In the market for a new car? Going to the dealership with a pre-approved car loan strengthens your negotiating power, helps avoid mark-ups, saves your credit from excessive credit pulls, and more.
This article will help you understand how you can benefit from a pre-approved car loan to make your car-shopping experience as enjoyable and pain-free as possible.
What is a pre-approved car loan?
A pre-approved car loan means a lender already approved you to borrow a certain amount for a specified term and interest rate, even if you haven’t picked out the car you want to purchase yet.
Many get a pre-approval confused with a pre-qualification, but they’re not the same.
When giving a pre-qualification, a lender will use your basic personal and financial information to provide estimated rates and terms. This isn’t a hard offer since the lender didn’t complete a credit check.
It’s possible to be pre-qualified for a certain amount of money to borrow, only to be denied for that amount when you apply for the loan.
A pre-approval is a hard offer since a credit gets pulled, and you get approved for the amount they provide.
How do I benefit from getting a pre-approved car loan?
Buying a new or used car is exciting, and doing so with a pre-approval makes the experience even better by giving you these benefits:
- Less stress
Nobody wants to fall in love with something they can’t afford to buy.
Going car shopping with a pre-approval in hand alleviates that stress since you know exactly what you can afford before stepping foot in the dealership.
You will also know how much your monthly payment will be, the term of the loan, and your interest rate, allowing you to pick the car you want within your means.
- Boosts negotiating power
When you have a pre-approved car loan in hand, you can walk into a dealership as a cash buyer, putting you in a position to negotiate the best price.
A car salesman knows other dealerships will accept your pre-approval, so they will be more eager to work with you and make a deal, even if they have to lower the price of the car you want.
Ultimately, if you aren’t satisfied with the service or price, you can take your business elsewhere as you’re not limited to their inventory or prices.
- Avoid spending more
Without having a pre-approval in hand, you may be tempted to use the dealership’s financing options.
They often promote low-interest rates as a special deal, but they often fail to disclose how they typically require you to spend more than you intended.
For instance, dealers may require you to purchase a gap insurance and warranty policy to receive their special low-interest promotion.
However, this doesn’t benefit you since you can often receive a similar interest rate with a gap and warranty policy at a much lower cost from a bank or credit union.
Especially if you have a long-standing relationship with a bank or credit union, getting your pre-approval from them gets you the best interest rate compared to what any dealership could offer. Thus, if you got a good deal from your bank or credit union, it’s best to stick with it since it’s unlikely the dealership can give you better rates.
- Save time at the dealership
Car shopping can often take up your whole day since you can expect to spend quite a few hours selecting a car, negotiating the price, and then going through paperwork and financing.
Going car shopping with a pre-approval allows you to skip the financing portion of the car shopping process. This leaves choosing your car, negotiating the best price, and signing the paperwork.
Having your pre-approved car loan saves you hours so you can get on the road driving your new car much sooner.
- More options
A pre-approved car loan allows you to take your business elsewhere if you’re not satisfied with the dealership’s service, prices, or inventory.
You can go to another dealership knowing you will get the same interest rate and budget. This ensures you leave with the car you want rather than being bound by a dealership that gives you the best rate but has limited inventory.
- Less damage to your credit
At Kaydem Credit Help, we usually recommend our clients get pre-approved before going car-shopping because it has less impact on your credit score.
When you opt for a dealership’s financing program, they will run your credit through numerous lenders to get you the highest approval amount with the lowest interest rate. Although that sounds like it would benefit you, it leaves you with a plethora of credit inquiries all at once.
This may not seem like a big deal, but having a lot of inquiries on your report, especially if you plan on applying for anything not long after, can lower your credit score.
Applying for a pre-approval results in one inquiry on your credit report. This is because only one lender pulls your credit, which causes significantly less damage to your credit score.
Going to the dealership with your pre-approval in hand can save you time, money, stress, and minimize the number of inquiries placed on your credit.
By stepping into the dealership prepared, you can be in and out with the car you want at the best price and interest rate in no time!