Buying a Car? Here’s the Big Money-Wasting Mistake You Must Avoid
Written by
Ashleigh Ray, AI Editor
Edited by
Ashleigh Ray
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When it comes to buying a car, excitement and anticipation can easily cloud your judgment. You might picture yourself cruising down the highway in your new ride, but don’t get carried away just yet.
There’s a big money-wasting pitfall you need to dodge: not securing financing before stepping into the dealership. Let’s break down why this is crucial and how you can outsmart the common traps of car buying.
Why Pre-Approved Financing Matters
The Power of Pre-approval
Securing financing before you visit the dealership is like going into a battle with your best armor on. It gives you a clear understanding of what you can afford, helps you stay within your budget and most importantly, puts you in a stronger position to negotiate.
When you have pre-approved financing, you know the exact interest rate and terms. This not only prevents you from falling for high-pressure sales tactics, but it also stops you from agreeing to unfavorable terms that dealerships often offer. It’s a simple step that can save you thousands of dollars over the life of your car loan.
Don’t Be a Target
Dealerships often mark up the interest rates on the loans they offer, earning them a hefty commission at your expense.
Without pre-approval, you won’t have a baseline to compare their offer against, and that’s exactly what they’re counting on. Don’t make yourself an easy target for these costly markups.
How To Get Pre-Approved for a Car Loan
Check Your Credit Score
Start by checking your credit score. This three-digit number is essential because it influences the interest rate you’ll get. The higher your credit score is, the lower your rates will be.
You can check your credit score for free on many websites, or even some credit card providers offer this as a perk with your account.
Shop Around
Put in the due diligence and shop around so you can avoid the common mistake of going with the first lender you find.
Check with your bank, local credit unions and online lenders. Compare the APR (Annual Percentage Rate), loan terms and any fees. Even the smallest difference in interest rates between lenders can lead to significant savings over time.
Gather Your Documents
When you’re ready to apply, you’ll need to gather some documents. Typically, lenders will ask for proof of income, employment verification, proof of residence and a list of your debts and assets. Having these at the ready can speed up the process significantly.
At the Dealership: Stay in Control
Stick to Your Budget
With pre-approval in hand, you know exactly what you can afford. Stick to this number and don’t get tempted by all the shiny extras the salesperson might offer.
Those upgrades can add up and suddenly, you might find yourself considering a car that’s way over your budget.
Use Your Pre-Approval as a Negotiating Tool
Let the dealer know you’re already pre-approved for a loan. This shows them you’re a serious buyer and can often prompt them to come up with a better offer to win over your business.
Remember, you should always be ready to walk away if the deal doesn’t feel right.
Editor's note: This article was produced via automated technology and then fine-tuned and verified for accuracy by a member of GOBankingRates' editorial team.
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