Why Do I Need To Get Preapproved For A Loan?
Q: I'm in the market for a new car, and everyone I talk to from friends to financial advisors, suggests that I get preapproved for an auto loan before I start shopping. Why is this so important?
A: You're actually on the receiving end of great advice. When looking to take out a large loan, like buying a car, having that preapproval in hand before you start your search is a huge head start.
Depending upon the type of loan, the process of getting preapproved for a loan can take time. The lender will begin by asking for your financial history and other personal information. If you have a co-borrower, the lender will need this information about them as well.
You'll be asked to provide your Social Security Number (SSN) and for permission to allow the lender to access your credit report. If the information you provide is satisfactory, as is your credit report, the lender will begin constructing the details of your loan. When they have determined how large of a loan you will be eligible for, they will grant you a preapproval letter. The letter will also detail your estimated interest rate on the loan, though that will sometimes also depend upon the specifics of your purchase, such as the year and condition of a car.
Having your preapproval letter will shorten the loan process significantly when you're actually ready to take out the loan. However, that is only a small benefit of getting preapproved before you start "shopping."
Here are some other advantages of getting preapproved for a loan:
1.) You'll Know What You Can Afford
Your preapproval will tell you exactly what you can afford. This way, you'll avoid being disappointed later when you have your heart set on a certain car only to be told you can't swing it financially. Knowing how large a loan you'll qualify for will simplify your search and get you into your new car sooner.
Be sure to calculate other monthly costs, such as increased auto insurance when determining the actual amount of money you'll need to shell out each month.
2.) Don't Get Taken For a Ride
Picture this scene at a car dealership:
Salesperson: So, you're here to buy a new car! What are you looking for?
You: Well, I want something with a smooth ride and -
Salesperson: Got it. And how much of a monthly payment can you afford?
You: Well, I think I can swing up to $200 a month, but I'd rather something closer to $150 if you -
Salesperson: Step right this way please! Let me show you our new line of Camrys at just $205 a month! They have the most luxurious feel and the ride is as smooth as butter!
What happened here is, quite simply, a salesperson looking to make the most money out of a customer that he can. When you're unsure about how much you can spend, the dealer will capitalize on your uncertainty and try to sell you a car that just barely skims the maximum amount you've decided you can afford.
Also, when you name a monthly payment you can manage, the dealer will work with that number instead of talking about the price of the car. They may try to inflate the payment with charges and fees just because they fit within your named payment amount.
In contrast, when you show up at the dealer with a preapproval in hand, the salesman will have to show you cars with price tags that fit within your loan amount.
Don't get taken for a ride; get your preapproval before you set foot in the dealer's lot.
3.) Be Taken Seriously
A car dealer will take you a lot more seriously when you wave that preapproval in their face, since having that information in hand shows you're ready to buy.
4.) Know You Have Financing You Can Trust
When you show up at the car dealership with a preapproval from Health Care Family Credit Union, you know the deal is in your best interest. Many auto shops have access to several financing options and they're almost always going to put customers into financing options that are in their own wallet's best interests.
In the market for a new home or car? Don't forget to call, click or stop by Health Care Family Credit Union to hear about our fantastic rates on auto loans.