To be pre-approved or not to be pre-approved—this is a major question asked by many car buyers today. If you are asking yourself the same question, consider the advantages and disadvantages of pre-approved auto loans to get your answer.
Buyer flexibility: With a pre-approved auto loan in hand, you can purchase a vehicle almost anywhere. In a place like San Diego where you have more than enough car options, this is good news. You already have the financing, so you can shop around like a cash buyer. In most cases, lenders only pre-approve loans for vehicles to be purchased at franchised dealerships. However, there are creditors that let you shop wherever you want, be it an independent dealership or a private seller.
More savings: Getting pre-approved lets you save more money in two ways. First, it forces you to stick to a budget. Second, it gives you the opportunity to compare interest rates.
With a pre-approved auto loan, you will know exactly just how much you can spend for the purchase. The number you have been given is a set figure, so you cannot purchase a vehicle that costs more than the pre-approved amount. Remember that you will also be paying other fees aside from the purchase price, so aim to find a vehicle that is several thousand dollars less that the pre-approved figure.
Just because you got pre-approval doesn’t mean you got the best rate. But pre-approval allows you to find the best rate available by comparison. When you get pre-approved, you get a rate with which to compare all the other rates offered to you. You can also properly assess whether one is a good deal or not by comparing other important aspects of the loan, such as repayment period and other fees. More often than not, the dealer will try to match the rate or offer you a lower one. It is up to you if you will accept it or not.
More bargaining power: You are in a better position to negotiate with a pre-approved auto loan because it is as good as cash. Because the financing has already been taken care of, there is no need to discuss down payment, trade-in, loan terms and monthly payments. You can just focus your efforts on getting a good price for the vehicle.
Moreover, with a pre-approved loan, you will not be talked into financing unnecessary items such as warranties and additional services. With the loan, you can easily say no to the add-ons and therefore spend less time in the dealership’s finance and insurance (F&I) office.
Reduced risk of yo-yo financing: There are dealers that let car buyers take a vehicle home even if the financing details haven’t been sorted out. Some days after the vehicle was brought home, the dealer will contact the customer and say that the loan wasn’t approved and that he or she needs to either give a bigger down payment or re-apply for a loan with a higher rate. If you had a pre-approved loan, this wouldn’t happen to you.
Quicker loan processing: If you get pre-approved with a bank or credit union that you do business with, processing your auto loan will be much faster. The financial institution already has your details, so much time is saved gathering personal information.
Fixed period of time: The only disadvantage to getting a pre-approved auto loan is that you are given a limited time to make a purchase. Pre-approved loans are valid for a certain period of time—often, these expire 30 days after the approval date. If the said loan expires before the car deal is finished, you will need to apply for another loan.