The car buying process can be as daunting as it is exciting. While it should be as easy as walking onto a dealership lot, choosing a car, and setting up payments to buy it, car salesmen will often try to up the price and increase interest rates to boost their sale. To take some of the pain out of this process, getting preapproved for a car loan is incredibly beneficial for a variety of reasons. 

Why You Should Get Preapproval for a Car Loan

Set a Budget

Getting preapproved for an auto loan shows how much you can borrow and at what interest rate. These details allow you to set a reasonable budget before you go to the dealership. Keep in mind that your budget needs to include the price of your car plus interest, and about 10% of the total price will be taxes and fees – don’t just go off the listed price. Monthly loan payments can be estimated on a loan calculator.

When you’re closing the deal on the car you want, this budget will also help you avoid add-ons like extended warranties that you don’t want to pay for. The dealer will know that you’ve set a hard budget that will not bend.

Get the Best Price at the Dealerships

Cars salesman are famously portrayed as sly scammers, and while this stereotype isn’t entirely true, remember that their job is to get the highest price out of a potential customer. Oftentimes, a finance manager will take advantage of the convenience of dealer financing by hiking up the interest rate on your car, which can add hundreds more dollars to your investment. By getting a car loan preapproved, you know you have the best cards dealt for financing, and it can help you gauge whether the dealership is striking a good deal or ripping you off. 

Strengthen Your Side of the Negotiation

With preapproval, your position in the sales dynamic transforms into a “cash buyer,” meaning the dealership will be getting paid-in-full when the car drives off the lot. This strategy helps you avoid unnecessary fees that the salesman throws in to a monthly payment and get down to the root – negotiating the car’s price. Preapproval for car loans mostly applies to new cars, but it can apply to used cars if you know the exact car that you want at the time of the application.

Get an Even Better Rate from the Dealership

Sometimes, approaching a sales conversation with a preapproved car loan will result in an even better rate from the dealership. This cheaper financing is achieved through “captive lenders,” banks set up by the car companies strictly to make auto loans. If you have strong credit, it’s worth filling out a loan application at the dealership to see what you can get from them directly.

Front-Load the Work

Buying a car can be a daunting process, especially with all the financial conversations and negotiation with a salesman. By getting preapproved, you circumvent the exhausting part of the car-buying process by getting out ahead of it. It also shows to the dealer that you did your homework, and it relieves the stress of getting a good offer by already having one when you walk in the door. Once you find the car you want, there is no waiting period to get the loan, and if you decide to go with the dealer’s loan offer, you’re not tied to the bank’s initial offer. 

How to Get Preapproval 

Before learning how to get preapproval for a car loan, it’s important to know how it differs from prequalification. If you don’t know what your credit score is, getting prequalified uses a soft credit pull, a way to find out where it stands without docking your credit. The downside to prequalification is that the estimate the bank gives you for the loan is a wider range and will not guarantee you get those exact loan parameters when you eventually apply. Preapproval will dock your credit score because it requires a hard credit pull to determine the loan amount and rate, but you have a better chance of receiving the offered rate when you do get your car. 

To get preapproval for a car loan, you will apply online, on the phone, or in person with a bank or credit union. Oftentimes, the best call is to apply with your bank, since you have already built that relationship. To get the best interest rate, apply for preapproval at two to three lenders, and do so all within 14 days. Since this process does require that hard pull, that time frame is very important because it will only count as one for all three credit inquiries from the various lenders. Once you’re approved, you can shop around at any dealership with this budget in mind and use it as leverage during the buying process. 

Looking to get preapproval for your next car? Hawaii County Employees Federal Credit Union will help you get a competitive rate and loan amount to optimize your buying process. With more than 80 years providing banking services to the Hilo, HI, area, their team is dedicated to finding a low-cost loan to fit your budget. For more information on their loan services, call them today at (808) 935-2969 or visit them online.