Are you in the market for a new car? If so, then getting a preapproved car loan should be your first step. Not only does it make the car-buying process easier and faster, but it also gives you more power and control in your negotiations. So, let’s dive into why you should get preapproved for a car loan and how to go about it.
Why Should You Get Preapproved for a Car Loan?
You Can Shop for the Best Rates
Getting preapproved for a car loan allows you to shop around for the best interest rates at your own convenience. By requesting rates from multiple lenders and lending platforms, you can compare and find the one that offers the best terms and annual percentage rate (APR) for your budget. Plus, even if the dealership can’t beat your preapproved rate, you’ll still have peace of mind knowing that you saved as much money as possible.
You’ll Save Time at the Dealership
By getting preapproved before visiting the dealership, you can save yourself a lot of time and hassle. The car-buying process can be lengthy and complex, but having financing in place means one less thing to worry about with the finance department. You also avoid the confusion of salespeople throwing in surprise costs or trying to haggle prices. You walk in knowing exactly how much you can afford and focus on finding the perfect vehicle.
You Have More Negotiating Power
Dealerships are known for tricky sales tactics, but having your own loan in place gives you more negotiating power. With a preapproved loan, you’re not limited to any specific seller or lender. You can confidently negotiate the total purchase price instead of getting caught up in confusing monthly payment terms. This way, you know exactly what you’re paying in the end and can avoid overpaying for your vehicle.
How to Get Preapproved for a Car Loan in 7 Steps
Interested in getting preapproved for an auto loan? Here’s a simple step-by-step guide to help you through the process:
- Determine (roughly) how much you need: Calculate a ballpark figure of how much you’re willing to spend on your new vehicle.
- Find a few lenders offering preapproval: Shop around online for lenders that offer preapproval, loan marketplaces, or consider financial institutions you already use.
- Decide when you’re (almost) ready to buy: Apply for preapproval when you’re actually ready to purchase a vehicle to minimize the impact on your credit score.
- Start applying: Each lender will have its own application process, which can be completed online or in person.
- Provide necessary information: Be prepared to provide personal information such as your name, contact information, Social Security number, and the amount you wish to borrow.
- Choose the best lender: Evaluate the loan offers you receive based on factors like financing amount, required down payment, repayment terms, and interest rates.
- Print your preapproval certificate: Once you’ve chosen a lender, print out a preapproval certificate to take with you to the dealership.
Key Differences: Auto Loan Preapproval vs. Prequalification
Throughout your loan shopping experience, you might come across the terms “prequalified” and “preapproved.” While they may be used interchangeably, they have distinct differences.
Prequalification is a more informal process that typically requires minimal personal and financial information. It provides you with an estimated loan amount but usually doesn’t involve a credit check. On the other hand, preapproval is a conditional loan offer based on both borrower and credit bureau information. It often involves a credit check and provides actual loan terms, interest rates, and more.
To put it simply, prequalification gives you an estimate, while preapproval gives you an actual loan offer.
How to Increase Your Chances of Getting Preapproved
Boost your chances of getting preapproved for a car loan with these tips:
Know what you need
Calculate your budget, preferences, income, and existing debt to determine how much you can realistically afford.
Have your information ready
Gather all the necessary personal information like your name, contact details, Social Security number, and financial information to speed up the application process.
Make sure your credit is in a good place
Check your credit score and report for any errors or discrepancies. You can obtain a free copy of your credit report from each of the three major credit bureaus once a week.
Tips for Negotiating Your Auto Loan Using Preapproval
With a preapproved auto loan, you have an advantage when negotiating the purchase of your vehicle. Here are some tips to make the most of it:
Only negotiate in terms of the final price
Focus on negotiating the total purchase price of the vehicle instead of getting trapped into confusing monthly payment terms. Knowing exactly how much you’re paying in the end gives you more control.
Negotiate price, not loan terms
Avoid falling into the dealership’s tactics of manipulating interest rates or repayment terms. Instead, focus on negotiating factors like the purchase price and warranty package.
Get a better rate
Even if you have your own preapproved loan, consider the loan offers the dealership’s lenders can provide. They may offer better rates or repayment terms, saving you money over the life of your loan.
TIME Stamp: Auto Loan Preapproval Gives You a Decided Leg Up in the Purchasing Process
Getting preapproved for a car loan is the best way to approach the car-buying process. It saves you time, gives you more control, and allows you to shop for the best rates. The process is quick and convenient, often done online, and it provides you with the most accurate information regarding your financing options.
Frequently Asked Questions (FAQs)
How does preapproval for a car loan work?
Preapproval is a conditional auto loan offer based on your information and credit inquiries. It provides you with loan amount, terms, and interest rate details and serves as confirmation to the seller that you are conditionally approved for funding.
How long is a preapproval letter for a car loan valid?
The validity of a preapproval letter varies by lender, typically ranging from 30 to 60 days. It’s important to purchase an eligible vehicle within that time frame and avoid significant changes to your credit or financial situation to keep the preapproval offer intact.
When is the best time to get credit preapproval for a car loan?
Get preapproved shortly before you’re ready to start shopping for a vehicle. Most credit scoring models allow for rate-shopping within a specific time frame, usually around 14 to 45 days. This ensures that you have the most up-to-date information regarding interest rates and loan terms.
For more personal finance tips and advice, visit Personal Finances Blog.