If you want good leverage when walking into a car dealership, it’s best to go in with a preapproved loan. Although, it has some downsides to it. Let’s take a quick look at all the pros and cons of a preapproved car loan.
How does a preapproval work on car loans
You can lock in the rates and terms on a car loan before contacting a dealership. Preapproval draws out a period between getting approved for a loan and signing the documents.
There’s a clear distinction between the preapproval on a car and other types of loans, for example, a $1,200 dollar loan: unlike the latter, the former requires a full application, documentation and a hard credit check.
There’s often a mixup of terms when speaking about preapproval and prequalifying. Even some lenders sometimes use them interchangeably, though technically it’s not the same.
Prequalifying involves a soft credit pull, unlike preapproval, which requires a hard credit check. The former will not give you negotiating power. Locked-in rates usually refer to preapproval, not prequalifying.
How to get preapproved for a car loan
Even though each case should be viewed individually there are four general tips for a successful application:
- Calculate your budget carefully. Check how much payment you can do each month, and depending on this sum pick a lender that you can qualify for. Make sure you can fit in the repayments into your budget.
- Know your credit score – as it will show you what rates are realistically available to you.
- Set your mind on a particular type of vehicle. It can give your lender a basis for calculating the rates and terms they can offer.
- Look around and get preapproved with different providers to compare the APRs, fees and terms later.
It’s also good to gather all the necessary documentation ahead of time, so the application process will go smooth and fast, and there won’t be any emergency situations.
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The advantages of preapproval for car loans
Let’s analyze what upside can such a trick have:
- A sense of assurance. You know exactly, that you’re qualified for a specific loan and you can count on this sum when purchasing a car, so your stress levels are lowered.
- Negotiation power. Now you can bargain with the dealer for a better price.
You can obtain fixed interest. This gives you the opportunity to slide through the fluctuations in the market that change the interest rate.
- A variety of options. You don’t have to stick with the offered package anymore. Preapproval protects you from the markups.
- No upsells. The salesperson cannot upsell you with an insurance or extended warranty if you know for sure you won’t be able to afford it.
All of the above seem to form a pretty sweet deal. What’s the catch though?
The cons of a preapproved car loan
Three main reasons for people to hold off obtaining such a loan include:
- It is usually available for a short period of time – 30 to 60 days. If you’re not able to finance a vehicle within this opening, it’s best to hold off your application.
- Preapproval settles the amount that will be available to you. Thus, your car choices might be limited, which is good if you don’t want to overspend but is bad for those who like to shop around.
- Not every lender can offer you the preapproval, and sometimes this option comes with a hard credit check requirement.
Therefore, before applying for a preapproval, you must weigh all the pros and cons carefully.
Should I get preapproved on a car loan?
It really is a matter of a specific case. You might want to get a preapproval if:
- It’s your first time borrowing money. You’ll have an idea of what you can count on without jeopardizing your credit history. Also, the application process for used car loans is not the same as for payday loans, so getting a car loan might differ greatly from getting a $3,900 loan.
- You want to bargain with a dealership and need leverage to make a strong case.
- You haven’t picked a dealership yet. Having a preapproved car loan makes you a cash buyer, so you can switch between offers.
If after considering all the options you decide to opt for a preapproval, here are the steps you should take:
- Get a copy of your credit score.
- Gather all your personal documents and income info.
- See all your options.
- Fill out one of the more preapproval applications with at least a couple of lenders.
- Choose the car you want.
Keep in mind that after you get your preapproval, usually you can take up to 30 days to shop around for a new car. Some lenders might offer you an extended period of 60 days, but this happens less often.
After you get preapproved, a lender would give you a check that you can use while buying a vehicle from the dealer or a private party. You don’t have to sign off on the loan if you decide to choose another provider or change your mind about purchasing a car.
This way, getting preapproval for a car loan is helpful for those who want to negotiate with a dealer, but doesn’t put any hard obligations. On the other hand, the number of lenders who offer this kind of a deal is limited, so your options may not be as varied as you’d hoped. Sometimes, a car loan might take a toll on your credit history. If it happens, don’t sweat – you’ll always have an option in Bad Credit Loans in Oregon to better your financial situation. But to avoid such misfortunes, always go into any deal with a cool head.Get Started Now!
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