Get Approved on your Auto Loan before you visit the Dealer!
Now that you have established your budget and know exactly what you can afford the next step is to secure a car loan at the lowest interest rate possible.
In the old days car buyers relied on the finance office at the dealership to take care of everything.
Unfortunately with most cars selling at lower profit margins, the car dealers will do everything in their power to make up some profit in the financing of your car.
One of the most common tactics is to bump your interest rate up a couple of points and tell you this is the best rate you can get.
Another tactic is to get you set on a low monthly payment and stretch out your loan several years longer to make it work.
Walking into a Car Dealer to buy a car without a car loan already approved, will often cost you thousands of dollars.
This happens because after hours of haggling with the salesperson to get the deal they want, most people let down their guard in the finance office.
They just want to get the paperwork signed and get out.
BIG MISTAKE! The finance office at most dealerships is where the profit is made. That nice person in the coat and tie is a slick salesperson with one goal in mind. To squeeze as much profit out of you as possible.
The Internet has changed everything!
There are several ways to avoid this from happening to you. First and foremost you most know your credit score. Some car dealers will lie to you and tell you your score is lower than it is, thus justifying why your interest rate is so high.
There are many online services where you can apply for a loan and have an answer within minutes.
Before you apply for car loan!
You must run your credit report. There may be some things on there that will greatly affect your interest rate. Many things can be corrected.
- Get rid of any bad blemishes you can dispute.
- Close any open credit cards you don’t need or use.
- Pay down or pay off your credit cards.
- Do not blindly apply for a loan and get declined or get a high interest rate because of factors you can control.
Know what you plan to pay for your car and add in for sales tax. If you get approved for $25,000, make sure the actual price comes in lower! Do not get sucked into paying more and ending up with financing through the dealer.
If you want to use the dealer for financing.
It’s ok to use the dealer for your financing as long as you are prepared for their tricks. Have a copy of your credit report in your hand so they cannot lie to you about your score.
Know what the current loan rates are and let them know you will not accept a higher rate. Be prepared to get up and leave if they won’t meet your demands. Most dealers have access to many lenders and if you push them hard they will shop the best rate.
One place to look for current interest rates on cars is BankRate.com
Here is a list of questions you must ask when in the finance office:
1. What is the precise (to the penny) price I am paying for the vehicle?
2. What is the total amount being financed?
3. What is the dollar amount I’m paying for the credit (finance charge)?
4. What is the exact amount of each payment?
5. What is the total number of payments? Dont get sucked into a 6+ year loan to get your payment lower.
6. Very Important! Is this deal contingent on getting subsequent approval of the financing from a third party? Watch for the “Subject To Financing” clause on the contract. This is where they nail you. they send you home with a so called approved deal and call you several days or weeks later to inform you that the financing fell through and they can’t get you the rate they quoted, but they found a lender who will cover the loan at a higher rate. Make sure the deal is approved by the lender before leaving the lot. If there’s any question, tell the dealer you’ll come back and get the car when everything is settled.
7. Is there a pre-payment penalty if I pay this loan off early?
We advise you to get your car loan online and bring it to the dealer. This allows you to focus on the selling price of the car instead of the monthly payment. You can also use your online approval as leverage against the finance office at the dealership. If they can beat your loan approval you can consider them for your financing.