Purchasing a new or used vehicle often requires that you’re able to make sound financial decisions. The good news is that with some help, you can make these financial decisions much simpler. Getting pre-approved for an auto loan can be your first step.
The main idea behind getting pre-approved for a car loan is quite simple. If you shop around for a car loan, you can go to the car dealership with a clear idea of the terms and interest rates you can expect. This will offer you more leverage during negotiations.
We’ll share the advantages of getting pre-approved, which will help you concentrate on your car’s features, price and benefits – rather than worrying about financing.
Secure an Affordable Interest Rate
An interest rate makes a significant difference in how much money you’ll pay. And, based on where you get your car loan, your interest rate can change. You need to shop around a bit to find the best loan for you. You may end up paying 1 to 2 percent more in interest than you would if you looked elsewhere. With pre-approved, however, you would know whether you are getting the most suitable interest rate applicable to you. At the same time, you could judge if a dealer is giving you a great deal.
Set a Reasonable Budget
When you’ve been pre-approved for an auto loan, you’re in a better position to set a realistic, feasible budget for your next vehicle and start shopping.
Also, you’ll have to factor in around 10 percent or more for other fees and sales tax. And, don’t overlook the insurance fees and the various other expenses that are associated with owning a vehicle.
If you shop ahead for a loan, you should have some idea how much your monthly payments will be, assuming that you stick to your pre-approved budget. This helps you assess the numbers more objectively. If you have this valuable information before you start shopping, you can focus your time and energy on cars that are within your budget, while avoiding more expensive cars that may have been otherwise tempting.
Simplify the Dealership Experience
Another great reason to have your financials pre-approved before heading to the car dealer is that they’ll now treat you as a cash buyer. This gives you leverage because you have the funds in hand and could, at any time, walk away from the negotiations if you had to.
Without pre-approval, the price negotiation game may not work in your favor. Most car salespeople look at loans in terms of affordable monthly payments instead of total cost. Although this mindset has its place, the total cost matters because that total number determines factors like your interest rate. A salesperson will likely negotiate on a monthly payment number rather than a final amount, and you should consider both when looking at cars.
So, check out your monthly payments and look at the final price of the car. This way you, the car salesperson, and whatever financial institution you use for the loan, will all be on the same page.
If you go to the car dealership pre-approved for a loan, you’ll be in a better position to request that the dealer give you a specific price. In most cases, car dealerships don’t want to leave money on the table.
If you’re pre-approved for a certain amount, then the salesperson knows that they can make a deal for that amount of money. And, they’re less likely to quibble over the exact dollar amount when they know that you can get approved for a specific amount. This is why it’s important to complete a car loan application, particularly if you have a healthy credit score. Getting pre-approved will help you become a better negotiator and move you one step closer to an agreement on the final loan amount.