Buying a car is a negotiation. There are rules that have an influence on how you'll fare, and one of the most important is putting yourself in the most advantageous position to talk terms. No one likes being "over the barrel" at the mercy of the party you're negotiating with, but that's exactly where your car dealer will have you if you walk in without a pre-approved loan and have to settle for whatever financing they're willing to give you.
Remember, the dealership is in the business of making money. Do you think they'll cut you some slack when they know you don't have any other options? Of course not. That's why you should always try to get a pre-approval for an auto loan online before you even start looking at cars from your local dealer. Let's explore.
What Is Loan Pre-Approval?
When you want to buy a new car, you need the funds to pay for the automobile, right? These usually come in the form of some financing plan with the dealer, or a loan from a bank or credit union.
When we refer to pre-approval, we're talking about getting the bank/credit union to agree to lend you money (up to a specified amount) before you even start the car buying process in earnest.
You don't necessarily have to buy a vehicle as expensive as the maximum amount of the loan you are pre-approved for; you could easily spend less. Pre-approval does, however, allow you to get a sense of what kind of vehicle you can realistically get, and puts you in a good position when you're talking prices with your dealer.
When you go to the dealer without pre-approval and ask them about their financing options, they'll usually tell you, "here's what we have," with the implication being that you can accept their terms or leave them. Most of the time, these terms are less-than-favorable for you.
If you go to the dealer and you already have a loan approved from a bank or credit union, their line of questioning usually shifts to "what did the bank offer you?" If they can, the dealer will try to match or even beat the interest rate you've already been approved for so they can keep the financing in-house or go with one of their institutions and get a slice of the action.
Hence, getting pre-approval for a loan is one of the best ways to help secure yourself the best deal on a vehicle, even if you end up going with the dealerships offer in the end. There's really no reason not to do it, so let's go over the steps you need to take.
Getting Pre-Approval For A Car Loan
With most banks, you can do this online. You can go through your own bank, or visit a car loan website to get a listing of many popular banks, credit unions, and lenders along with the best interest rates they have on offer.
You'll then fill out an application, wherein the lender will ask you a few questions. They'll want to know what kind of car you might want to get, how much money you're asking for, your employment/income, and a few other details.
If you make the cut, they'll approve you for the amount and send you paperwork showing that they've agreed to lend you up to that specified dollar mark to go towards the purchase of a vehicle.
It's that simple, and once you have your pre-approval, your car buying options will have opened up to a great degree. Make sure you shop around and compare lenders for the best interest rates, and you'll be a step ahead when going to buy your next new vehicle.