Advantages of Preapproved Car Loans
Posted Tuesday, Aug 16, 2022
Buying a car is super exciting; many of us start imagining what kind of car we want, where we’re going to drive it, and everything else in between. Although there’s nothing wrong with getting excited, we have to remember that buying a car is a big investment and there are certain steps that we should take in order to get the car of our dreams. Instead of going to a dealership without a plan, it always helps to have a preapproved loan in your hand. Let’s take a look at why this gives you an advantage and how to get a preapproved loan.
Advantages of Buying a Car with a Preapproved Loan
Helps You Set a Realistic Budget
If you go to a car dealership without knowing what your true budget is, you may waste time looking at vehicles that are out of your price range. Instead, a preapproved loan will tell you how much you can borrow and at what interest rate. Always remember that the actual price of the car isn’t your only expense; you’ll also have to pay for taxes and fees, which can be as much as 10% of the purchase price.
Improves Your Chances of Negotiating
People go to dealerships all the time, but that doesn’t necessarily mean that they’re ready to buy a car. They may just be looking for fun, they might not be able to afford the car, or they may even get denied a loan. When you have a preapproved loan in your hand, sellers take you a lot more seriously. Since the power is in your hands, they may be willing to negotiate, as they feel more confident that it will be a fast transaction.
You Can Avoid Dealer Financing
Some dealerships provide financing, but that doesn’t always mean that it’s a good option. This is because some dealers mark up your interest rate, and since it’s the “easy” option, many people accept. Instead, it’s cheaper to shop around for the best financing option so that you can save money. In addition, not all dealerships even offer financing, so this helps you be more prepared.
How to Buy a Car with a Preapproved Loan
Getting preapproved for a loan has its clear advantages. The process of getting a loan isn’t super complex, but you do have to know what to expect.
Step #1: Check Your Credit
Bad credit can affect your loan in many ways. Not only can it make it more difficult to get approved, but it helps determine what terms you’ll receive, such as the interest rate. Since lenders will surely check your credit history, it doesn’t hurt to check it beforehand. This will ensure that everything is accurate, and also prepare you for what they’re going to find.
Step #2: Gather Documents
Aside from the credit check, lenders will request documents that prove your identity and income. This may include social security number, proof of identity (driver’s license, state ID, or military ID), employment status, and proof of income.
Step #3: Review Offers
The features of the loan, such as the loan terms and interest rates, are extremely important. Before getting excited and accepting the first loan that you’re offered, you should apply to multiple financial institutions and consider what they have to offer. By accepting the best offer, you can save yourself a lot of money.
Step #4: Start Shopping Online
Once you accept the offer, you should start looking for a car. Instead of wasting time driving around town looking for different dealerships, one of the effective new ways to shop for cars is online. Keep in mind that many preapproved loans have an expiration date, so clarify that with your lender beforehand. Once you find the car or cars that you’re interested in, you can move to the next step.
Step #5: Test Drive Your Car
Test driving your car is important because you can inspect the car in person and also better understand how it feels to be behind the wheel. If you’re not convinced with the car after the test drive, that’s okay! You shouldn’t feel pressured to purchase the first car that you test drive; keep looking until you find the right one for you.
Step #6: Submit a Formal Loan Application
Once you choose which car you want, you need to submit a formal loan application. You will likely reuse a lot of the information that was used for the preapproval, but you’ll also have to include specific information about the car that you’re purchasing. This includes the year, make, model, mileage, and vehicle identification number.
Step #7: Enjoy Your Car
Now you’re all set to enjoy your newly purchased used car! Make sure to keep up with necessary maintenance in order to keep your car in great condition.
When you’re ready to start shopping for a used car, take your time and find the one that fits your lifestyle and preference. To learn more about how to test drive a car in order to truly understand if it's the right choice, read our previous article.
