Empowerment Series: Why Auto Loan Preapproval Gives You Advantages at the Car Dealership
April 24, 2018
Does this car shopping story sound familiar?
You visit a car lot to look around and test drive a few vehicles, maybe even “just for fun.” But, before you know it, you’re in love with a new car and find yourself sitting in a waiting room while the dealership’s finance department runs your credit and brings back some options for a loan.
At this point, it seems a little too late to say “no,” and even though it will feel great to drive away in the car you wanted, you can’t help but wonder if you got the best auto loan or not.
What if you’d gone to your credit union first?
“A lot of people simply don’t realize you can apply for preapproval on a vehicle loan at your credit union,” says Stephanie Krause, branch manager at Unison Credit Union’s North Kaukauna location. “They get financing at the dealership because it seems convenient and you can drive off the lot that day.”
Krause says there are several significant benefits to seeking financing for a new car or truck at your credit union rather than the dealership. She helps us see why getting preapproved empowers you on your quest to buy a new vehicle.
Start with a Plan
Thinking about financing first is smart, because you’ll have a strong understanding of what fits in your budget, which means you’ll be more realistic as you consider your options.
Talking to people with knowledge and experience, such as the Member Advisors at Unison, makes your financial responsibilities clear and will ensure you’re applying for an auto loan you can afford.
“Some people already have a number in their head when they come to Unison,” Krause says. “They know about how much they want to spend and what they feel is a comfortable monthly payment. As a lender, that helps us understand their situation and give them some peace of mind from the beginning.”
Having a similar discussion with a car salesman could be risky. According to the personal finance website, Nerd Wallet, it’s a common tactic for salesmen to ask what kind of monthly car payment you can afford rather than the price of the car you want to buy.
“If you’re negotiating the monthly payment rather than the car price, the finance manager might try to inflate, or ‘pack,’ the payment with charges or fees that often have little relationship to the car’s price. But if you get preapproved financing, you can avoid this sales tactic. You can just smile right back and say, ‘I’m a cash buyer. Let’s just talk about the price of the car.’”
Unison Member Advisors aren’t itching to sell you a car or deceive you in any way. Our goal is to provide you with answers that allow you to make informed decisions.
Get a Lower Interest Rate
Even though car dealerships will look at a few different financials when finding a car loan for you, you will be more likely to get a better interest rate from your local credit union.
Krause tells the story of a Unison member who recently came to see her about getting preapproved for a truck loan following a disappointing experience at the dealership. He was looking to buy an expensive, highly customized truck with a price tag of more than $60,000.
The dealership ran his credit, which was excellent, and found a bank that would finance the purchase with a 5% interest rate. That didn’t make him happy, so he went to Unison.
“He came into my office and was outraged because he knew that with such good credit he should be getting a better interest rate on that truck loan,” Krause says.
Krause was able to get the member preapproved for an auto loan with a 2.39% interest rate.
“You can just imagine what that did to the monthly payment, and it was saving him thousands of dollars over the course of the loan,” she says. “He went back to the dealership and told them he was going to be doing financing through Unison instead.”
Protect Your Credit Score
A potential disadvantage of getting financing at the car dealership is the possibility of damaging your credit score. Krause says that, because dealerships work with multiple financial institutions, each one must pull your credit report to give you a rate.
The downside of having multiple parties checking your credit is that it may actually bring down your credit score.
“You could start with a credit score of 760, for example, but afterwards it could drop,” Krause explains. “When you visit Unison to apply for approval on an auto loan, your credit report is only pulled once, and that preapproved loan application is good for 60 days. So, you have about two months to find a car that’s right for you before you need to reapply.”
Better Prices on Protection
When setting up a loan with a dealership’s financing manager, they may offer additional options such as payment protection and gap insurance. These are optional and you shouldn’t feel pressured to add them if you think they’re unnecessary.
Payment protection allows borrowers to pause loan payments in case of emergencies and financial hardships such as involuntary unemployment, disability, or medical leave. Gap insurance on auto loans may safeguard borrowers in case of a collision. If you were in an accident, totaled the car, and still owed money on the auto loan, gap insurance could cover the difference between what you owe and what the car is worth.
If you see value in purchasing something such as gap insurance, Krause says you’ll get much better prices from a credit union.
“Unison currently charges a flat-rate fee of $375 for gap insurance over the duration of the loan,” she says. “At a dealership, you can expect to pay two or three times more for that same coverage.”
Gain Confidence and Peace of Mind
Preapproval truly empowers car buyers. Instead of being coerced into something out of your price range, you can start the car shopping experience with certainty. Perhaps the most liberating thing about getting preapproved for an auto loan before you start shopping for cars is how it reduces the amount of stress involved with buying a new vehicle.
You’ll walk into the dealership under much less pressure. You already know you’re approved, what you can afford, what the interest rate is, and what your monthly payment will be. The negotiating power is now in your hands because you can walk away with your preapproval and visit another dealership.
Even if you’ve already purchased a vehicle, it’s not too late to take advantage of better financing from Unison Credit Union. If you realize the interest rate you’re paying is too high, you can still refinance your auto loan at a better rate, and our Member Advisors may be able to help you consolidate other loans at the same time.
Getting Preapproved for a Car Loan with Unison
If you’re already a member of Unison Credit Union, you can apply for an auto loan online or over the phone. You can also stop in at one of our branches to have a financing discussion with our helpful Member Advisors.
It’s easy for non-members to apply for approval on auto loans at Unison, too. We’ll just need to gather some basic personal information such as your social security number and date of birth.
While financing a vehicle purchase through your credit union may take a little more time, a bit of patience provides you with some impressive benefits. Unison simply needs the dealership to send over the purchase contract, or you can bring it in. Then, we’ll get right to work!
“Realistically, if you were preapproved and found a car you want to buy today, we could get a check in your hands before the close of the next business day and sometimes on that same day,” Krause says. “So, you can go back to the dealership and drive away with your new vehicle.”
If you’re planning to purchase a new car or truck, stop in at Unison Credit Union and apply for approval before you start taking those test drives. We have convenient locations throughout the Fox Cities, Wrightstown, and De Pere. Check out our current rates on auto loans now!