Pre-approval vs. pre-qualification
Real quick – there’s a difference between getting pre-approved and pre-qualified for a car loan.
Pre-approval is more serious than pre-qualification. Pre-approval is what you need if you want to be treated like a cash buyer at the dealership. Pre-approval requires a hard credit check.
NerdWallet advises that you “wait to get pre-approval until you’re serious about buying a car and know your credit score because applying will have an impact on your credit.”
Pre-qualification is less serious. Getting pre-qualified is like “putting out feelers” to see what you might qualify for. It’s a great first step if you don’t know what your credit score is, just know that it won’t give you the negotiating power of a cash buyer. Pre-qualification requires a soft credit check.
3 Benefits to Getting Pre-Approved for Auto Financing
You’ll pay less in dealer loan markups.
We’re starting with the biggest and best benefit: pre-approval can spare you hundreds of dollars in dealer loan markups.
“Consumers paid an average of $1,791 in undisclosed fees and markups in 2018,” reports the Outside Financial Markup Index, the leading measure of dealership loan markups paid by consumers for new cars.
Undisclosed fees and markups have increased 5% since 2017 and 71% since 2010, adds the Markup Index.
How does this happen? Because car shoppers just don’t know.
Sonia Steinway, Outside Financial’s president, explains that “More than two-thirds of consumers don’t realize dealers can mark up their interest rates. Because markups on auto loans and ancillary products can vary greatly, even for the same car or product at the same dealership, the consumer is vulnerable to the extent they don’t know their options.”
But you? You’re going to be one of the shoppers that avoid dealer loan markups. You’re doing your research and learning about all of your options.
You can set a better budget.
There’s nothing worse than falling in love with a car, only to find out that it costs way more than what you can actually afford. Getting pre-approved can save you from this heartache!
Pre-approval means you’ll know how much you can borrow and at what interest rate. You can limit your search for cars that only fall within that price range. With this information, you can also use an auto loan calculator to estimate your monthly payment.
Don’t forget to factor in the cost of car insurance, gas, and maintenance, too. The total cost of owning a car is made up of more than your auto loan payment.
You can negotiate like a cash buyer.
Getting pre-approved for an auto loan gives you the negotiating power of a cash buyer. The car salesperson won’t be able to distract you with promises of a low monthly payment that’s sneakily padded with extra charges and fees that have nothing to do with the car’s actual price. Since you’ve already calculated your monthly payment and budgeted accordingly, you can focus on arriving at the lowest possible price for the car.
Our Financing Guide helps explain the negotiating power that comes with being a cash buyer.
Get preapproved for a car loan online.
Take myAutoloan (and NerdWallet’s!) advice and get pre-approved for an auto loan today. You could save money by avoiding the dealer loan markups, setting a reliable budget, and negotiating like a cash buyer. myAutoloan can help, by connecting you with up to four lenders in just a few minutes. Get pre-approved for a car loan today!