Gives you a price range
With a preapproved car loan, you’ll know your monthly payment, loan term and the price of the car you can afford, all before you walk onto the blacktop parking lot. You won’t be nervous sitting at a table in the dealership, waiting to hear whether the bank thinks you can afford the car because you’ll know you’re already approved.
A salesperson might try to guide you to the most expensive models and tell you not to worry —they can give you a longer term and keep your payment low! But you’ll already know that a longer term on a larger loan amount means a whole lot more in interest.
Protects you from dealer inflation
Dealers can inflate auto loan rates to make a profit, just as they can inflate car prices. Dealerships are loan brokers, so they can sell the loan at a higher rate than what the lender charges. Having a firm car loan offer from a lender lets you know what rate you qualify for without a middleman marking it up.
Strengthens your negotiating position
If you have a preapproved auto loan, you can ask the dealer to beat your preapproved APR. Tell them the rate you received from a direct lender and ask if they can do better. Dealers can get a business referral fee from lenders for connecting them with customers. Even if they can’t inflate your APR, dealers want you to take one of the loans they arrange. Dealerships have a wide network of lenders they work with daily and they can likely find a lower rate for you. By doing this, you’re making the dealer sweat and work for you.
Helps you avoid upsells and add-ons
A favorite trick of dealerships is to sell vehicles based on monthly payments.
For example, a salesperson might overestimate your payment once you choose a vehicle so that you’ll agree to add-ons when you go to sign the paperwork. If they expect your payment to be around $300, they may tell you that their prediction is $350. Then at the paperwork signing, they can say, “Great news, at a payment of only $360, you get an extended warranty and appearance package! Sign here.” This way, it looks like you’re only paying $10 a month for the extras, but you’re really paying $60 a month, including interest.
If you have a preapproved auto loan, you’ll know what your payment should be, sans upsells.