’t want to loan to someone who can’t afford it or whose trash credit suggests they won’t pay it back.
But the bank also doesn’t want to loan $100k for you to buy a beater that barely runs.
While the terms do vary from institution to institution, generally speaking a “pre-approval” is based on a so-called “soft” credit pull done for marketing purposes. They see your score and say “yeah, we can probably loan to this guy” and send you pre-approval junkmail.
A conditional approval and in some contexts a pre-approval is where the bank has already the completed the “qualifying the borrower” part. They’ve looked at your credit and income and said “yeah, we’ll loan this guy a maximum of $50,000 to buy a car with.”
Then you bring it in and you end up wanting to buy a car for $40,000 so you fill in the car portion so the bank can get on with the “qualifying the collateral” half of the loan process.
The dealership wants you to get a conditional approval so they know they aren’t wasting their time trying to sell you a car you could never get financed.
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