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3 Mistakes People Make When They Need a Car Loan

Editorial Note: The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Car Loan

Does your heart drop into your stomach at the thought of buying a car? The stress of making such a major purchase and, dare I say, negotiating, can tire people out so much, they’re ready to say yes to anything at the dealership in order to get their new car and get out. Knowing the common mistakes people make can help you avoid them — the mistakes, not necessarily the salespeople. So here are the major ones.

Not doing your homework on vehicle value

Don’t just check out the closest place to you when searching for the car you want. Look around for prices, and don’t forget to look up what your trade-in is worth, if you have one. Here we’ll talk about the mistakes people make in not looking up prices for new, used and trade-in vehicles.

Not comparing price on new cars

While it might be tempting to go to that one dealership down the street instead of hopping online to check out the prices of a few dealerships around town, you could lose money doing so.

If you know the car you want, look up what dealers in your area are selling it for. Dealers everywhere advertise how far below MSRP they price their vehicles. MSRP stands for manufacturer suggested retail price, which is largely based on production costs.

The window stickers on cars have to show the MSRP and break down the costs that go into it, including all optional equipment (and how much it costs) that comes with the car. So if you find a model you really like, you can check out the window sticker to see the price variations on different trims for that model. The same type of car may be a few hundred dollars cheaper in a different color.

Once you find an ad for a low price on the vehicle you want in your area, you could either go to the dealership with the lowest price, or take the ad showing the lowest price to the dealership that’s most convenient for you, and ask them to meet or beat it.

Not checking auto guides on used cars

While used cars don’t have an MSRP, there are three industry standards you can use to determine their value: the automotive guides Kelley Blue Book (KBB), Edmunds and the National Automobile Dealers Association’s guide (NADA). Dealers and lenders use them to determine vehicle price and worth.

If the price listed in one of the guides is below the car’s sticker price, then the car is overpriced. Show the dealer or seller that you did your research. The car should be priced around what the guide states is the fair market price based on location and condition. If the seller doesn’t agree to offer you a price near that figure, find another vehicle or another seller.

Not looking up the value of your trade-in

Similar to a used car, you can find the value for your trade-in on an automotive guide. Most guides have a range of values that tell you what you can reasonably expect to get for the car depending on the car’s condition and to whom you sell it. You can usually get more for your trade-in if you sell it yourself.

If you’re up to selling it, you could post it for sale on sites like Facebook Marketplace, Craigslist and Autotrader. Of course, you then have the hassle of replying to prospective buyers and arranging times to meet so they can see and test-drive the vehicle.

Most people prefer to trade in their old vehicle at the dealership, which often offers you a price that is less than what the car is actually worth. In effect, you’re paying the dealership to handle the hassle of selling your car for you.

Just make sure you don’t pay them a whole lot. Look up the value of your trade-in before you go, so you’ll know what it’s worth and the person or dealer buying it won’t get away with underpricing it.

Focusing on the car over the car loan

As shiny and pretty and good-smelling as a new or new-to-you car may be, remember, you’re not just paying for the vehicle, you’re paying for the loan on it. Here are mistakes people make in financing their cars.

Only talking to one lender

Know what APR you can get before you go kick some tires. Having multiple loan offers before you shop around for a car has a couple of advantages.

The first advantage is that you’ll be able to pick the best loan offer. If you just get one loan offer and go with it, you won’t know if you could have received a much better APR with a different lender. Each lender has its own requirements. You may qualify for different APRs depending on the lender.

By shopping around, you can easily avoid a major way dealerships make money. Dealers can often increase the APR on a loan you get through them. For example, the dealer might be able to charge you 7% APR, with 5% going to the lender and the 2% on top going to the dealer. If you don’t talk to multiple lenders and see what you can get, you won’t know you actually qualify for 5% APR and you’re likely to say yes to the 7% APR.

The second advantage of comparing offers is that you’re able to plan your budget more accurately. With a loan offer in hand, you’ll know how much you can borrow, what your APR is and thus what price range you can consider when looking at vehicles.

