Using an auto loan calculator is one of the best ways to estimate your monthly payment based on a particular price. This removes the guesswork when purchasing a car, and if you have an estimate in mind, this can eliminate payment shock when you’re ready to sign the loan agreement. However, using a calculator to determine a car loan estimate is just the beginning. To know if you can truly afford a particular car payment, you need to contact a bank and get pre-approved for a car loan.
Some people skip the pre-approval process, and there are no rules that say you must have a pre-approval when shopping for a car. Even so, there are undeniable benefits to getting pre-approved for your car loan estimate.
1. Know how much you can afford before making your purchase.
If you get pre-approved for your car loan estimate, you know exactly how much you can afford before you step foot on a dealership lot. This is good information to know, especially since many salespeople attempt to upsell car buyers. The bank that handles your pre-approval will request a bunch of financial information from you. This may include copies of your most recent tax returns, your paycheck, plus the bank will run a credit check to determine creditworthiness. Based on this information, the bank accesses whether you qualify for an auto loan, plus how much you can afford to spend on a vehicle.
2. Speeds the buying process
With a pre-approval letter in hand, it’s as if you’re a cash buyer. You can begin shopping for a car the moment the bank approves your vehicle loan. And since most pre-approvals don’t expire until 60 or 90 days, you have plenty of time to find the perfect vehicle for you and your family. Negotiate the sale price of your vehicle with the dealership, and once you have a purchase agreement, bring this agreement to the bank. Sign a few documents and the bank will issue a check to the dealership that sold you the vehicle. Getting pre-approved for your car loan estimate speeds the process and takes the stress out of buying a car.
3. Lets you compare loan rates and terms
Not only does a pre-approval estimate how much you can afford to spend on a car, this is also a good way to compare loan rates and terms. When getting pre-approved for an auto loan, you’re free to work with multiple banks. For example, you can complete a loan application with your personal bank, plus another bank in your area. Additionally, you can request rate information from the dealership’s finance department. Comparison shopping can help you get the lowest rate, thus contributing to the lowest monthly payment. And since credit scoring models view multiple inquiries for auto loans as only one inquiry (as long as they occur within 45 days), shopping around will not hurt your credit score.
4. No obligation
Getting pre-approved for your car loan estimate is also beneficial because there’s no obligation to go with a particular lender. You’re simply assessing whether you’re eligible for a loan and requesting rate information. If you later decide that now’s not the best time to jump into an auto loan, there is never an obligation to complete the purchase process.