Pre-Approved Car Loans - Why They Are Best For You If You Have Bad Credit
It sounds silly, I know. Pre-approved car loans
for people whose credit is tanked. But there are several good reasons for
pre-approval – especially if your credit isn’t that great.
As a car salesperson in Phoenix I dealt
with a wide range of people with bad credit. The worst ones were the ones with
the sense of “entitlement.” Strolling onto a lot as if they were millionaires
and picking out a vehicle that was obviously outside their price range based
on their credit history and/or their current income.
The second type came on the lot meek and
mild and wanted to buy a car “under $5,000” and finance it. They knew they had
bad credit and thought they were “thinking like the bank.” In other words,
lending them just enough to get a car, but not enough for a new or newer
model.
Both of these types had the potential to
be completely ripped off by the wrong dealership. Why? Because they really had
no understanding of how credit and financing works in the car business.
So what are the benefits of getting a pre-approved car loan? How does this benefit you the most?
When you have bad credit often you can’t
negotiate for the best price on a car. Or pick out the exact car you want for
that matter. Why? Because what most people don’t know is that when you have
bad credit lenders “charge” the dealership a fee for the risk they are taking
on you.
What does this mean? The charge is usually
a percentage of the car’s value – for instance 5%. So if you’re buying a
$10,000 car and the fee is 5% then that’s $500 the dealership WON’T take off
the price of the car! Not only that, the $500 is part of the amount you’re
financing so you are actually paying the bank to assume the loan. I’ve seen
charges as high as $2,000 because of a person’s credit!
What’s the difference between
pre-approved car loans
and getting a loan at the dealership? The
bank loans you a “fixed amount” of money and it’s your job to go out and find
the vehicle you want and then negotiate the price down. This guarantees you
the best price on the vehicle of your choice because you’re not paying the
bank to assume the loan.
Getting a
pre-approved car
loan also
means you can pick the vehicle YOU want. On the lot I worked at we often had 3
or 4 vehicles (usually the same models) that we knew would “fit” the banks
parameters for people with bad credit. So when a person with bad credit came
on the lot we would try to steer them to one of these cars. Not necessarily to
make more money in OUR pockets, but because we knew that the buyer had the
best chance of getting approved on one of those models because they would fit
the banks parameters and had enough markup to absorb the fees without losing
money on the vehicle.
Getting a pre-approved
car loan
also keeps you from looking at vehicles that you won’t get financing for. If
you are pre-approved for $15,000 then you won’t be out looking at vehicles
that cost $22,000, wasting your time, and having your credit pulled multiple
times by the car dealerships. Once you know how much you’re approved for you
can find the best vehicle in that price range and negotiate with the
dealership for it.
Bottom line – Being pre-approved for
car loan a
vehicle loan gives you more options and puts you in the drivers seat. You can
negotiate for a good car deal and get the vehicle YOU want. So if you’re
credit challenged and need a vehicle.