If you do have poor credit, your APR will probably be a significant part of what it costs for you to get a car. There are ways to find a car loan with bad credit, so plan and budget for it, so it doesn’t surprise you. No matter what you think your credit is, you should check it before you apply for loans, which you can do for free on LendingTree. Disclaimer: LendingTree is the parent company of MagnifyMoney.

Refusing to talk finance with the dealer

Some people will bring a loan offer to a dealership and refuse to talk with the dealership financing office. This is mistake. Not asking the dealership to beat a loan offer means you could be leaving money on the table.

The dealership wants you to finance through them. Lenders often give dealerships a finder’s fee for each customer who gets a loan from them through the dealership. Unlike the first way dealers can make money on a loan (by increasing your APR), this way works to your advantage, as the dealer will want to beat the loan offer you have, because the lender they partner with will often pay them for it.

Overall, the dealer might not be able to beat your loan offer. But whether they can or can’t, by asking them to beat it, you’ll know you got the best deal.

Focusing on monthly price

Many people’s main considerations when buying a vehicle is down payment and monthly payment. Those are the two biggest factors because it’s the easiest way to understand how the loan and the car impacts their financials directly. However, if you focus on monthly price instead of total price, you’re giving the dealer the opportunity to hide extra products in there.

For example, if you tell the dealer you want a monthly payment of $321, and it turns out the loan with the car you want comes to $290 a month, the dealer can turn around and say, ‘Hey, I have great news, you can have a $321 car payment that includes an extended warranty! Sign here.’

All of a sudden, you just spent $1,500 on an extended warranty, which you may not know much about or even want.

There are many “add-ons” available at dealerships, including extended warranties and insurances such as GAP, life and disability. All of these things can be useful depending on the person and the vehicle. But don’t simply accept them. A monthly payment increase of $20 might not sound like much, but over six years, plus the APR you’re paying to finance it, certainly adds up. You can negotiate these products prices, so talk about how much each costs overall, not monthly.

Rolling over negative equity

If you have a trade-in car, the first thing you should do after consulting an automotive guide to find how much the car is worth is to find out how much you owe. If the car is worth less than what you owe, you have negative equity.

The most popular way to handle this is to add the difference, or “roll over” the negative equity, to your new loan. Financially, this isn’t a great idea. You’re less likely to get a good deal on your new loan because the loan is for more money than what the new car is worth. This can also get you stuck in a trap in which every time you want a new car, you’re stuck with the negative equity from the car before it.

There are a few ways to take care of negative equity, and here are some recommendations on what to do if you’re trapped in a bad car loan.

Ignoring your budget or not having one

If you know you can only afford $321 a month in a car payment (not including car insurance), don’t let someone persuade you to take on a $400 a month payment. If the loan you qualify for on the car you like can only be as low as $400 a month, that means you need to find a different car to like. You don’t want to be skipping meals in order to pay for it, or not be able to make the payments and have it repossessed.

In order to confidently decide what you can afford, you first need to figure out your budget. A good rule is that all of your bills (rent, insurance, car payment, etc.) should be about 50% of your income. So look at your income and the bills you already have to see the margin between what all your bills add up to and the 50% amount of your income. That difference is a car payment you could comfortably afford.

The common rule of thumb about auto finance is that for every $1,000 you finance, your monthly payment goes up by $15, depending on your interest rate. Say the car you like costs $20,000, and taxes bring the cost up to $22,000 (taxes, tag and license fees can add up to 10% of sticker price, depending on the state). That rule of thumb would tell you to budget roughly $330 for a monthly payment ($15 x 22 = $330). Or you could do the longer math: Most car loans are for 72 months (6 years), and if you figure your loan APR will be 5%, then your monthly payment would be $355. Obviously, the rule of thumb is just that — a guideline. Doing the exact calculation or using a loan calculator can help you budget more precisely.

Doing things too quickly

Car buying can be a large and stressful event, so it’s understandable why you would want it over with quickly. However, you shouldn’t treat the process as you would ripping off a bandage.

Not walking away

If you’re unsure about a car or an auto loan and want time to think on it, take the time to think on it. Leave the dealership and take a break. Make sure you’re making the right decision for yourself, and don’t feel terribly pressured into making one quickly.

