Do You Need to be Preapproved for a Car Loan?


Whether you’re buying a new vehicle out of need or simply because you feel you are due for an upgrade, making a purchase that large usually means you will be paying with a loan. If you arrive at the negotiating table preapproved, the whole process of buying a car becomes much easier.

More transparency

One of the ways dealerships make more money from selling a vehicle to you is by acting as an agent for the financial institutions that will issue you a loan. In many cases, a dealership will have relationships with a number of financial institutions that enable them to profit even further from the sale. According to Paul Cantagallo’s May 2018 article for SmartAsset, this often means that when a dealer finds a loan for you, they tuck in mark-ups, fees or even additional interest to get a piece of the pie for themselves. When you go into your financial institution branch and apply for a loan, no one will be attempting to secretly draw more money out of you. This also means that you’re more likely to earn a lower interest rate on the loan.

More comfort on the lot

When a financial institution preapproves you for an auto loan, you know exactly how much you can spend on a vehicle. Before you hit a dealership lot for a test drive, look up the tax rate for its area so you can calculate how much you can pay for a car before sales tax. Holly Johnson, writer for The Simple Dollar, says that when you’re preapproved for a loan, you don’t need to look at the sticker price of the vehicle and try to calculate payments and possible interest rates as you browse inventory. You can use all of your brain power to find the car that’s best for you.

Power at the negotiation table

According to Phillip Reed, an automotive expert with NerdWallet, you should be treated the same as a customer who is ready to pay cash for a vehicle when you walk into a dealership preapproved for a loan. While a sales consultant might ask you how much you want to pay per month for a vehicle, you’ll instead know how much the financial institution authorized you to borrow. You can nicely tell the salesperson that you are not financing with them, and you should be talking about the overall price of the car.

When you finally pick a car and sit down at the table, you have more control with a loan already available. The dealership might try to persuade you to buy add-ons you don’t want. To that, you can simply say you’re not preapproved for an amount to cover those features. If you are buying a new car and the dealership isn’t bringing down the price enough, you have the power to take your loan somewhere else and get a better deal.

Buying a car can be a stressful process when you’re not sure who you can trust and don’t know when someone is trying to make extra money from you. Heading into the experience, knowing exactly how much you can afford and where the money is coming from is one big step in the direction of getting you on the road at the lowest price possible.

 

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