Pre-approval might seem like an extra step in the car buying process, but there are good reasons to take a little extra time to get a pre-approved car loan:
It encourages you to stick to a budget: A pre-approval notice will let you know exactly how much you can spend.
It simplifies negotiation: Once you're pre-approved, you can shop for the car as if you had a check in your pocket. This helps you keep focused on the actual selling price of the car, rather than keeping track of the interest rate, down payment, loan term, and trade-in. When asking for the price on the car, you can simply ask, "What's the 'out-the-door' price on this car?"
It reduces the risk of complications: "Yo-yo financing" occurs when a dealer allows a consumer with shaky credit to take possession of a vehicle without the financing being fully sorted out. A few days later, the buyer gets a call from the dealer saying that the loan was not approved and that he has to bring back the car to either re-apply for a loan (usually with higher rates), or worse, come up with a larger down payment. Buyers can avoid situations like this if they have been pre-approved for a loan.
It saves time and hassle in the finance and insurance office: Car buyers dread the finance and insurance (F&I) office at the dealership due to the time it takes and the sales pitches that are made. Some of the delay is unavoidable considering there's a lot of paperwork involved in the purchase of a vehicle. However, if you have been pre-approved, the time should be cut in half. And when the F&I manager pitches tire warranties and paint protection, you can always use your pre-approval as an easy way of saying no. Let the manager know that you've been approved for a certain amount and you don't want to spend any more.
Our Auto Loan Experts can discuss loan options to help you set a realistic price range that fits your budget.*
Before visiting a dealership at all, gather as much additional information as you possibly can on the vehicles in your price range. There are many websites that can help give you all of the information that you need:
Informed shoppers have an advantage when negotiating price. To get the best deal, make an action plan and take your time.
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Know the numbers: By now, you should know the approximate value of the used car you're considering. Just knowing this value will make you a better negotiator. After all, if a dealer is insisting a car is worth $14,000 but your research tells you it's worth only $12,000, you'll negotiate with more conviction. The dealer may try to justify his asking price, but if you have looked up the car's value and included all options and allowed for the mileage, you should be very close to the right price.
Be ready to walk: Don't get your heart too set on one particular vehicle, no matter what the dealer says about the current "sale" going on at the dealership - there's always more where that came from. If a dealer thinks you're in love with the car you just test drove, you'll be in a weak position to negotiate. But if he thinks you might walk away without buying, you will have more leverage when the negotiating starts.
Make a low offer and sweeten the deal slowly: The best way to explain this rule is to use some real numbers. Let's say the price of your target car is listed in the ad or on the window sticker as $12,700. If you've discovered that the true market value for that car is actually $12,000, you can start by offering a bit under that, say $11,700. Don't worry if the salesman acts insulted - it's just part of the negotiation process. Starting lower leaves you some wiggle room to negotiate. The salesperson may try to "meet" your offered price is by offering you dealer add-ons. Unless you already wanted these extras in advance, turn them down. If the salesperson still refuses your offer, raise your price to the approximate value you know the car to be worth and show a printout of this figure. The salesperson may counter with other valuations, such as citing the Kelly Blue Book price. Keep in mind that Kelley Blue Book shows "listing" prices that are being asked by dealers - not what they are really getting paid for the cars.
Before you sign anything, read the entire contract. Be certain you understand exactly what you're buying. The salesperson may pressure you to sign on the spot to get a legally binding contract that sets the terms of your purchase. Or you may be in a hurry because you're eager to drive off in your new car. But once you sign that document, it's difficult (if not impossible) to get it changed. A little time spent reading now can save you a sizable amount of money later.
If in doubt, take the contract home. Go over it at your own pace, and contact the dealer if you have any questions. If a dealer doesn't want you to take the contract home, get a written purchase agreement that spells out all the details. Once you're satisfied with that agreement, it can be written into a contract. If a dealer won't provide either, it's probably best to walk away from the deal.
Here's what the contract should include:
A new or used vehicle is one of the biggest purchases you can make, and protecting that investment is important. American 1 offers several Protection Products that can help you safeguard your vehicle – both from the wear and tear of driving, and from unforeseen accidents that can happen at any time.
*All loans subject to approval