A salesperson might tell you the car want today could be gone tomorrow if you leave without buying it. That’s true, that specific car could be sold. Yet manufacturers make thousands of vehicles a day and people trade in used cars all the time. You can always find another to suit your needs, which would be better than getting stuck in something you don’t completely like or can’t afford.

Being rude to salespeople

Ultimately, the people at the dealership are the people you’re relying on to provide a service. This article has covered what some of the more unsavory people at dealerships can do, but it does not account for the hard work and true customer care many dealership employees do put into helping car buyers.

Many of the veteran salespeople in the car business are there because they enjoy and specialize in helping you make one of the largest financial decisions in your life. If you’re uncommonly rude to them, you might discover that it takes longer to do everything, and that it may be harder to negotiate on price — basically, it’s in everyone’s best interest to practice common courtesy. Take advantage of a good salesperson’s expertise, and don’t allow the others to take advantage of you.

Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

Jenn Jones
Jenn Jones |

Jenn Jones is a writer at MagnifyMoney. You can email Jenn at jennifer@magnifymoney.com

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Auto Loan

The Best Places to Look for Auto Refinance Companies

Editorial Note: The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

When you’re looking to refinance your auto loan, it’s best to check around at multiple lenders for the best rates. Because many lenders today offer online loan options, you can check out the most current offers without putting in the actual legwork of shuffling from bank to bank in person.

See what rates your bank or credit union advertises. Check their websites or call them by phone. Often they’ll give rate discounts when you make automatic payments using one of their checking accounts, which is an easy bar to meet if you’re already a member.

Look at competing lender offers. Whatever your current bank or lender says, compare them to other deals by shopping online. There are dozens of auto loan options out there, but don’t be intimidated. We’ll help you find the best places in this guide. It won’t hurt your credit if you apply to a few different lenders for the same type of loan within 14 days, so don’t let that stop you from applying to one of the best car refinance companies if something looks good.

Look at what your current lender advertises. Not all companies refinance their own loans, but, for those that do, you might be able to refinance with the same company if you qualify for a lower rate or different term.

In this guide, we’ll show you the best places to start shopping for an auto loan refinance, as well as provide tips on how to decide when refinancing is the best move for you.

The best places to shop for an auto loan refinance

To help you choose the right ender for your refinance, we picked out some of the best places to refinance a car online. We started by analyzing more than 450,000 auto refinance applications for 17 lenders submitted through the LendingTree marketplace over a six-month period (September 2017 to February 2018). We then compared and selected the top four lenders that 1. consumers were choosing most often and 2. offered the lowest average APR.

LendingTree

If you are looking to explore your options, LendingTree is a good starting place. Its online auto lender marketplace lets you compare up to five lenders side by side. You can find lenders that offer loans with APRs starting at 2.09%. Motorcycle and RV financing and refinancing are available as well. People of all credit scores may apply. After completing a short online form, you may be able to see real interest rates and find out if you prequalify for any offers instantly.

Pros:

  • LendingTree partners with dozens of financial institutions that compete for your business. Depending on your circumstances, you may be matched with one or more lenders at one time, allowing you to potentially compare several offers and choose the lender that has the best rate and loan terms for you.

Cons:

  • Some of the lenders on LendingTree don’t offer prequalifications. You may or may not be matched to one that does a preapproval, not a prequalification, which would require a credit pull.

A prequalification is a not an automatic approval. Some auto lenders may not offer a prequalification at all and they may require you to submit an application for approval.

How to apply
Go to the LendingTree website and fill out the prequalification form. You’ll need the vehicle information, your information, including contact, loan, employment and income details on hand.

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Disclosure: LendingTree is the parent company of MagnifyMoney.

iLendingDIRECT

Like LendingTree, iLendingDIRECT is an online marketplace where you can potentially be directed to multiple auto lenders. Once you submit an application, the company will shop around for the best loan offers for you. It works with more than 20 financial institutions to offer a wide range of refinancing options, cash back loans, lease buyouts, and more. APRs start at 1.99%. Cars, trucks, motorcycles, boats and RVs can be refinanced; maximum terms and amounts depend on the type of vehicle.

Pros:

  • In some cases, you can skip the first month’s payment to give your wallet a break. If you don’t qualify for refinancing because of poor credit, iLendingDirect will work with you to help you improve your credit so you can qualify.

