Some people test drive cars for fun, but when you’re really in the market for a new (or new-to-you) car or dreaming ofsecuring a car in the next year,it’s a good idea to get pre-approved for an auto loan before test driving a car. Here are just a few of the reasons you should consider getting pre-approved for an auto loan before taking that new ride out for a spin.
- It gives you an idea of what credit score you’re working with– Mistakes happen. But mistakes on your credit score can be costly. Lenders take into account your credit score from the various bureaus when calculating what interest rate they will offer you. Consumers can receive a free copy of their credit report and review their credit report beforehand on annualcreditreport. Make every effort to properly correct mistakes on your credit report before applying for car loan pre-approval.
The other important factor on your credit score is your debt to income ratio. So if you havea large amount of debt compared to the amount of income and some time to spare, you may want to consider paying it off (or even paying it down) before applying for pre-approval. It takes time, but this approach may just save you a lot on the money over the length of the loan.
- It allows you to shop around– While most dealerships offer their own financing, you may want to consider shopping around before you make your final borrowing decision. Although many dealerships will be able to offer you an attractive interest rate, it’s important to make sure you’re not sacrificing savings in lieu of convenience.Take the time you need to shop around for the new car loan or used car loan you feel comfortable with by getting multiple rate quotes. Start by getting pre-approved for an auto loan with rates that work for you and your budget.
- It sets your budget – Why go test driving before you know what you’ll be able to finance? When you’re pre-approved for a car loan, your lender will usually give you a credit limit that you may spend up to. Of course, you don’t have to meet the limit they are offering, but it will give you a good idea of what the lender thinks you can comfortably afford. This way, you know the price range to focus your efforts on and can then only test drive cars you know you could secure a loan for.
- It offers you leverage – Getting pre-approved for an auto loan offers you the leverage you need when car shopping because a seller will know you are serious about making a purchase. It also shows that you’re not “joy riding” under the guise of test driving, but you have every intention of buying a car. This gives you leverage when it comes to price negotiations and bartering your old car’s trade in value. So leverage your position wisely to get the price you think is reasonable and deserved.
These days car shopping can be an enjoyable experience, especially when you’re prepared. And one of the first steps in being prepared is getting pre-approved for a car loan. Another way to prepare for a new car payment is to fill out an auto loan payment calculator. There are convenient tools and auto calculators that can help you predict your monthly car loan payments so you can budget better and continue to make smart decisions with your money.
This has been a guest post, written by Micah Moon
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.