Buying a car? Get preapproved and save money
How to get preapproved for an auto loan
- Getting preapproved can help you negotiate at the dealership.
- Multiple inquiries shouldn’t hurt your credit score if made in a short-time period.
- Compare all the criteria from multiple loan offers.
Before you head out to an automobile dealership to buy a new car, look into getting preapproved for an auto loan.
Getting preapproved — not to be confused with getting prequalified, a similar, but more preliminary and less-thorough process — can bolster your negotiating power when seeking a better interest rate if you decide to finance the vehicle through the dealership.
Consider these tips as you seek to get your auto loan preapproved.
You can get preapproved from a bank, credit union or other lender before heading to the dealership.
You usually don’t need to have an account with a bank or other lender to get preapproved for a loan, but you most likely will need to become a member of a credit union to apply for one of their auto loans.
According to the Consumer Financial Protection Bureau, shopping for auto loans will generally have little to no impact on your credit score.
“The benefit of shopping will far outweigh any impact on your credit,” the bureau states on its website.
Although applying for multiple loans over a long period of time can sometimes lower your credit score, some credit scoring models count multiple requests or inquiries for your credit score as a single inquiry, as long as they all take place within a certain time period, usually 14 to 45 days.
“This means shopping around for an auto loan during that time span will count the same as applying for just one loan,” the bureau states. “You can minimize any negative impact on your credit score by doing all your rate shopping in a short amount of time.”
Compare the data
Your preapproval will give you a loan quote with an interest rate, the length of the loan, and a maximum loan amount based on such factors as creditworthiness, the terms of the loan, and the type of vehicle you’re interested in purchasing.
Once offered different loans, compare all the loan terms, looking at the amount you will borrow; the interest rate and annual percentage rate (APR); the length or term of the loan in months; and the monthly payment, and whether you’ll be able to afford it. Note that a higher interest rate or a longer loan term will result in additional interest for the loan.
Lenders and dealers aren’t required to give you the best interest rate, so negotiate. A lower interest rate could save you money over the life of the loan.
There are other advantages to getting preapproved than achieving greater bargaining power at the dealership.
Getting preapproved gives you a lot of information, including how much money you can borrow, how much your monthly payment might be based on different loan terms, and what interest rate you qualify for.
By getting a financing quote in advance, you also free up your time to find a vehicle that’s right for you at the best possible price. You won’t have to worry about how you’ll pay for the car of your dreams, because you’ll already have it ready to go from the bank, as long as the car meets all of the bank’s specifications for approving the loan.