Cons:

  • Compared to other refinance marketplaces, iLendingDirect has relatively few financial institutions as partners.

To apply
Either call them or fill out a short contact form online and they’ll reply to you. You should have your personal contact information, your vehicle’s year, make and model, and your loan information at hand. With this information, they’ll find the best offers you’re pre qualified for, and you can choose from those which loan you’d like to apply for.

rateGenius

rateGenius is another online loan marketplace, but this one specifically works with borrowers seeking to refinance. They have a network of 150 lenders around the country. APRs start at 1.99% and loan amounts and maximum and minimum loan terms will vary depending on the type of vehicle.

The original loan term may be shortened or lengthened, though usually rateGenius will match the term of your new refinanced loan to the amount of time left on your original loan.

Pros:

  • The application takes a few minutes and refinance offers are ready within 48 hours. rateGenius itself doesn’t charge any fees to you for using their marketplace.

Cons:

  • rateGenius doesn’t refinance specialty vehicles. This plan also might not be the best fit for you if your income ebbs and flows from month to month.

To apply
Give them a call or fill out an online application form. You should have the following information ready.

  • Current loan information (lien holder name, monthly payment)
  • Vehicle information (make, model and style; VIN; mileage)
  • Employment information (along with a phone number for employment verification)
  • Personal information (SSN, name and contact details)

Autopay

The online loan marketplace AutoPay works to provide refinancing to people at different levels of credit. The minimum loan term is 24 months, while the maximum goes up to 84 months. You have to have at least $5,000 remaining on your loan and no more than $100,000. APRs start at 1.99%.

Pros:

  • This would be one of the best refinancing companies to go with if you have a small amount remaining on your loan or less-than-great credit.

Cons:

  • Depending on its lending partners at the time, Autopay doesn’t refinance specialty vehicles other than motorcycles.

To apply
Visit its website to fill out an online prequalification form. You’ll need your driver’s license, a payoff letter from your current lender, proof of insurance on the vehicle, proof of income and proof of residence. Autopay then works to find the best refinancing offers for which you’re pre-approved, and you can choose which to apply to.

Benefits of refinancing your auto loan

There are different ways to ditch a bad auto loan, or simply improve your payments to suit your current cash flow, and refinancing is a great way to do it.

Nicolas Ortiz, an auto insurance agent and adjuster at USAA headquarters in San Antonio, Texas, has worked in the industry since 2011 and did a stint as a finance manager at a car dealership for over a year.

“Most people look to refinance in order to lower their payment,” he said, “and you can get other benefits that come with it.”

Here’s more about the benefits of refinancing:

Get a better interest rate. If your credit has improved from when you first signed for the loan, you may qualify for a lower APR. “If you apply to refinance and get a lower APR, not only will your monthly payments be lower, but the overall interest that you pay will be lower, too, if you keep the same term.” Ortiz explained.

Decrease your monthly payment. If you’re strapped for cash, a lower car payment can make a big difference. It could give you some breathing room or prevent a repossession. To get a lower monthly payment, you may refinance with a lower APR, refinance for a longer term or both. Keep in mind your total interest cost may be higher over time when lengthening the term of the loan even if the APR is low.

Decrease your loan term to reduce interest payments. The less time you spend paying back a loan, the less you are likely to pay in interest payments. “To lenders, a greater length of time means a greater amount of risk; greater risk means more interest.” Ortiz told MagnifyMoney. Decreasing your loan term when you refinance will likely decrease your APR, but increase your monthly payment.

If you don’t want to commit to a bigger monthly payment when you refinance, one way to get a similar result is to simply refinance to get a better APR, then make monthly payments that are larger than the required monthly payment. This way you’re going to pay the loan off faster and pay less interest, but you have the option to make the lower required monthly payment if funds are tight.

Double-dip. If you have excellent credit and finance through a manufacturer when buying a new car, you usually have a choice of either getting a low APR, or getting large rebates from the manufacturer. “What you can do is if you qualify for manufacturer financing, take the rebates, sign up with them, and then turn around in a month and refinance with a credit union or bank that will give you a lower APR.” Ortiz said. You get the rebates from signing up with the manufacturer and the low rate from refinancing.

