I’m Approved for a Car Loan – How Should I Negotiate at the Dealership?

One of the most challenging things anyone can do is buy a car, which is arguably the most stressful purchase you can make, second only to purchasing a home. Between negotiating at different car dealers and even choosing a car itself, this isn’t the most consumer-friendly activity. 

For buyers like this Redditor posting in r/personalfinance, there is also a genuine concern about how to handle being approved outside of the dealership itself and what to do next. It goes without saying that car dealers really want you to finance with them whenever you buy a new or used car. 

In this Redditor’s case, it’s a question of whether or not they are upfront right away and acknowledge they have their own financing, or wait until they have agreeable numbers on both sides. 

Why Preapproved Loans Are Good

First, let’s get the elephant in the room out of the way and highlight that anyone who says preapproved car loans are worse than what dealerships can offer. This is mostly just something a dealership says to try to get more in-house financing, something they are incentivized to do. 

The good news with preapproved loans is that not only can the terms be more favorable, but it also allows you to really understand what your budget is before you get into a new vehicle. Car dealers are all about making deals the same day, before you have time to really digest what is taking place financially. 

Not only do preapproved loans help you avoid surprises, but dealerships also notoriously mark up their rate a few percentage points to get a cut of the financing, thereby making some extra money for the dealership itself. Starting with a bank or credit union, as this Redditor did, is the best financial move you can make before shopping for a vehicle. 

Better Interest Rate

Ultimately, the single biggest reason for a pre-approval is the better interest rate you can get directly from a bank or credit union. Even a slight percentage difference can add up quickly over 60 or 72 months. Better yet, if you are approved for 4% interest at 60 months and $400 a month, you will immediately know if the terms a dealer is offering are better or worse. 

You Are A Serious Buyer

On the one hand, car dealers often encourage you to finance through them; on the other hand, having pre-approval in hand means you are a serious buyer. As you might expect, many people visit car dealerships to explore the possibilities of a new vehicle, but don’t intend to purchase it on the same day.

Someone who has already received pre-approval financing is essentially a cash buyer, so the dealer knows you are serious and might be willing to go the extra mile to make something happen. 

How to Negotiate At The Dealership 

Don’t Discuss Monthly Payments At All

When it comes to walking to a dealership, regardless of where you got financing, the most important thing is to focus on the price of the vehicle first, and not the monthly payment you are targeting. As you know what dollar value you are already pre-approved for, you know exactly how much you can afford on a vehicle. 

As soon as you tell a car dealership that you are looking for a monthly payment of, let’s say $500, they are going to manipulate the length of the loan and other transaction terms to help you get there. For this individual Redditor and everyone else in a similar position, the focus should be on the “out the door” price, which is essentially the agreed-upon price of the vehicle, including tags, title, tax, and everything else, before you get to the monthly payment.

If you use an online cost calculator for car payments, you should have a pretty good idea in mind of what you need the price of a vehicle to be to hit your payments. This will give you more leverage to negotiate a lower price than the sticker price of a car. 

Three Separate Transactions

As you negotiate, remember that you are doing so across three separate transactions. First, and as previously discussed, is the price of the car, which is the most important transaction taking place. This is going to be the difference maker in whether a deal gets struck. 

The second deal you are focused on is the value of a trade-in, assuming you have one. You should visit Kelley Blue Book and know some basic information about the value of your vehicle, as well as pricing it out from somewhere like Carvana, so you know if the dealership is offering you favorable terms or not. 

The third negotiation is the financing, where your preapproval will be crucial. Depending on what the dealer offers, you will know which terms are more favorable and which you prefer. 

Use Pre-Approval As Your Leverage

While it’s undoubtedly going to annoy the dealership, the next step after negotiating the sales price of a vehicle is to bring up pre-approval language. At this point, the dealership can’t make the price of the car worse without you walking away, so now is your time to ask them to beat the rate you have been offered or the terms overall. 

The good news is that dealers have incentives from their lenders to try to beat pre-approvals, so if your bank is offering you a 6% vehicle loan, a dealership might be able to offer 5.5% to win your business. This is good news for both parties, and it will only make the overall price of the vehicle less than what you had originally settled on. 

Yes, some dealers are going to be annoyed, but you know exactly how much you can and will pay, and you shouldn’t budget on this. If the dealership can’t beat the pre-approval terms, then you should go with the pre-approval. Alternatively, you can take the terms you have been offered and shop them around with another dealership. 

Say No to Extras

No matter what, you have to say no to any extras the dealer offers you, which might try and happen after you have already negotiated for a vehicle. You don’t need window tinting done at the dealership or nitrogen-filled tires.

These “extras” are going to increase your price by a lot, and you don’t need them, and you especially don’t need to finance them into your deal. Even something like “GAP” insurance isn’t something you need to buy from a dealer and can instead be obtained from your own insurance company. 

Be Ready to Walk Away 

There is nothing more aggravating than spending hours at a car dealership, negotiating, waiting, and waiting some more, only to walk out empty-handed. Car dealers are notorious for saying and doing anything to try to get you to stick around while they finesse the numbers to work for them and appear as if they work for you. 

The single most crucial negotiating tactic you have is to walk away if the dealer won’t meet your price or becomes annoyed by your pre-approved financing. The odds are in your favor that they will call you, potentially even on the same day, with a better offer to try to get you to reconsider. 

Car Buying Is Emotional

Something to remember is that car buying, like purchasing a home, is an incredibly emotional event. You spend hours researching, negotiating, and researching some more before you are ready to make a purchase. This makes it an emotional experience, but emotions have no place in a car dealership. Everything should be strictly business, and if you start to show emotion at a car dealership, the salespeople and managers will likely jump on it to try to get you to buy today. 

Ultimately, this ties directly back to the concept of being able to walk away. As soon as you get the “pushy” vibe from a car dealer and they are trying to rush you, walk away. It’s that simple, you don’t even need to say anything, just walk out and don’t worry, they’ll call you. 

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