Buying a car often requires getting a loan. Rather than getting a loan after you find a car, you can actually get prequalified before you ever start shopping. Below are four of the ways that a pre-qualification can help to improve your buying experience.
Preserving Your Credit Score
One of the most important things to consider before shopping for a car is how the process is going to impact your credit score. Fortunately, getting pre-approved for a loan really will help you to avoid tanking your score by having multiple credit checks run. Many pre-approvals can be done without hurting your credit score, but they’ll still give you a good idea of whether or not you can afford to buy a car.
Getting a Better Rate
Getting pre-approved for an auto loan generally gives you access to a better rate than you’d get if you try to get approved at a dealership. The logic behind this is fairly sound – the offers made when you buy a car are done when they lender knows you are looking to buy, while the offers made for pre-approval customers are meant to entice you into borrowing. It’s not terribly surprising to see a pre-approval offer come in that’s at least a full percentage point lower in terms of interest than what you’d get from the same company at a dealership.
About one-third of Americans have an auto loan, and many of them borrow far more than they can afford. When you get pre-approved for a loan, you’ll quickly be able to see what you can realistically afford and what those payments will be like. This will help you to avoid over-spending when you go to buy a car and it will also give you the benefit of knowing exactly what kind of models and features you can expect from the price point that you can afford.
Giving You Leverage
Finally, it should be noted that walking into a dealership with a pre-approval letter gives you the kind of leverage that few other car buyers have. You’ve got a statement that tells the dealer exactly how much you can spend, so he or she really can’t try to go over that amount. If you have a pre-approval letter for a specific car – or even for a different dealer – you’ll force the dealership to negotiate with you when they know you can get a better deal somewhere else.
It’s often a good idea to try to get pre-qualified before you start shopping for a car. This will save you money, let you know what you can buy, and even help you to get a bit of leverage over the dealer. Never start shopping for a car until you know what kind of loan for which you are likely to get approved.