If you’re in the market for a new car, it’s important to get preapproved before you start shopping. The process of getting preapproved can take time, so it’s helpful to plan ahead. The lender will begin by asking for your current income and other personal information. If you have a co-borrower, the lender will need this information about them as well.
You’ll be asked to provide your Social Security Number (SSN) and for permission to allow the lender to access your credit report. If the information you provide is satisfactory, as is your credit report, the lender will begin constructing the details of your loan.
When they have determined how large of a loan you’ll be eligible for, they’ll give you a preapproval letter. The letter will also detail your estimated interest rate on the auto loan, although that will sometimes also depend upon the specifics of your purchase, such as the year and mileage of the car.
Having your preapproval letter will shorten the auto loan process significantly. However, that’s only a small benefit of getting preapproved before you start shopping. Here are some other advantages of getting a loan preapproval.
You’ll know what you can afford
Your preapproval will tell you exactly what you can afford. This way, you’ll avoid being disappointed later when you have your heart set on a certain vehicle only to be told you can’t swing it financially. Knowing how large of a loan you’ll qualify for will simplify your search and get you into a new car sooner.
Be sure to calculate other monthly costs, such as sales taxes and auto insurance when determining how much you can afford to pay each month on your auto loan.
Don’t get taken for a ride
When you’re unsure about how much you can spend, the sales person will often capitalize on your uncertainty and try to sell you a car that just barely skims the maximum amount you’ve decided you can afford.
Also, when you name a monthly payment you can manage, the sales person will work with that number instead of talking about the full price. They may try to inflate the payment with charges and fees just because they fit within your named payment amount.
When you show up with a preapproval in hand, the sales person will have to show you something with a price tag that fits within your loan amount. If you’re needing help determining your budget for a monthly auto loan payment, you can use our free, online auto loan calculators. No matter what kind of car you’re looking for, it’s important to make sure it realistically fits your budget.
Be taken seriously
A car dealer will take you a lot more seriously when you have a preapproval. Having that in hand shows you’re ready to buy and committed to making a purchase. You may also receive better service since you’re showing that you’re serious about buying a car.
It may also give you more leverage for negotiations. Sellers are more likely to negotiate with buyers who are preapproved because it proves you’re financially capable of following through with the deal.
Financing you can trust
When you show up with a preapproval from your credit union, you know the deal is in your best interest. Your credit union has a more realistic view of your budget, and you’re not going to be pushed into an auto loan you can’t afford. Many car dealers have access to several financing options and they’re almost always going to put customers into financing options that are in their own wallet’s best interests. With your credit union, there’s less pressure when you’re trying to determine your budget.
Another advantage to financing with your credit union is the opportunity for a lower interest rate. Since you’re working directly with the lender, you’ll only hear the actual rate instead of a marked-up rate the car dealer gives you.
Having a preapproval in hand before you start car shopping, will get you one step closer to closing the deal. If you’re in need of an auto loan, don’t forget to check with us first for your preapproval.