Why Should I Get Pre-Approved BEFORE Buying a Car?
Car buying should be easy, right? Go to the dealership, pick out your car, secure financing that is offered on-site and drive off. Sounds easy, but could you be sacrificing YOUR best deal in the process? Possibly.
Best practice is to always get pre-approved for your auto loan BEFORE you shop. That way, even if you elect to finance through a company that the dealership recommends, you have something to compare to and can weigh your options.
Also know that typically, financial institutions sell warranty and GAP insurance products that are less expensive than what you will find at a dealership, but provide the same protection.
Compare Apples to Apples
If the dealership provides you a financing offer, make sure you compare apples to apples with the offer you got from the bank or credit union. Don’t necessarily get lured in for a lower, or even 0%, interest rate offer. Often, dealerships will offer a rebate off of the price of the car if you finance elsewhere.
Look at the example below:
If you finance $30,000 for a car at 0% interest for 60 months your payment will be $500.
However, let’s say that the dealership offers you a $3,000 rebate off the total price of the car if you finance with your credit union. Your credit union has offered to finance the loan at 3.5% interest for 60 months. If you finance $27,000 at 3.5% ($30,000 less the $3,000 rebate), you will have an estimated monthly payment of $491.07- about $9 less per month than Option #1. In addition, that $9 per month adds up over the lifetime of your loan (60 months). With this option, you would pay total interest on the loan of $2,470.10, making your t
otal spend for the car $29,470.10- over $500 less than financing at 0% with the dealership!