Pre-approved vehicle finance basically means getting a lender for your car loan before you go to the showroom to get your car. Pre-approved vehicle loans gives you the benefit of going car shopping without thinking much about how to fulfill the cash requirements. It also helps you stay within your budget as you already know how much loan the lender has already approved.
How to go about getting pre-approved finance
Before you head out to look for a lender who would provide you with pre-approved car finance, you should do some basic research first. Find out the prevailing rate of interest on car loans and pre-approved finances. This will give you a heads up when you are talking to the lender and you can bargain on the rate a bit as well. Default interest rates on car loans are basically +3% of the prime interest rate and are subject to change. The current prime rate is pegged at a 9.25%.
The interest rates also depend on your credit rating. This rating is based on your credit score which shows your creditworthiness. It depends on the loans you have already taken and if you have complied with the repayment well. If your loan accounts reflect timely repayments and closure of loan with balloon payments, this makes you eligible for good credit score, which in turn helps you borrow at a reasonable interest rate, when you apply for a pre-approved vehicle loan. On the other hand if your loan account shows irregular repayment activities and defaults, it gives you a bad credit rating, which means that giving a loan to you is a risky business.
To protect themselves from this risk, lenders will lend you the money at a comparatively higher interest rate to cover any defaults in future. So the credit score is basically inversely proportional to the interest rate. Knowing your credit score will make you aware of what interest rate is applicable to your loan and you can negotiate the terms with the lender in an informed manner.
Who can be pre-approved vehicle finance lenders?
Any lender can assist you in getting a pre-approved vehicle financing. Banks, credit institutions, or lenders who specialize in lending vehicle finance can help you with it. You can get the also get the loan pre-approved over telephone; however the loan officer might need some documents for the loan appraisal process and to assess your income and expense situation.
Why go for pre-approved vehicle finance?
Pre-approved car loans help you in having a price limit in your mind while you are going car shopping. You have an idea of how much loan amount you have in your hand to fit in your car price and insurance, and that helps you take good purchase decisions. Knowing that you can?t overspend protects you from yielding to the salespersons aggressive selling techniques as well.
It is advisable that you do not let the salesperson know beforehand that you already have a pre-approved vehicle loan as they might be less flexible in negotiating the terms of purchase knowing that you will not be going for a car loan through the dealership itself.
There are many positives of going for a pre-approved vehicle loan. Doing a due diligence before signing up for one, will be all the more beneficial to you.