What to watch out for

A refinancing company may offer you add ons like GAP insurance or a warranty, which is also called a vehicle service contract (VSC). Make sure you know exactly how much each costs you and what it does. Don’t just say yes to a monthly payment that includes it.

GAP insurance stands for Guaranteed Asset Protection and covers the debt on the car that your auto insurance company doesn’t. For example, if you get a new car, don’t give a down payment, and crash the car a month later, what you owe on the car will be more than what the car is worth. GAP insurance covers the “gap” between what you owe and what the insurance company pays.

An extended warranty, also called a vehicle service contract (VSC), is an insurance product that will cover certain repairs to the vehicle. It is not your regular car insurance and won’t cover car repairs if you’re in a crash. It will generally cover repairs if something breaks from wear and tear.

For example, if your AC goes out because you live in a hot climate and like to make your car an ice box in the summer, the VSC might cover it. It depends on what type you get. It can be complicated, so, if you’d like one, know that you can negotiate on it and make sure you know what you get for the price you pay.

Questions to ask before you refinance an auto loan

While you can refinance at anytime, some people try to refinance when it may not make much of a difference, or may make a difference in a worse way.

Here are some questions to help you figure out if refinancing your auto loan is right for your situation.

Has your credit changed significantly?
If your credit’s gone up enough to push you into a higher score band (from “fair” to “good” for example), you should definitely check out the best auto refinancing companies to see if you can get a deal. You can use LendingTree’s free credit score tool to check your credit status. Note: LendingTree is the parent company of MagnifyMoney.

If you have a high APR auto loan because of poor credit, has your credit improved?
Many people who have poor credit and little choice but to sign for a high APR auto loan might ask when their credit will improve to the point they’ll be able to refinance at a lower APR — but it really depends on your specific situation. There are steps to successfully improve your credit. Making monthly payments on-time and in-full should help improve your score. Just have patience — lenders typically report payment behavior to the credit bureaus once every 30 days, but that can vary by lender.

If your credit hasn’t increased, or it’s dropped into a lower category, refinancing at this time probably isn’t right for you.

Do you want to add or remove a co-signer?
By refinancing with a new lender, you may have the ability to remove a cosigner from the original loan. However, you may struggle to get approved for refinancing if your credit is poor, you are underwater on your loan (meaning you owe more than the car is worth) or if you have missed several payments.

If you are looking to add a cosigner to a loan in order to get approved for better loan terms, make sure they understand the pros and cons. Their credit history can be positively affected by you making payments, but they will also be accepting liability for the loan if you fail to make payments.

Are you underwater or upside down?
Do you owe more on the car than it’s worth? If you do, you might want to think about paying down the loan before refinancing. You’ll be able to get the best deal in refinancing if your loan is equal to or less than the value of the car. However, if you know you can get a better rate now, even if you’re underwater, it might be worth doing so. That way, more of what you do pay on the loan goes to the principal and you can pay down the loan faster. Then, once you’re no longer underwater, you can refinance again for an even better rate. You’re not limited on the amount of times you can refinance.

Are you in danger of a repossession?
If you lost your job, had a family emergency, or just have a lot of trouble making payments, refinancing can make the best of a bad situation. You may not be able to finance into a loan that has a lower APR, but you may get a loan with a longer loan term, which will lower your monthly payments and give you more room to catch up.

Have auto loan rates dropped recently?
National trends in loan interest rates change based on national policy, politics and demand. Rates are expected to continue to increase this year, and indeed, rates hit a five-year high in February 2018. This isn’t a good trend for the auto loan consumer, as auto loan rates increase with it. If there is a sudden jump in the national rate for the season, consider refinancing a little later. If there is a sudden dip, like there was in the fall of 2017, it’s a good time to shop around.

When to consider refinancing

When to avoid refinancing

If the car is worth more than you owe on the loan.
Positive equity in a vehicle is attractive to lenders and will put you in the best situation to get a great rate.

If your credit improved significantly from the time you signed the auto loan.
By paying your obligations in full and on time, your credit might have gone up since you first got your auto loan.

