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Maximize Your Savings with Preapproved Car Loans

Car dealers often simplify the financing process by arranging it for you. However, to maximize your savings and gain more leverage at the dealership, consider getting preapproved for a car loan before you go. Here’s why and how you can do it.

Can You Get Preapproved for a Car Loan?

There are two primary ways to secure an auto loan: through a direct loan or dealer-arranged financing.

With a direct loan, you apply directly with an auto lender, usually before visiting the dealership. You’ll provide the lender with information about yourself and the vehicle you wish to purchase, and they’ll offer firm loan terms. Some lenders may even provide a check to take to the dealership.

Alternatively, dealer-arranged financing involves the dealer sending your credit application to multiple potential lenders. While this can help you save money, the dealer may charge a slightly higher interest rate as compensation for finding you a lender.

Benefits of Getting Preapproved for a Car Loan

There are several advantages to getting preapproved for a car loan, even if you don’t end up applying with a direct lender:

• Know Your Budget: Preapproval helps you understand how much you can afford to borrow, allowing you to calculate a ballpark monthly payment and ensure it fits within your budget.
• Shop Around: By applying with multiple lenders, you can compare interest rates and terms to find the best deal.
• Focus on the Vehicle: With the financial aspect sorted, you can concentrate on choosing the right car without worrying about affordability.
• More Negotiating Power: Preapproval gives you a hard price cap, providing additional leverage at the dealership and potentially better terms.

Does Getting Preapproved for a Car Loan Hurt Your Credit?

Preapproval can impact your credit score. Submitting a full application typically results in a hard inquiry, which can temporarily affect your credit score. However, if a lender sends you a preapproval offer based on a soft credit check, it won’t impact your credit score. Remember, preapproval is different from prequalification, which usually requires less information and doesn’t affect your credit score.

How to Get Preapproved for a Car Loan

The process for getting preapproved can vary by lender, but generally involves the following steps:

1. Check Your Credit: Review your credit score to understand what to expect. The best rates are typically available to those with a score of 720 or higher.
2. Consider Prequalifying: Prequalification allows you to get rate quotes and borrowing estimates without a hard inquiry, though it’s not as accurate as preapproval.
3. Apply with Multiple Lenders: Submit applications to several lenders to compare offers. Rate-shopping within a short period (45 days for newer FICO® Score models) will combine inquiries into one for credit-scoring purposes.
4. Pick the Best Offer: Choose the best preapproval offer and take it to the dealership to purchase your car.

Monitor Your Credit to Maximize Savings

Maintaining good credit habits is crucial for securing low interest rates. Even after approval, staying on top of your credit is important. With Experian’s free credit monitoring service, you can access your Experian credit report and FICO® Score, receive real-time alerts for changes, and spot potential issues like identity theft.

For any mortgage-related needs, call O1ne Mortgage at 213-732-3074. We’re here to help you navigate the process with confidence and ease.

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