Because you’ll likely be making payments on a car for several years to come, it’s critical to get the best deal possible on your new ride. You can apply for a loan before you find your perfect car, and get preapproved by your lender. Getting preapproved means you’ll know what your budget is, and it will help you negotiate the best deal when you get to the dealership. Learn what you need to apply for this type of car loan and get approved.
6 Steps to Get Preapproved for an Auto Loan
In order to increase your chances of qualifying for a preapproved auto loan, you should understand how to present yourself as a good candidate for this type of funding. Here’s how to get preapproved for a car loan:
1. Determine Your Monthly Car Payment
Just because you can qualify for a big loan doesn’t mean you should take one out. Decide on a monthly payment you’re comfortable with and then determine how big a loan that comes out to. Add in your down payment and/or trade-in amount and you’ll come up with the amount you can spend on a new car.
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2. Compare Auto Loan Rates
The auto loan rates lenders advertise are usually in a range, so you won’t know your actual rate until you apply, unless you know you have the very best credit possible. Look for lenders with the lowest range of rates. Keep in mind that used car loan rates will often be higher than those for new vehicles. Sometimes you can get a quarter or a half point off your car loan rate if you have other business with your potential lender, so see if the bank you have your checking account, savings account or credit card with has such an offer. If not, consider opening an account with the lender you plan to apply to so you can take advantage of this offer.
3. Apply for the Auto Loan
You can apply to more than one lender if you want, which will help you find the best auto loan rates. Each lender will do a so-called “hard” credit check which will decrease your credit score by a few points, but multiple hard checks within a short period — generally, 14 to 45 days — will count as just one.
4. Get the Car Loan Offer
The bank will offer you a loan with a specific car loan interest rate and terms, and will tell you how much you can borrow. If you have more than one offer, you can choose the best one for you. The bank will give you a statement of the offer, which could be a blank check with a maximum limit indicated or a letter. Bring the letter or check to the dealer with you when you’re shopping for your new car.
5. Negotiate With the Car Dealer
When you find a car you like, it’s time to negotiate with the car dealer. Dealers make money on in-house auto financing, so let them know that you’re preapproved and that you will pay cash. The dealer might ask you what auto loan interest rate your lender offered. Don’t tell them, but ask what their rate would be. If you want to compare their offer with your preapproved offer, be sure you’re comparing the interest rate, term and any additional terms and conditions.
Having a preapproved loan gives you a better negotiating position with the dealer, because they know you are a serious buyer and can pay upfront. You can still use the dealer’s financing if you want, but you should only do that if they make you a better offer than your lender.
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6. Get Your Car Loan
If you’re using the preapproved loan, the lender should have told you what to do in order to complete the car financing. If you get a better offer from the dealership, you can sign their paperwork on the spot. Your preapproval will expire after a certain period of time, so you don’t need to do anything.
Benefits of a Preapproved Car Loan
Going in to a dealer with a preapproved loan makes you a more attractive buyer and helps you negotiate the best deal on your new car. You’ll know just what you can spend so you won’t be tempted to go over your budget when you are looking for a car.
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