Why Dealer Financing May Be A Trap
To be honest, there are a lot of hidden traps in dealer-financed car loans.
Most dealers try to persuade customers into buying additional products that just increase the total cost of the loan.
These charges vary by lender and state laws. If you walk into a dealership for financing, you’ll be asked to buy extended warranties, leasing warranties, car accessories, and other servicing packages.
Most car dealerships partner with multiple lenders but will force you to pick selected lenders because of the benefit they make on the mark-up rates.
You might also end up with inflated MSRPs, overpriced insurance policies, and less flexible repayment terms.
When you try to get financed from a dealership, the rates and approval are at their discretion.
However, if you have a pre approved car loan, you’ll gain the upper hand to negotiate further discounts on the mark-up price.
Why Arranging Car Financing Before Buying Is Important
Car dealerships make much of their profits through financing a new car.
If you have received pre approval, you stand a better chance at winning during the final negotiation.
Settling your financing needs beforehand also proves that you have done the required homework.
- Easy To Create A Budget - Pre Approved car loans will allow you to develop reasonable standards of what you can afford to spend. You’ll already know the rates, terms, and fees so it will be easier to choose the best vehicle.
- More Chances Of Improving Negotiating Position– You’ll already be aware of the APR, so the dealership will have to compete with the approved rate.
- Manageable Monthly Budget – Given you will already be familiar with the monthly payments you can better manage your income to meet all debt repayments on time.
- More Dealerships To Choose From – A pre approved car loan gives you enough freedom to check and compare rates and offers from multiple dealerships. Since you have the financing ready, you aren’t at the car dealership’s discretion.
- Additional Discounts – You can further negotiate the rates on the MSRP and other add-ons or accessories. The dealer will like to make a sale and treat you the way they deal with a cash-only customer.
Why Preapproval Is A Smart Strategy
When you’re pre approved, you don’t need to worry about financing.
Instead, you can invest all of the time and focus on finding the perfect vehicle for your needs.
Upon evaluating your credit history, the lender approves your car loan application for a certain amount.
At this point, you’ll have a clear idea of the monthly payment and the upfront fees.
Just because you’re pre approved doesn’t mean that you have to shop for top-tier cars.
You can instead check multiple models and dealers to secure a deal at a price lower than the financed amount. You can use these surplus funds to pay off other debts or buy additional accessories for your new vehicle.
Pre Approval of a car loan is a smart strategy if:
- You have a decent credit score
- You are already aware of the amount you need
- You have a low debt-to-income ratio and substantial proof of income
- You want to negotiate more discounts with the car dealer
How To Obtain Loan Pre Approval
You can check with non-dealership lenders first because you’ll get better rates with them, especially banks and credit unions.
Most lenders accept applications online, via phone, and in person.
A good idea is to apply with a bank that you already have a relationship with.
If you already have a well-managed loan or credit card, applying with the same bank will increase your chances of receiving pre approval.
As with standard loans, try to get approval from multiple lenders so you can figure out the best rates.
The application process is easy.
It hardly takes a couple of minutes online, but the approval time varies by lenders.
Most lenders will schedule a phone call to discuss details prior to final approval. You’ll be required to submit the standard information including:
- Social Security number (SSN)
- Passport, driver’s license, or other proof of identity
- Recent paychecks or tax refunds
- Credit history
Auto dealerships offer loans, but you can’t always be sure that those are the best rates.
Most dealers add a huge mark-up price on financing through selected lenders.
Hence, you should take time and approach this smartly.
If you meet all the eligibility requirements, you should definitely opt for pre approval before shopping for a new vehicle.
This will help you access the best available rates and offers from multiple car dealers.