If you’re in danger of a repossession.
Skipping and missing payments can have a negative effect on your credit. Refinancing could help you get a lower monthly payment you can afford and help you avoid trashing your credit score.

If you want to change something with a cosigner.
You could add on or take off a cosigner to the benefit of your interest rate.

If your credit has worsened significantly from the time you signed the auto loan.
Lenders base the interest rate heavily on your credit history and your credit score. Getting an auto loan with bad credit is not necessarily impossible, just more expensive.

If you owe a lot more on the loan than the car is worth.
If the car is worth a lot less than what you’ve promised to pay, the loan is riskier, thus making it harder and more expensive for you to get a loan — but there are ways to handle this type of situation.

If national interest rates rise by a point or more.
Interest rates on auto loans change along with the flux of interest on the U.S. 10 Year Treasury Note, because the loan terms are similar. If it shoots up, the lowest APR you can get will go up as well. Depending on your situation, it might be better to wait to shop for the best refinancing deal — or, if you want to refinance as soon as possible, go ahead and refinance and then keep on eye on national rates to maybe refinance again if there’s a big change.

If the car is brand new or really old.
Cars depreciate the most in the first two years. If you didn’t give a down payment, odds are that you’re underwater on your auto loan during that time period. Really old cars also aren’t really valuable to lenders and most have limits on vehicle age and mileage.

Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

Jenn Jones
Jenn Jones |

Jenn Jones is a writer at MagnifyMoney. You can email Jenn at jennifer@magnifymoney.com

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Advertiser Disclosure

Auto Loan

7 Reasons to Get a Preapproved Car Loan Before You Go to the Dealership

Editorial Note: The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

iStock
When you need a new car, most people start looking at car options online and then head to the dealership, thinking only of the vehicle itself. Then the salesperson shows up, and you go through the process of looking and test-driving and negotiating the price. When you finally get to the paperwork, you’re exhausted, right when you’re about to discuss the most important part of this whole transaction — the financing.

Wouldn’t it be nice if you had most of the auto loan part done before you even walked into the dealership? Not only is getting preapproved for auto financing the best way to ensure you’re getting the greatest possible deal on your loan, it’s also a simple way to expedite the entire car-buying process itself, helping you get in and out of the dealership and into your new ride faster.

Here, we’ll give you an overview of how to get preapproved for a car loan as well as all the benefits that come with it.

How does a preapproved car loan work?

When a lender gives a preapproval for an auto loan, it means the lender agrees to finance a car for you up to a certain amount, at a certain APR for a specific time.

Be aware that a pre-qualification and a preapproval are not the same thing. A pre-qualification is a soft offer in which most lenders do not pull your credit. If you have a pre-qualification and then do an official application, once you know the car you want, your actual loan offer might be very different, because lenders will do a hard pull on your credit and get a fuller picture of your credit history.

A preapproval, on the other hand, is a firm offer by a lender. Once you decide which car you want, the final loan offer should generally stay the same.

To apply for a preapproval, you can either go online directly to the lender’s website or go in person at a bank or credit union. You can request a preapproval from multiple lenders, which is a smart way to get the best deal possible. Some lenders, such as LightStream, even have a program where they’ll agree to beat any competitor’s rate you can find that’s lower than their rate.

If you are preapproved, the lender will tell you how much financing you qualify for, your loan APR and term. Now, you know exactly how much car you can afford before you start shopping for a particular model.

Why go through all that trouble before you head to the car lot? We’ll cover the benefits of approval next.

7 advantages of getting preapproved for a car loan

You know exactly how much car you can afford
You might try for a preapproved auto loan and find out you could actually borrow more than you thought, and get a better car than you planned. The reverse could be true, too. You could apply and find out you could only borrow some of what you thought. Either way, you’ll better know the vehicle price range you should be considering.

Remember the maximum loan amount the lender tells you that you’re preapproved for means just that — that’s how much the lender will give you to cover all the expenses of buying a car, not just the car’s sticker price. You have to account for the taxes and fees that will be charged as well. So if a lender tells you you can borrow a maximum $20,000, you should probably look for a car around $17,000, depending on your state’s taxes and fees.

