Before going to the dealership, arm yourself with the knowledge and resources that will help you make the most out of your investment. Save on auto financing by getting pre-approved and putting money down.
1. Get Pre-Approved
There are many benefits to getting pre-approved for an auto loan. Not only will you know your credit score, but you can also discuss with your lender what you are comfortable paying monthly for a new car, and receive advising on what your best financing options look like.
A pre-approval gives you a starting point when shopping for your next vehicle. Your pre-approval will give you a realistic price range of vehicles you can afford. You will already know your rate and monthly payment, so you can avoid getting overcharged by dealer rates and fees.
In addition to shopping for a vehicle that fits your budget, your insurance options may also be less expensive. Get a GAP insurance estimate so you can know if you are being overcharged with insurance a dealer tries to offer. On average, GAP insurance from your Credit Union is about $300 less than with a dealer.
Your pre-approval will give you leverage to get the best vehicle for the best price. Because your financing is already set up, you can shop around for the best offer and not have to haggle with the dealership for financing. You will already know what you should be paying for your next vehicle and at what rate. You will also have an idea of reasonable coverage options that fit your lifestyle.
Safeguard Your Credit Score
When you get pre-approved with your Credit Union, your credit score will be pulled once. When your credit is pulled, even if you don't end up borrowing, your score is negatively impacted. If you're shopping around at multiple dealers, your credit will be pulled multiple times. Depending on how long you shop around and how many times your credit is pulled, this could negatively impact your score more than you think. Financial professionals suggest only having your credit score pulled once every few months to avoid damaging your score.
To get pre-approved for an auto loan all you need is your income or current paystub, a price range of vehicles you are looking to finance and your credit score will be considered to calculate your loan rate. From there you can discuss with your lender a comfortable and realistic monthly payment.
2. Always Make a Down Payment
The higher the down payment you make, the less there is to finance. It is a good idea to make a down payment for at least 20 percent of the vehicle’s cost. A down payment of less than 20 percent can cause the loan rate to go up, costing you more money in interest over time. While it is possible to finance up to 100 percent of the vehicle, it is also the most expensive option.
However, sometimes you simply do not have enough money to put down 20 percent. In 2015 the average car down payment was about 10.4 percent. The main reason people aren’t putting enough down is because the cost of vehicles has increased, while the average household income has remained relatively flat.1