Smart car shoppers know the exact amount they can spend on buying a car, but once the negotiation is over, the deal can get sometimes more expensive. That’s when the dealer tells you what car loan interest rate you can get. A better approach is to get your own car financing, and get it in advance if possible. Now that credit is loosening up, so-called blank-check car loans are available from an increasing number of lenders.
Similar to preapproval for a home loan, blank-check car loans give car shoppers an approval for a car loan up to a specific amount. In some cases, the car shopper is literally given a blank check he can write to his dealer for the car purchase. In other cases, the car shopper simply receives approval up to a certain amount. The actual loan paperwork is created once he or she decides on a specific car to buy.
This method removes much of the hassle from the buying process, since financing is set before the car shopper sets foot in the dealership. Still, there are a few things to watch for to ensure you get the best deal.
Know your credit score and your top car choices before you apply. As with any car loan, the higher your credit score, the better interest rate you’ll receive. To get a blank-check auto loan with a competitive interest rate, you’ll need to have at least decent credit. There are companies that will offer these types of loans to car buyers with poor credit, but be prepared for high interest rates. In general, lenders won’t give a blank-check auto loan to anyone buying a motorcycle, commercial vehicle or recreational vehicle, so you need to shop for a passenger car, pickup or SUV.
Some lenders also will want to know what cars you are considering, so be prepared to provide them with a short list of the cars you like. It’s common for a lender to have limits on the age and mileage of the car, such as less than 7 years old and less than 70,000 miles.
Consider the loan terms carefully. Most blank-check car loans are for a set interest rate, but some may offer variable interest rates. Be sure to fully understand the interest rate and length of the car loan as well as any penalties or fees associated with the loan before you proceed. Just because you are prearranging financing for your new car doesn’t mean you should pay any less attention to whether the loan terms are competitive.
Don’t tell the dealer you’re preapproved. To get the best deal, negotiate the price of the car before discussing how you’ll pay for it, whether you’ll make a down payment and if there’s a trade. That way, you can eliminate the possibility the dealer can use one part of the deal to increase overall revenue.
Once the car price has been negotiated and the deal moves to the finance and insurance office, the dealership will be aware of your preapproval status and possibly the maximum amount you can spend. If you’ve negotiated a sales price less than what you’re approved for, be careful not to get talked into additional items, such as service contracts, antitheft systems or extended warranties, just because you can fit them within your budget.
Ask the adviser