If you’re thinking of buying a car, it’s wise to get pre-approved for a loan first. A pre-approval for an auto loan is a conditional go-ahead from a lender that you receive before the final financing details are worked out. In order to reap the benefits of pre-approval, however, you must first understand how pre-approval differs from prequalification.
A prequalification is a short review of your credit history to ensure everything looks good. A pre-approval is like a deep dive into your financial statements versus a mere glance.
The advantages of getting pre-approved for an auto loan are numerous, but some are more significant than others. Here are some of the benefits of getting pre-approved for a loan.
Greater Negotiating Power
Pre-approval gives you a major advantage when negotiating the best possible loan terms. Without pre-approval, some inexperienced buyers readily agree to whatever loan terms they’re presented with by the dealership. But if you get pre-approved, you’ll have the upper hand in the situation.
With your pre-approval, you will know exactly what loan amount and interest rate to ask for. This can help you negotiate the best deal possible. You can even get more leveraging power if you’ve gotten pre-approved by multiple sources. If a dealership is committed to retaining your business, it will try to match or beat the loan rate offered by a lender.
Set a Realistic Budget
With an auto loan pre-approval, you can estimate how much you can actually spend on your new car before buying it. This will stop you from overestimating and help you define a realistic budget.
Some pre-approval quotes provide detailed information and separate allocations on how much you can finance for each part of the total cost — the car, taxes, title, and other fees.
Easier Shopping
It is easier to shop around for a new vehicle if you already know what you can afford. You need to get pre-approved for a loan to know whether the cars that interest you are within your financial reach.
This way, you can concentrate your car search on vehicles that fit within your budget. Once you have narrowed your search, explore each car’s features and determine how well they match what you’re looking for.
