Pros and Cons of Getting Pre-Approved for a Car Loan

If you’re planning to buy a car in the near future, you might be wondering whether it’s smart to get pre-approved for your auto loan. It’s a good question to ask. In fact, it’s one of the most common questions we get from Addition Financial members.

The loan pre-approval process may be a mystery to you, but we’re here to help. Here are the pros and cons of getting a car loan pre-approval.

The Pros of Pre-Approved Car Loans

Getting approved for your car loan before you begin shopping for your vehicle offers some real advantages. Here are some significant benefits of getting pre-approved for your loan.

You’ll have the benefit of knowing exactly how much you can spend on a new car and you’ll be able to shop more efficiently than you would without a pre-approval. You can compare costs and narrow down your choices ahead of time to streamline the buying process.
You can take your time and shop for the best interest rate and loan package possible. You won’t need to worry that the car you want will sell to someone else because you’ll be able to make an offer immediately, knowing you can afford your payment and interest.
You won’t have to deal with high-pressure sales tactics from dealers because you’ll be shopping as a cash buyer. The dealer will know you can walk away from them at any time and they’ll be less likely to strong-arm you into a deal you don’t want.
Having a signed deal in place will protect you from paying more if interest rates go up between the time you get approved for your loan and the time you buy your car.

These big advantages mean it’s typically worth your time to go through the approval process before you shop for a car.

The Cons of Pre-Approved Car Loans

While there are some great benefits to getting pre-approved for a car loan, there are a few potential downsides to consider as well before you get locked into a rate. For example:

Most loan approvals are only valid for a limited period of time. The standard is 30 days, so that means you will need to act quickly to select a car without having to go through the approval process again.
Once you have been pre-approved, you will be locked into a maximum amount you can spend. If you see a more expensive car that you want, you will either need to pass it up to stick with your pre-approved loan or revisit the underwriting process to see if you can qualify for a higher amount.
In the event that interest rates go down between the time you are pre-approved and when you buy your car, you’ll be locked into the higher rate unless you want to go through the underwriting process again.

These cons might be a problem for you and you’ll need to decide whether it makes sense to get a car loan pre-approval before you start to shop.

Should You Get a Pre-Approved Car Loan?

We can’t tell you whether getting pre-approved for your car loan is right for you. However, we can tell you what our members have said about their experience with buying a car after being pre-approved:

Pre-approval helped them decide on and stick to a budget as they started to research cars.
They were empowered to approach the negotiating process with the knowledge they could walk away at any time.
Many times, they avoided paying a higher interest rate for their loan.
Best of all, they enjoyed peace of mind knowing they had secured a favorable interest rate and there would be no surprises when they bought their car.

One of the most important things to do when buying a car, whether you plan on getting a new vehicle or a used one, is to enter the negotiations from a position of strength. A pre-approved loan lets you negotiate like a cash buyer – and that means you’re less likely to be subjected to questionable sales tactics at the dealerships you visit.

A pre-approved auto loan can help you find the lowest rate possible and lock into it before you go car shopping. It may also help you negotiate a better price for your car because you’ll have the upper hand when you go to a dealership.

Ready to learn more about Addition Financial’s competitive auto loan rates? Click here now.