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Buying a car is stressful. That’s because it’s one of the most expensive purchases you’ll ever make and there are thousands of cars to choose from.
But here’s the good news: buying a car doesn’t have to cause high anxiety. While it may seem counterintuitive, taking a few minutes to get pre-approved for a car loan will help make the car buying process seamless.
Let’s back up for a minute: getting pre-approved for a car loan is not the same as actually signing on the dotted line for that loan.
Pre-approval is a preliminary evaluation of a potential borrower that determines the maximum loan amount and estimated interest rate. However, getting pre-approved does bring you one step closer to securing the best loan to purchase a car – prior to ever stepping foot in a dealership.
Still not convinced that getting pre-approved in the right move?
Here are 4 reasons why it’s always a smart idea to get pre-approved for a car loan.
1. Your future self will thank you
There are a lot of fun decisions to make when it comes to buying a car, including the make, model, color and upgrades. But, whether you like it or not, most of these factors are determined by what you can afford.
Figuring out the financial details of car ownership isn’t the most exciting part of the process, and this is why it’s important to do this ahead of time. By dealing with the unpleasant or stressful aspects of buying a car first, you’ll be able to enjoy the car-buying process even more.
This is sometimes called front-loading. And, as it turns out, front-loading unpleasant tasks can help alleviate stress. While the concept of “front-loading” is usually reserved for work related tasks, it can certainly be adapted to personal finance tasks as well. For example, perhaps you want to save for retirement in your 30s.
To free up funds, you decide to front-load by paying off your loans first. This way you’ll pay off all your debts as soon as possible, allowing you to focus on saving for your retirement.
Now, let’s adapt this to the car buying process. When it comes to car shopping, you can front-load and reduce your stress by getting pre-approved for a car loan. This will help you figure out expected payment terms, the interest rate, and how these payments will fit into your monthly budget.
It’s never fun to worry about money, but the sooner you handle the finances of your car loan with pre-approval, the less you’ll have to worry about later on. It’s a win-win.
2. You’ll get a better deal
When it comes to buying a car, there are two primary financial factors you’ll want to consider: the terms of your loan and the price of the car.
Most people only focus on the price of the car and get swept up when they hear about low monthly payments or other special offers at the dealership.
While you may love getting a good deal on the car itself, this is only half of the equation.You also have to factor in how much you’ll be paying each month. Here’s how your monthly payment is calculated:
Principal: This is the total cost of the car and includes everything—fees, vehicle cost, upgrades and taxes.
Term: This is the length of your car loan. The shorter the term, the less interest you’ll pay.
Interest Rate: This is a percentage that is charged by the lender. Interest rates are determined based on a variety of factors and are calculated separately for each applicant.
Here’s the deal. Most car buyers only focus on the principal, or the total cost of the car. But the loan term and interest rate are just as important, and that’s why it’s a great idea to get pre-approved.
Getting pre-approved for a car loan means that you will already know the term of the loan and the interest rate before visiting a dealership. Because of this, you’ll be empowered to get a better deal on the car.
Remember: it’s easy to fall in love with a car and worry about the details later. But here’s the truth: knowing the details of your finances and shopping accordingly will enable you to get a better deal.
3. You’ll stick to your budget
You walk into the dealership and there’s a beautiful car on display. It’s brand new and boasts leather seats, the latest technology and amazing upgrades you never even knew existed.
A friendly sales representative sees you staring at the car and walks over to greet you. The next hour is a blur as you test drive the car and learn more about the features. By the time you sit down to discuss the price, it’s already too late—you’ve fallen in love with a car you can’t really afford.
Here’s the real deal: if you’ve ever been caught up in the moment at a car dealership, you’re not alone.
Canadians are increasingly purchasing more car than they can afford. But you’ll pay for more than the cost of the car if you get swept up in the moment—you’ll also increase your financial stress.
Getting pre-approved for a car loan, in turn, will help you avoid getting carried away. Why? Because you’ll walk into the dealership with a budget, which will help you worry less and live within your means.
Knowing what you can afford to spend and then sticking to it is actually one of the most effective ways to reduce stress throughout the car buying process.
Indeed, a pre-approval means that you’ll know your maximum loan amount and estimated interest rate before you start shopping. This is a surefire way to avoid buying a car you can’t afford.
4. You’ll negotiate better
If you’ve ever tried to negotiate, you probably remember how awkward it was. Asking for more or demanding less often feels uncomfortable, especially if you have to do it in person.
This is when a car loan pre-approval comes in handy. You’ll be in a stronger position to negotiate at the dealership because your budget and terms are already set. In other words, negotiating will feel significantly less awkward because it will be based on your loan pre-approval terms and not on your personal desire to save money (although there’s definitely nothing wrong with that either!).
Still feeling weird about negotiation? Here are some ways to use your car loan pre-approval to your advantage.
- Don’t make it personal: Sometimes it’s hard to separate the personal from the financial, especially when it comes down to your personal finances. But if you feel awkward about negotiating, try replacing “I” or “me” with “the pre-approved loan.” Doing so will ensure that the conversation feels less personal and more factual. This will make it easier for you to remain neutral.
- Ask questions: The best part about getting pre-approved for a car loan, especially through a company like LendingArch, is that you’ll be connected with a loan specialist who can answer questions before you ever sign anything.
- Focus on the big picture: Buying a car can be stressful. But, if you focus on your ultimate goal—buying a new car that fits in your budget—instead of stressing about every detail, you’ll be in a stronger position to negotiate.
Trust the Process
The process of buying a car is long and often leads to angst, but that’s because it’s an expensive decision. Doing your due diligence, getting pre-approved for a loan and shopping for the best deal are all part of the process.
So, prepare as much as you can and then trust the process. Before you know it, car shopping will be a distant memory and you’ll be enjoying the fruits of your labor: a new car that is perfect for your lifestyle and budget.