Getting a physical or online car loan pre-approval before going car shopping can make a world of difference. A pre-approved loan can help you get the best interest rates, plan a realistic budget, and save money in the long run. That's because preapproved loans are all about giving you a convenient way to pay for your car that financially benefits both the lender and the borrower.
However, you should familiarize yourself with the process and the requirements for applying so that when you visit a dealership, you'll know what to do and what to say. Here's what you need to know.
Benefits of Getting Pre-approved
Applying for and getting a pre-approved loan brings in a lot of different benefits. For starters, it helps you set up a realistic budget, as it shows you the maximum loan amount you can borrow and all the payment estimates, taxes, and fees you will pay monthly. This is important to determine what type of car you can afford and what budget changes you'll need to make to accommodate the monthly payments.
Note, however, that the purpose of the pre-approved loan is to help you cover the amount you need to buy the car. In other words, you can't buy a car with an MSRP equal to the pre-approved loan amount. That's because factors like fees and taxes add to the final price. Instead, every time you find a car you like, add 10% for taxes and fees to get a more accurate estimate of the final price.
Another benefit of a car loan pre-approval is better rates. When you go to a dealership with a pre-approved loan, you're automatically in a better negotiating position, meaning the agent will try to match or beat your current offer and give you the best rate possible. This is a great way to compare options and choose the best one for you. Not to mention, it also helps you save money in the long run, as better rates mean lower monthly payments.
In short, with either a physical or online car loan pre-approval, you'll be better equipped to buy a car and get the most out of your experience.
Common Car Loan Terms & Definitions
Knowing the lingo of the auto finance industry will help you understand and communicate better when you talk to an agent. The good news is that you don't have to spend weeks learning a dictionary's worth of words - the key ones are more than enough. Here are some of the terms you need to know.
Down Payment
The down payment is the cash you pay toward the car's total price. Manufacturer's incentives (such as rebates) and a car's trade-in value are also applied to the asking price. Usually, you'll need to pay at least 20% of the asking price for a new car or 10% for a used one. The higher your down payment, the less money you'll have to borrow.
Interest Rate
The interest rate is the percentage you'll pay to borrow money. It's common for lenders to include the interest in your monthly payments.
Prepayment Penalties
Prepayment penalties are designed to prevent lenders from losing more money if you pay off your loan earlier than expected. Prepaying your loan prevents the lender from receiving the interest you would have paid if you had stayed on your agreed-upon repayment plan.
Manufacturer's Suggested Retail Price (MSRP)
The MSRP, list price, or sticker price is the amount that manufacturers ask dealers to charge for models.
Term
Usually expressed in months, the term is the payment period you have to pay for the loan. It can range from 12 months (one year) to eight years (96 months). Keep in mind that a longer-term loan means that you'll pay more money in the long run.
Principal
The principal of a loan is the amount you'll borrow to pay for the car. It doesn't include fees or interest. For example, if you want to buy a $40,000 car and you can put down $15,000, your principal will be $25,000.
Total Cost
The total cost refers to the amount it will take to buy a car, including adjustments for trade-in value, down payment, fees, and interest rates.
Truth-In-Lending Disclosure
The Truth-In-Lending Disclosure is included in the contract and gives you an overview of the costs you'll be paying, including the fees and interest, amount borrowed, and total payments. This is done to create a transparent and honest transaction between lender and borrower.
What You Need To Get Pre-approved
Whether you're going to a physical financing center or using the Internet to get an online car loan pre-approval, the process is fairly straightforward. All you need is your personal information, such as your full name, social security number, date of birth, and contact information; housing information, such as address, monthly housing payment, and whether you rent or own; income and employment information, such as employment status, employer name, and gross annual income; and finally, loan details, such as the amount you'd like to borrow and an estimate of the time it will take you to repay the loan.
How To Improve Your Rates
The best way to get better rates is to apply to three or four different institutions and choose the one with the best offer. Remember that once a dealer or bank sees your pre-approved loan, they'll want to match or beat your current offer. Just don't forget to apply simultaneously, as this process will slightly lower your current credit score, and applying for multiple pre-approvals in the same week will count as one consultation.
Apply at Huffines Hyundai Plano Today
At Huffines Hyundai Plano, we're committed to providing our Plano, Texas, customers with the best service in the area. That's why our finance team works hard every day to bring you the best deals and tools to make this process easier and better for you. If you'd like to speak with a representative, we invite you to contact us, and a member of our staff will be in touch soon. In the meantime, use our free payment calculator to get an accurate estimate of your monthly payments.
