Buying a car is exciting, but it requires effort and, of course, money. Unfortunately, not everyone has the savings to pay for the vehicle in cash, so the best option is to take out a car loan. You can turn to a car loan pre-approval to help make the process much easier and faster.
Getting pre-approved for a car loan is, in essence, an in-principle approval from a particular lender. It allows you to borrow a predetermined amount of money to purchase a vehicle. However, the money is not given to you right away. You must first buy a car for the transfer to take place. Therefore, your loan is on standby and remains as such until you finally find and purchase the vehicle that suits your requirements.
Some Important Notes to Remember
Pre-approval does not mean you’re approved for a loan. It is conditional approval, which means the lender does not have to approve the loan. Often, once you have found the vehicle of your choice, you will still have to apply for a full car loan. Once your application is reviewed, approval becomes unconditional, meaning the lender is ready to lend you money to purchase a car.
Another thing to know is that car loan pre-approvals only last for a while. They typically stay valid anywhere from one to three months. So, if you have been pre-approved, make sure that you start your research and your car hunt immediately.
Now, with those reminders out of the way, let’s talk about why you should aim to get a car loan pre-approval:
- Know How Much You Can Borrow
Getting pre-approved allows you to set realistic expectations regarding how much you can spend. Generally, you will receive a quote, which also includes additional fees. You will also know the loan term and interest rates, giving you an idea about your monthly payments.
Remember that you do not have to obtain the maximum amount offered to you. It helps to factor in your expenses on top of the car payments to determine the amount you can borrow and pay each month comfortably. Try to borrow less to avoid headaches.
- You Know Your Choices
Some buyers go to a dealership before running the numbers. It’s distracting when you don’t know what you can afford and how much the monthly payments will be. For this reason, a car loan pre-approval is the simplest solution.
Since you already have an idea of the amount you can spend beforehand, you can focus on car choices that fall within your budget. This is a huge benefit, especially for first-time buyers, who can be more confident in searching for a car that fits their price range and loan payments that will not stretch their budgets thin.
Therefore, if you are new to lending, we recommend getting pre-approved. Understanding the details of your financing before you make your purchase is helpful. Because you know the loan terms and amount range, you won’t waste time looking at cars you cannot afford.
- Gain Greater Negotiating Power
Many customers fail to see the advantage of their bargaining capacity, which is why most fail to seek out auto loan pre-approval. Suppose you go to a dealership without getting pre-approved and spot the car you wish to buy. In that case, you may be tempted to apply for whatever financing is offered. Your goal is to ensure you don’t lose that car. So, how does pre-approval help you in this situation?
First, you will feel less pressured to get the financing offer from the dealership, which is usually more expensive.
Second, you have more room to negotiate. You are a cash buyer, after all, thanks to your pre-approved loan. Therefore, the dealership will be more than willing to give you attractive offers to entice you to do business with them.
Finally, you have more freedom. Use your bargaining power at private sales or auctions. You can have several choices, allowing you to land not only the best deal but the car of your dreams.
- Avoid Financing Markups
Buyers often find dealer financing a convenient option. However, if you have not done your research, the finance manager might mark up your interest rate. That’s because dealers are connected to several lenders who already have predetermined rates for a particular financial profile. This gives them the advantage of raising your interest rate by as much as two percentage points. Don’t be fooled by that small number, as it can quickly add hundreds of dollars to your loan.
If you’re pre-approved, you do not have to worry about financing markup. You’re already aware of the best interest rate you are qualified for, which lets you judge whether the dealer is giving you a good deal.
- Enjoy Being a Prioritised Buyer
Auto sales staff meet a lot of window shoppers regularly. That’s why they may not be enthusiastic when you arrive at the showroom. You can easily remedy the situation by letting them know you are a serious buyer with a pre-approved loan. Since you can pay for the car with cash, you will see that they will be more than happy to assist you.
Aside from staff wanting to work with you, a pre-approval lets you act quickly. You can make an offer with the dealership, which puts you ahead of competing buyers who may not have financing in place.
If you plan to buy from a private seller, you gain the same benefit, as well. Many sellers prefer offers from pre-approved buyers, and it is easy to see why. They do not want to spend a lot of time and energy negotiating only to have that bargaining fall through due to the buyer’s lack of financing.
- Prevent Upsells
As you negotiate and close the deal, you can take advantage of your pre-approval status to deflect offers and add-ons you do not want. Do this when you are in your dealership’s finance and insurance office. Once you get to the part where they give you offers like an extended warranty, simply state that you are pre-approved for a particular amount, and you will not go over it.
Quick Tips on How to Get Pre-approved on a Car Loan
As with any loan, always do your research first. Your preferred lender may not offer pre-approval, whilst others may perform a credit check, which could be recorded on your credit report. Other lenders will be able to see the credit check, which further impacts your chances of getting future loans.
It also helps if you know how much you can borrow. To do this, you can use our car loan calculator, which you can find on our website. With this loan simulator, you can quickly work out the loan amount you can afford, along with the balloon payment.
A car loan pre-approval does not lock you into any contract or agreement, so you can always look for a better deal. That’s why you should contact Loans Unlimited. We have “unlimited” loan options for you, so you can be sure that you have the best finance deal that suits your car purchasing needs. Talk to us and learn how we can assist you in getting car loan pre-approval today!