Askcarsales wants to get approved before coming in
For many, buying a car can feel like an intimidating experience. The dealership environment can sometimes come across as high-pressure, especially when it comes to financing. This is why “askcarsales,” a popular community for discussing car sales experiences and seeking advice, frequently sees members recommending that potential buyers get approved for financing before setting foot in a dealership. This approach can streamline the process, put you in control, and might even help you secure better terms for your auto loan.
Understanding car financing
Let’s start with some basics on how car financing works. When you buy a car with a loan, a lender pays the dealership upfront for the vehicle, and you, the buyer, agree to pay back the lender with interest over time. Your interest rate and loan terms depend on several factors, including your credit score, income, and debt-to-income ratio. The better your credit and financial standing, the lower your interest rate may be. However, not everyone knows their credit score or how much they can borrow comfortably, which is where pre-approval comes in.
What is Pre-Approval?
Pre-approval means applying for an auto loan before shopping for a car. A bank, credit union, or internet lender may accept your application directly. During this process, the lender assesses your financial profile and creditworthiness and, if approved, provides you with a maximum loan amount and interest rate. This information can be invaluable when it’s time to negotiate with dealerships.
When you’re pre-approved, you’ll receive a quote outlining the loan amount, interest rate, and monthly payment. Not only does this give you a clearer sense of your budget, but it also positions you as “cash buyer” at the dealership, which can simplify negotiations.
The benefits of getting pre-approved
If you’re a potential car buyer, the benefits of pre-approval are numerous and can save you both time and money.
Sets a Realistic Budget: With a pre-approval, you know exactly how much you can afford to spend. Instead of walking into a dealership unsure about whether you can afford a particular car, you’ll already have a set budget in mind. This makes it easier to focus only on cars within your price range.
Better Interest Rates: When you’re pre-approved, you may have a choice between different lenders, helping you secure a competitive interest rate. This matters because even a slight variation in interest rates can have a big effect on your monthly installments and the totalount you pay over the life of the loan.
More Negotiating Power: Dealerships often offer their own financing, which might come with higher interest rates or unfavorable terms. Being preapproved means you’re not reliant on dealership financing, so you can compare offers. Dealerships know that a pre-approved customer can walk away if the deal doesn’t meet their expectations, so they’re more likely to negotiate to keep you.
Peace of Mind and Faster Process: Getting pre-approved can streamline the entire car-buying process, saving you from spending hours in the finance office at the dealership. You’ll be prepared with the necessary documentation and an understanding of your terms, making it easier to complete the transaction and drive off the lot with confidence.
Avoids Credit Dings: Dealerships often perform multiple “hard inquiries” on your credit when they’re trying to secure a loan, which can impact your credit score. When you’re pre-approved, only the initial lender runs a hard inquiry, keeping your credit score protected from multiple checks.
The Pre-Approval Process: Step-by-Step
If you’re interested in getting pre-approved, here’s a simple guide to follow:
Step 1: Check Your Credit Score
Your interest rate is mostly determined by your credit score. Better phrases are typically associated with higher scores. Use a free or paid service to check your score before you apply. If your credit score is lower than expected, consider working on improving it before seeking pre-approval, as even a few points can make a difference.
Step 2: Shop Around for Lenders
Each lender has different terms, so it’s a good idea to compare. Look at your bank, credit union, and even online lenders. Many offer pre-qualification, which lets you see estimated rates without a hard credit pull. Once you find a few promising options, you can apply for pre-approval.
Step 3: Gather Documentation
You’ll need documentation to verify your financial standing. Prepare recent pay stubs, tax returns, bank statements, and any other information that shows your income and ability to repay the loan. Having these documents ready makes the application process quicker.
Step 4: Apply for Pre-Approval
Complete applications with your chosen lenders. Once approved, you’ll receive an offer that outlines your loan amount, interest rate, and terms. Keep in mind that a pre-approval is usually valid for 30-60 days, giving you time to find the right car.
Step 5: Review and Compare Offers
If you have multiple pre-approvals, compare them carefully. Look at the interest rates, loan terms, and any fees associated with each loan. Select the option that best suits your demands and budget.
Common Myths About Pre-Approval
Some car buyers hesitate to get pre-approved, often due to misconceptions.Let’s dispel some of these misconceptions.:
Myth #1: Pre-approval is a Hard Inquiry That Will Hurt My Credit
While pre-approval typically involves a hard inquiry, the impact is minimal, usually reducing your score by just a few points. And if you’re shopping around, multiple inquiries within a 14-45 day window often count as one inquiry.
Myth #2: Dealership Financing is Always Better
Dealerships sometimes offer promotional rates, but these deals are often available only to buyers with top-tier credit scores. With pre-approval, you’ll know exactly where you stand and avoid surprises in the dealership’s finance office.
Myth #3: I’ll Miss Out on In-House Discounts or Incentives
Some dealerships may offer discounts if you use their financing, but you can still use your pre-approval as leverage. Let the dealer know your financing is already secured and see if they’re willing to match or beat your offer.
Negotiating with Pre-Approval in Hand
Armed with pre-approval, you’re in a stronger negotiating position. Here’s how to leverage that advantage when you get to the dealership:
Stick to Your Budget: Since you have a pre-approved amount, resist the temptation to go over your limit. Dealers might try to upsell you on a higher-end model, but having a firm budget helps you stay focused.
Separate the car price from financing: When discussing the price, don’t mention your pre-approval upfront. Negotiate the price of the vehicle independently to avoid the dealer factoring in your financing during the negotiation.
Ask the Dealer to Beat Your Rate: With a pre-approval offer in hand, you can ask the dealership to beat that rate. If they can’t, you still have a solid offer to fall back on. If they can, you could end up with even better financing.
Preparing for the Dealership Visit
Before you head to the dealership, take a moment to review your pre-approval terms and ensure you understand them. Double-check your documents and any additional information the lender might need. Arriving prepared shows the dealership that you’re knowledgeable and serious about the purchase, setting the tone for a professional and straightforward transaction.
What If I Get Rejected?
If your application for pre-approval is denied, it doesn’t mean you can’t buy a car. First, find out why your application was rejected, as lenders are often required to provide this information. It could be due to a low credit score, a high debt-to-income ratio, or insufficient income. Consider improving these areas before reapplying, or explore other lending options like credit unions, which may have more flexible requirements.
Alternatives to Pre-Approval
If you decide not to go through the pre-approval process, consider these alternatives:
Pre-Qualification: Pre-qualification is less formal and gives you a rough estimate of your potential loan terms. Unlike pre-approval, pre-qualification usually involves a soft inquiry, so it doesn’t impact your credit score.
Cash Purchase: If you have the means, paying in cash eliminates the need for financing altogether. This can give you the most negotiating power and avoid interest payments.
Co-Signer: If your credit is less than ideal, you could ask a family member or friend with a stronger credit profile to co-sign. This could help you qualify for a loan with better terms.
Conclusion: Why Pre-Approval is a Game-Changer
Getting pre-approved for a car loan before going to the dealership can be a game-changer for car buyers. It provides clarity, puts you in control of your financing, and helps prevent unexpected surprises at the dealership. As the “askcarsales” community would agree, it’s a smart approach that ensures you’re informed and empowered during the car-buying process.
“Ultimately, pre-approval takes the stress out of car buying, allowing you to focus on choosing the right vehicle without worrying about financing terms. When you walk into the dealership pre-approved, you’re not just a car shopper—you’re a well-prepared, savvy consumer ready to secure the best deal possible.”
