One thing experts suggest to all car buyers is to secure a pre-approved auto loan prior to car shopping. If you are a car buyer and you need a reason to heed this advice, read on below. Listed are three reasons that will surely convince you to get that pre-approval.
To avoid unpleasant surprises
A new (or at least, newer) ride is something to look forward to, which is why buying a car can be an exciting experience for most people. Because not all car buyers can afford to purchase the vehicle in cash, financing is often needed. The problem is that not everyone is eligible for an auto loan. You may not be eligible for auto financing and not know it. However, if you get a pre-approved loan, you will find out. This spares you the heartbreak of falling in love with a car only to be told you cannot buy it.
When you get pre-approval, lenders will pull your credit report, review it and see if you are qualified. More often than not, it is the credit score that prevents one from getting a loan. If you find out that it is indeed your credit score that renders you ineligible, you can take the necessary steps to increase it so you will be eligible in the future. With pre-approval, you get the opportunity to improve your credit before you go shopping.
To find out how much car you can afford
Another perk that comes with auto loan pre-approval is discovering car affordability, or knowing just how much car you can afford to buy. You don’t want to go through the experience of choosing a car and getting rejected for a loan because the vehicle’s purchase price is too high.
After lenders review your credit, they will inform you of how much they are willing to lend. Basically, you will get an idea of how much you can borrow to make the purchase. You may use online car loan calculators to get an estimate, but you will get more accurate figures with the help of a lender. Once you know how much you can afford, you can narrow down your car options. You should only consider buying cars that are within your given budget.
To negotiate better (and increase your chances of getting a good deal)
When you go to the dealership with a pre-approved loan, you will be in a better position to bargain. Use the rate you have secured from the lender to negotiate with the dealer when the latter offers you an APR (annual percentage rate). Dealers need to make sales, so they will be willing to reduce their rate to get you as a customer.
Without a pre-approved loan, you are more likely to spend more than you should on a car. You give the dealer an opportunity to make more profit at your expense. When you don’t know what rates you qualify for, you can be fooled into thinking that you only qualify for an inflated rate. The addition of just a few points on your rate can mean the addition of a thousand dollars or more over the loan term. On the contrary, if you have already been pre-approved by a lender (or several), you will know if you are being duped by a dealer.