We all know the steps it takes to buy a house. First, you decide you want to buy. Second, you go to a financial institution and get pre-approved. Third, you start looking at houses. Fourth, you're in the process of actually buying it. What most people don't know is that you can actually get pre-approved for an auto loan BEFORE going to the dealership. This saves a lot of headache by sitting in the dealership for six hours while they "negotiate" the best price for you with lenders they have relationships with. Sometimes, if you do the work ahead of time, you can get a way better deal and save thousands of dollars on your auto loan. So, how does this work?
Step 1: Figure out a Budget
This step will require you to do your research on how much you can afford, what types of cars are in your budget, and how much you actually want to finance. It's important that you DO NOT go to the dealership to test drive cars yet because the salesperson may try to talk you into financing through them. Make a list of the cars that you're interested in test driving once you get pre-approved.
You can also look at sites like Kelley Blue Book to see what the trade-in value would be for your car if you're looking to trade it in. Make sure if you still owe money on the car you're trading in that you take into consideration what that would do to your auto loan price/payment if roll it into your new auto loan.
Step 2: Shop Around
Once you figure out how much you want to finance, it's time to start shopping around for rates. You can visit your local financial institutions' websites to see what the rates are or you can go into the branch to speak with a lender about what rate they can get you. After you have a list of rates from each institution, pick the best one.
Step 3: Apply for a Loan
The next step is to actually apply for a loan. You can do it online or in branch with a lender. They'll go through the whole process and approve you or deny you. Once you're pre-approved for the loan, it's time to go shopping! Some financial institutions will print out a check for you to fill in with the name of the dealership and the exact amount you're financing for the vehicle.
Step 4: Head to the Dealerships
Now that you have your check in hand, it's time for the fun to start! Bring your list of vehicles that you want to test drive and what dealerships you want to visit so you have a plan. When you get to the dealership and the salesperson starts asking about monthly payments, stop them in their tracks. Tell them that you already have financing through a financial institution and you just want to look at the car.
Step 5: Seal the Deal
When you pick the car that fits with the amount you were pre-approved for and negotiated a price with the dealership, it's time to seal the deal. This is the process that is very quick. Since you already have financing, its just the point of signing the contract and moving on with your day. Since you have your check, all you have to do is fill it out like you would a regular check, and it will be funded fully through your lender. Once that check is cashed, the financial institution will set up your loan to the correct amount and you'll be all set. One thing to consider is that most financial institutions offer protections and warranties that far outweigh the ones that the dealerships can sell you. Make sure you talk to your lender before heading to the dealership to see what the cost and coverage would be. That way, you can compare it while you're in the buying process.
What happens if you didn't get pre-approved and can get a better rate elsewhere?
Let's say you didn't realize that getting pre-approved for an auto loan was an option and you didn't get the best rate. No matter when you bought your car, you have the right to refinance your loan with someone else. Some salespeople will tell you that you have to wait a certain period of time or else you'll be charged a fee. This is false. Refinancing is easy and simple and can save you a lot of money, especially if the rate you got isn't the greatest. Stop by and speak with a lender to see what your options are, whenever.