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Why Preapproved Auto Loans Make Sense

Don't go to the Dealer Without One


Eduardo Garcia/Photographer's Choice/Getty Images

Shopping for an auto is complex. Here are several reasons why preapproved auto loans make your life easier. With your finances lined up ahead of time, you can focus on your next auto’s features, benefits, and price -- instead of the deal.

Why get Preapproved for Auto Loans?

Any time you get preapproved, you help yourself out. You learn what lenders are willing to offer, and you gain negotiating power. There’s no obligation to use a lender that preapproves you, and you avoid unpleasant surprises. Preapproved auto loans, like any other loan, allow you to:

  • Know how much you can afford
  • Shop like a cash buyer, and
  • Understand the costs you’ll pay
For details on the points above, read about what happens when you get preapproved (or just find out how to get preapproved).

Auto loan preapproval is a good idea for a few reasons that are specific to the auto-buying process.

Negotiate on Price

Unfortunately, auto dealers have a bad reputation. There are plenty of good ones out there, but the bad ones give every dealer and salesperson a bad rap. You never know who you’re going to deal with, so having an auto loan preapproved improves your chances of negotiating on what really maters: your new auto’s price.

Dealers are notorious for trying to focus your attention on the monthly payment (is it a payment you can afford?). That way, they have room to fiddle with other parts of the deal. A monthly payment is calculated using several ingredients: the loan amount, the loan term (how many years), and the interest rate. Once you agree to a payment, they can try to squeeze profits out by manipulating these ingredients.

When you have a preapproved auto loan, the payment is none of the dealer’s business -- so there are no games to play. You and your lender have already agreed to something, and the dealer just needs to decide if you’re offering enough for them to let go of the car.

No Surprises

If you get preapproved through a reputable lender, you’ll know how much you can really afford to spend. They’ll review your finances along with your credit and tell you what you qualify for. Getting preapproved for your auto loan buys you some peace of mind.

If you don’t get preapproved, you may be in for some unpleasant surprises. You may believe that you qualify for 0% financing (or whatever the day’s teaser is) when you actually don’t. You may spend hours looking at vehicles and negotiating with dealers, only to find out that you’re in above your head. The auto buying process can be grueling, so focus your attention on what you know will work.

The Back Office

Don’t worry about the logistics of funding your purchase. When you have a preapproved auto loan, focus on finding the automobile that’s right for you. The dealer will work with your lender to complete funding. You’re not a banker, and you don’t need to be. Dealers get paid by banks, credit unions, and other lenders all the time.

However, it’s wise to keep your financing details to yourself for a while. Let the dealer know that you will not need financing, and keep negotiations focused on price. If you let them know that you’ve got a loan lined up elsewhere, they will want to change that.

Don’t Ignore Dealer Offers

Auto dealers may get a bad rap. Some of them are perfectly reasonable, and they just want to sell you the right car at a fair price. Don’t ignore financing offers and incentives just because they come from the dealer. It’s possible that the dealer can do better than your preapproved loan, so you should at least listen to the offer. Make sure to read all the fine print (it is in writing, right?) before moving forward.

If you get a great offer from the dealer, but you want to refinance after the deal is done, you can do so at anytime.

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