Getting preapproved for a loan can save you time, money, and aggravation.
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.
This is just the rough overview, of course. Buying a new car takes more research than reading one column. If you want to know more, check out How New Cars Can Become Old Headaches.
Published by Debt.com, LLC