If the Great Recession had a sliver of a silver lining, it was this: Afterward, I saw many more Americans paying more attention when they bought a home, instead of simply paying more money.
I’ve mused before that the next recession might be caused by an auto bubble instead of a housing bubble, and now I wonder if that’s what it will take to get Americans to focus on their second-biggest purchase.
A few months ago, Debt.com reported that new car loans had hit an all-time high. “The annual percentage rate on car loans has risen from 4.4 percent to 5.7 percent since 2013,” which doesn’t sound like much until you consider: “A new vehicle will cost you $6,500 more than it did five years ago.”
Those sad statistics mean car shoppers need to be savvier than ever. Alas, that’s not happening.
If you’re not buying a new car in cash — and sadly, too few of us do that — you need a loan. The easiest way to save on a loan is to secure it before you buy the car. That might sound like you’re putting the car before the horse, but it’s actually a smart move. It’s called “preapproval.”
In a nutshell, it means a lender has already said, “You got this much money to buy a car.” When you go to the dealership to negotiate the price, you can fend off the high-pressure sales tactics by saying, “This is how much I have, and I’m not spending a dollar more.”
Yet according to a new report on car shoppers from Equifax, one of the Big Three credit bureaus…
Just 15 percent have the intention of getting preapproval on their desired vehicle. Even more interesting, nearly a third (32 percent) said they do not plan to seek preapproval during the shopping process.
What a waste. Here’s why.
1. It’s a sign you’re serious
Car dealers know preapproved shoppers are sharper than those who aren’t. After all, you spent time on the front end securing a potential loan, so you’re less likely to fall prey to emotional (and costly) sales tactics.
2. You’re not locked in
Just because you’re preapproved doesn’t mean you can’t change your mind. Dealers work with their own lenders, and because they specialize in car loans, they can often offer better rates. You’re more likely to get the best deal if you walk in with one already in hand.
3. You can shop around
Too many people shop for a new car after their current vehicle dies. They have no time to search for the best terms for a loan. When you seek preapproval, however, you can check with many lenders. You can usually get preapproved in 24 hours, and that approval usually lasts for up to 60 days.
The views and opinions expressed in this article are those of the author(s) and do not necessarily reflect the opinions and/or policies of Debt.com.
About the Author
Howard Dvorkin, CPA
I’m a certified public accountant who has authored two books on getting out of debt, Credit Hell and Power Up, and I am one of the personal finance experts for Debt.com. I have focused my professional endeavors in the consumer finance, technology, media and real estate industries creating not only Debt.com, but also Financial Apps and Start Fresh Today, among others. My personal finance advice has been included in countless articles, and has appeared in the New York Times, the Washington Post, Forbes and Entrepreneur as well as virtually every national and local newspaper in the country. Everyone should have a reason for living that’s bigger than themselves, and besides my family, mine is this: Teaching Americans how to live happily within their means. To me, money is not the root of all evil. Poor money management is. Money cannot buy happiness, but going into debt always buys misery. That’s why I launched Debt.com. I’m glad you’re here.
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