When it comes to buying a car or vehicle, you've got a few options. The first is to save up until you can buy the car you want out of pocket. The problem with that is that it might take you years to save enough for the vehicle you want.
The second option is to get an auto loan after you've found the car you want to buy. But what if it turns out to be beyond your budget? And how do you know if the dealer is offering you the best interest rates, terms, and conditions?
The third option could be your best bet, which is to get auto loan pre-approval. That way, you know exactly how much you have to spend before you get to the lot. You won't have your dreams dashed and you'll be ready for any situation.
Benefits of Auto Loan Pre-Approval
Getting pre-approved for your auto loan means you've already done the hard work before you get to the fun part of choosing a car. That way, you're less likely to choose a vehicle you can't afford and more likely to get a good deal.
Pre-Approval Helps You Stick to Your Budget
When it comes to car ownership, the purchase price is only the beginning. Consider these other costs involved:
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Loan payment plus interest
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Taxes and fees, which may amount to 10% of your loan
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Running costs of the car, including gas, maintenance, and insurance
Getting pre-approved and working out a budget before you get to the lot is the best way to make sure you'll be able to afford the total cost of your car, not just the price on the window.
Pre-Approval Gives You Negotiating Power
If you get auto loan pre-approval, you'll be considered a cash buyer when you arrive at the lot and the dealer will sit up and take notice.
This means you won't be haggling with the dealer about the variables of monthly payments. And you won't run the risk of being charged extra for things you don't need, just so the dealer can use up every cent of your monthly budget.
All of your energy on the day will be focused on the purchase price only because you'll know your limits.
Prevents Wasting Money on Interest
Shopping around with different credit unions and banks is the best way to make sure you get a good deal. Interest rates between lenders may vary significantly and can be as much as 20%. A high interest rate will quickly add up over the life of your loan.
If you show up at the car dealership without auto loan pre-approval, you won't have all the facts at hand when the dealer offers you an interest rate. They might bump the rate up without you ever knowing.
On the other hand, if you're pre-approved with your interest rate in mind, you'll know whether the dealership's rates are competitive and whether you can trust them to sell you a great car.
How Auto Loan Pre-Approval Affects Your Credit Score
When you get pre-approved for your auto loan, it's important to note that your credit score will go down a little — at least until you've begun paying the loan back on time. This is because auto loan pre-approval requires a "hard" credit pull of your financial history.
If you're unsure about your financial history and how it may affect your auto loan, read this credit score guide.
How to Get Pre-Approved for an Auto Loan
Getting auto loan pre-approval is straightforward. Once you've worked out your monthly budget and are sure you're ready to buy a car, follow these steps:
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Shop around for great interest rates.
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Choose your credit union, bank, or other lender.
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Apply online, give us a call, or visit a branch near you.
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Agree to the loan amount, rates, and any other terms and conditions.
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Get a check from your lender and take it to the dealer to buy your car!
Auto Loan Pre-Approval Next Steps
If you know you need a new car or vehicle but still aren't sure about the best way to pay for it, it's worth taking the time to find out more.
Let Arbor Financial Credit Union help get you started.
