What Is An Auto Loan Pre Approval
Purchasing a new car is a big deal for many people because they will need to finance an auto loan. This can be a scary process, especially if you have bad credit. Even if you have good credit, securing the perfect auto loan isn’t always just so easy. There are a few things you should know about what is an auto loan pre approval before you walk into the dealer. The more you know about what is an auto loan pre approval, the more satisfied you will be with your purchase overall.
Here are a few key insights that will help you better prepare to purchase your next car, truck or SUV.
Do Your Research
Just as you should research the features and mechanisms of the new vehicle you plan to buy, you should research what is an auto loan pre approval.
You can shop for loans online or with your personal banking institution. Credit unions often offer incredibly low rates for their members. Knowing what the prevailing interest rates are ahead of time can also help you gain some leverage in the process.
If you can avoid it, don’t let the dealer do your loan shopping. You want negotiating power before you even choose your vehicle. Take an interest rate with you that you’ve already found in your research and see if the dealer can match it or beat it.
Remember that several hard pulls on your credit at the same time for the same purpose only counts as one hard pull. Do your loan shopping within a specific time period, not long before you head to the dealer.
Know Your Limits
So you’ve done your research to find the best possible rate but do you know what you can actually afford?
There are few different factors to consider when making the final decision on an auto loan pre approval.
You’ll need to calculate the interest rate into the life of the loan but also tally it against your monthly budget.
Be careful with dealers or an auto loan pre approval that offers a great rate so that you don’t overspend on the vehicle itself. Just because the rate is lower doesn’t make the cost of the vehicle any less.
Most terms are 36 to 60 months, or three to five years respectively. There are six-year terms available but in the long run, you’ll be paying more in interest with this option.
Aside from your monthly budget, you need to be thinking long-term into the future with your finances for an auto loan with a payment that won’t go away for at least three years. If you plan to make other big purchases in the near future, you need to think about how this term will affect your credit as well.
Payment calculations occur based on the term of the loan and the interest rate assigned.
Be wary of a dealer that promises low monthly payments, especially on more expensive vehicles. This probably means there are longer terms and maybe even options taken off the vehicle.
The recommended monthly payment amount is 10% of your gross monthly income minus your monthly insurance premium.
Total Cost of the Loan
One factor that some people overlook at signing is the total cost of the loan. This number includes taxes, fees, and other charges that are on top of the sticker price of the vehicle. You need to know the price of the vehicle going in. In addition you should account for these other costs over the life of the loan.
Remember the longer your term, the more interest charged, totaling more cost in the end.
If you’re having trouble understanding what is an auto loan pre approval or can’t get one, there is always a lease option available.
Leases often come with lower monthly payments and in some cases, no down payment required. The lender allows this for the depreciation of the vehicle while you’re driving it instead of owning it. They still take your credit into account when deciding your interest rate. But the manufacturer controls the terms of the leasing programs.
A leasing company may also look at your debt to income ratio as well as the lease to value ratio of the vehicle you intend to drive.
Managing Your Credit Before an Auto Loan Pre Approval
Before you can even think about car shopping, you need to be sure your credit is in good standing order. This will ensure the best interest rates available and could even have an impact on the term of your loan.
Managing your credit can be a tedious and frustrating process. If you don’t know what can impact your credit you’re at a disadvantage with lenders and auto dealers alike.
There are many itemization’s that banks and lenders review when you’re searching for an auto loan pre approval. You need to know what those itemization’s are and which ones affect your score. In addition, you should also learn more about how each item impacts your credit score. This way you can focus on your spending and financial priorities.
Auto lenders are particularly selective when it comes to credit scores and history.
Be prepared before you secure a loan. Contact us with questions and to learn more about how to properly monitor your credit and finances.
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