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Pre-Arranged Auto Financing – Why it’s a Good Idea

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When you purchase a car, getting your own financing is a great idea. One of the best tips when securing your own financing is to get multiple quotes. The more auto loan quotes you get, the more flexibility you will have when purchasing a vehicle. It is important to realize that the quotes you get will be different from one another because each lender has their own system for scoring your application. Some lenders are more receptive to people with less-than-perfect credit, and many have differing income requirements.


When you get multiple quotes and secure your own financing it puts you in the driver’s seat. You can use the fact that you already have financing to get a better rate at the dealership. When you go to a dealership without pre-approved financing, it can be difficult to get a good deal. For instance, if you do not know what your credit score is, the dealership may imply that your credit is worse than it really is. This will allow their financing department to charge you a higher interest rate. This is known as “rate-padding,” and it can cost you hundreds of dollars over the life of your loan.

Even if you plan to get financed at the dealership, it is still a good idea to get some online quotes. You can use these quotes to help you get a discount or a special rate with the dealer. Car dealerships have lots of loans with the same bank, which is why they are able to get special deals. Banks are often more willing to work with auto dealerships than with an individual who only has one small loan. So while you may not end up using your own financing, it is a good idea to get some online quotes that you can use as a tool for bargaining.

Will Multiple Applications Hurt My Credit?

Of course, requesting a quote requires you to complete an application, which involves a credit check. Some consumers worry that multiple credit checks will decimate their credit. That is not the case, as long as you request your quotes within a 45-day period. The people at FICO realize that rate-shopping and comparison-quoting are popular methods of getting the best rate/terms on mortgages and vehicle loans. They have modified the credit scoring algorithms such that multiple “hard” credit inquires within a 45-day period are treating as only one inquiry. Therefore, requesting multiple quotes will have no greater impact on your credit score than requesting just one – as long as you do so within a relatively short period of time.

The Pre-Financing Checklist

Before you begin looking for auto financing, here is a list of things you should do:

  • Take a look at your finances and decide how much you can afford to spend on a car. Experts recommend allocating no more than 18-20% of your gross monthly income to all of your vehicular costs. This includes not just your vehicle, but your spouse’s, kids’, and any vehicles in your garage. Add up all of your existing payments, as well as monthly fuel, insurance, and maintenance costs. Divide this amount by your monthly income. This will give you the percentage you’re currently spending on vehicles per month.
  • When you look at cars, remember that the sticker price does not indicate what you will end up paying when you finance a car. The cost of financing can add hundreds, even thousands to the total cost of the vehicle over the long haul. Please use our calculator in the right sidebar to calculate your financing costs.
  • The consumer credit market has changed a lot recently, and it can sometimes be difficult to get approved. Remember to look for the car that fits your budget and do research to find the best interest rates so that you can get the lowest financing.

When you are in the market for a new or used car, do your own research, and get several financing quotes so that you can get the best deal.

About the Author

The author has many years of experience in automotive finance and insurance. However, each consumer's situation is unique. It is best to contact a finance specialist for further assistance.
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