When purchasing a new vehicle, many people choose to finance their purchases. Much like buying a house, financing a vehicle requires buyers to produce a down payment and then make monthly payments on the vehicle until the balance of the loan has been repaid in full. Financing is a must for many consumers, who otherwise could not afford to purchase a new or reliable preowned vehicle. And just like prospective homeowners can benefit from being preapproved for loans before they begin searching for a new home, auto buyers also benefit in various ways from getting preapproved for a car loan before they begin their search for their next set of wheels.
• Preapproval smooths out the negotiation process. Few people enjoy haggling with car salesmen over the price of a new or preowned vehicle, and that process is even more difficult when buyers aren't entirely sure of how much money they have to spend. When financing your vehicle with a preapproved loan, however, the process of negotiation can go much more smoothly, as you and the salesman know you only have a predetermined amount of money to spend. Ask the price to get the car off the lot, and then you can negotiate from there if you feel it necessary.
• Preapproval cuts back on time spent at the dealership. A car dealership's finance and insurance office is where buyers sit once they have told the salesman they want to buy the car and finance their purchase. Those who have not been preapproved often must sit through a sales pitch in this office or sit patiently as the salesman goes back and forth with the finance manager as you negotiate the final cost of the vehicle. However, when you have been preapproved for a loan, no such back and forth needs to take place, and you can cite your preapproval as a reason you don't want to commit to the extra add-ons that many dealers attempt to sell their buyers.
• Preapproval means the car is yours when you take it off the lot. Dealers are sometimes too quick to put keys in a buyer's hand, and buyers with poor credit sometimes are allowed to drive a car off the lot only to find out days later that the lender rejected their application, at which time they must return the vehicle or return to the dealership to apply for a new loan, which will almost certainly come with a higher interest rate. Preapproval allows buyers to avoid this frustrating and sometimes embarrassing process.
• Preapproval reduces the risk that you will overspend. Many a new or preowned car buyer has fallen in love with a vehicle and spent more than they should have to make the car their own. Preapproval greatly reduces the chances of this happening, as you know before you begin your search that your lender will only approve a loan for so much money. This can help buyers stick to a budget and avoid buying a car they can't afford.