You have the upper hand during negotiations
When you are preapproved for financing, you’ll know what you qualify for in terms of APR, so the dealership won’t be able to charge you a much higher APR. In fact, you’ll be able to tell the dealership you already have a loan preapproval, and challenge them to beat it and find a lower APR loan for you. This is a huge advantage over anyone who’s walking into a dealership without financing first.

You’ll know your rate and your monthly payment
If you know how much your loan will cost you, not just how much the car itself will cost, you can figure out your budget more accurately.

So if you think you’ll borrow $20,000 for 60 months, dividing it means your estimated monthly payment is $333. But that’s the monthly payment on the car; it doesn’t include the loan interest. If you know your APR is 5%, you can figure your actual monthly payment will be $350 by using an auto loan calculator like this one on LendingTree, the parent company of MagnifyMoney. (Note that some calculators have built-in assumptions with location and credit score that might give you a slightly higher payment than doing the straight math.)

A lot of the work can be done ahead of time
It’s hard to focus on paperwork and numbers when you’re tired from spending hours negotiating with a salesperson and test-driving cars at the dealership. By doing what is arguably the most difficult part of financing a car ahead of time, you’ve done your homework beforehand. All you’ve got to do is show the dealer your loan offer and see if they can beat that deal. Whether they can or not, you know you’re walking away with a good deal.

You’re not tied down to any one dealership
Getting preapproved for an auto loan gives you more freedom and time to check out different dealerships. By not being dependent on a dealership for financing, you can comfortably check out multiple dealerships if you want. With an auto loan preapproval, you know what your loan offer will be like without waiting for a dealership’s lender partners to respond.

You have a plan B
If the dealership isn’t able to beat your auto loan pre-approval or find a good offer, you shouldn’t be worried, because you already have an offer. Having a preapproved auto loan takes stress off you by serving as a fallback in case the dealership isn’t able to find a good loan offer for you or beat the one you have.

Less stress
Overall, having a preapproved car loan offer lessens the stress of making such a major purchase. You’re able to know what you qualify for, plan your budget and do the work ahead of time so you aren’t pressured to get everything done in one day. And you know you won’t be fooled into paying a higher APR than you deserve.

Where to find a preapproved auto loan

A lot of lenders offer preapprovals for auto loans, but not all. Check online to make sure the lender you want to apply to offers preapprovals. Banks, credit unions and online lenders could all be possible sources. You may want to start with your current bank to see what kind of deal they offer but typically, you can find the best rates at online lenders and credit unions. It won’t hurt your credit to apply to multiple lenders, as long as you do so within a 14-day window.

Here’s a list of the best auto loans in 2018 if you want to check them out. Most preapproved loan offers are good for one month, so don’t start applying if you’re not ready to buy a vehicle within a month from the time you complete an application.

It’s smart to apply to a few places so you can compare offers. Don’t just do one and think that’s the best you can get. If you would like to compare to multiple offers at once, you can check out LendingTree, where you could possibly be matched with up to five lenders.

Applying for auto loan preapproval

To get preapproved for an auto loan, you’ll need to have some information on hand for the application.

  • Personal details, such as address, date of birth and Social Security number
  • Employment information: where you work and how much you make each month
  • A basic idea of the vehicle you want, like if you want a new car or a used car
  • Loan information, such as how much you want to borrow and for how long
  • Account data: how much you have in your checking and savings account, and any other accounts, such as stocks, bonds and debts

What’s next? Buying a car with a preapproval

Take the preapproval with you when you go to officially pick out and buy your vehicle. Most preapprovals are good for 30 days. If you don’t use it to get a car by expiration date, you’ll have to apply again. Once you know exactly which car you want, you could do a couple of things.

The first is that you could tell the dealership about your preapproved auto loan and see if the dealer could beat what you already have. If the dealership can’t beat it, or if you already shopped around for your preapproval and know you want to go with that lender, then let your preapproval lender know exactly which car you want by contacting them on the phone or online. The lender will ask for a bunch of information on the car, such as the year, make, model, mileage and VIN.

Based on the car you want, the lender will tell you the final numbers with taxes and all, and guide you through finalizing the loan.

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Jenn Jones
Jenn Jones |

Jenn Jones is a writer at MagnifyMoney. You can email Jenn at jennifer@magnifymoney.com

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