Auto Loans

Why Do I Need To Get Preapproved For A Loan?

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Q: I’m in the market for a new home, and everyone I talk to, from friends to financial Home with Sold Sign in frontadvisors, suggests I get preapproved for a mortgage before I start house hunting. Why is this so important?

A: You’re actually on the receiving end of great advice. When looking to take out a large loan, whether it’s for purchasing a home or buying a car, having that preapproval in hand before you start your search is crucial.

Depending upon the type of loan, the process of getting preapproved for a loan can take time. The lender will begin by asking for your financial history and other personal information. If you have a co-borrower, the lender will need this information about them as well.

You’ll be asked to provide your Social Security Number (SSN) and for permission to allow the lender to access your credit report. If the information you provide is satisfactory, as is your credit report, the lender will begin constructing the details of your loan. When they have determined how large of a loan you will be eligible for, they will grant you a preapproval letter. The letter will also detail your estimated interest rate on the loan, though that will sometimes also depend upon the specifics of your purchase, such as the year and condition of a car or appraisal on a home.

Having your preapproval letter will shorten the loan process significantly when you’re actually ready to take out the loan. However, that is only a small benefit of getting preapproved before you start “shopping.”

Here are some other advantages of getting preapproved for a loan:

1.) You’ll know what you can afford

Your preapproval will tell you exactly what you can afford. This way, you’ll avoid being disappointed later when you have your heart set on a certain home only to be told you can’t swing it financially. Knowing how large a loan you’ll qualify for will simplify your search and get you into your new home or car sooner.

Be sure to calculate other monthly costs, such as property taxes, home insurance and increased auto insurance rates when determining the actual amount of money you’ll need to shell out each month.

2.) Don’t get taken for a ride

Picture this scene at a car dealership:

Salesperson: So, you’re here to buy a new car! What are you looking for?

You: Well, I want something with a smooth ride and –

Salesperson: Got it. And how much of a monthly payment can you afford?

You: Weeelll, I think I can swing up to $200 a month, but I’d rather something closer to $150 if you —

Salesperson: Step right this way please! Let me show our new line of Camrys at just $205 a month! They have the most luxurious feel and the ride is smooth as butter!

What happened here is, quite simply, a salesperson looking to make the most money out of a customer. When you’re unsure about how much you can spend, the dealer will capitalize on your uncertainty and try to sell you a car that just barely skims the maximum amount you’ve decided you can afford.

Also, when you name a monthly payment you can manage, the dealer will work with that number instead of talking about the price of the car. They may try to inflate the payment with charges and fees just because they fit within your named payment amount.

In contrast, when you show up at the dealer with a preapproval in hand, the salesman will have to show you cars with price tags that fit within your loan amount.

Don’t get taken for a ride; get your preapproval before you set foot in the dealer shop!

3.) Be taken seriously

A car dealer will take you a lot more seriously when you wave that preapproval in their face, since having that information in hand shows you’re ready to buy.

When purchasing a home, the same rule holds true. A realtor will be able to assist you more efficiently when you know exactly how much house you can afford. They may also give you better service since you’re showing that you’re serious about buying a home. In fact, many realtors refuse to show homes to buyers who don’t have a preapproval in hand.

4.) Know you have financing you can trust

When you show up at the car dealership with a preapproval from your credit union, you know the deal is in your best interest. Many auto shops have access to several financing options and they’re almost always going to put customers into financing options that are in their own wallet’s best interests.

5.) Purchase your dream home

A preapproval makes you a valuable customer. It also helps you stand out from the pack. If you’re looking to buy a home in a competitive market, you may be competing with several other buyers for the same house. Having your preapproval will give you a leg up on bidding wars. A seller will be more eager to work with someone who’s already started the mortgage process. You can end your search sooner with a preapproval!

In the market for a new home or car? Don’t forget to call, click, or stop by Destinations Credit Union to hear about our fantastic rates on mortgage and auto loans!

Your Turn: Based on your own experience, why do you think it’s important to get preapproved for a loan? Share your thoughts with us in the comments!

SOURCES:
http://www.investopedia.com/mortgage/pre-approval/ 
https://www.nerdwallet.com/blog/loans/advantages-of-getting-pre-approved-for-a-car-loan/
https://www.google.com/amp/s/www.zillow.com/mortgage-learning/pre-approval/amp/

Buying a Used Car Part Two: Loans and Negotiation

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If you missed part one of our guide to buying a used car, take a moment to click here and check it out.  We covered choosing the right car, understanding the value of the vehicle and many aspects of the process up to the point you sit down with the person from whom you’ll make a purchase.

Question:  Do I really have to negotiate?  It’s such a terrible experience and I feel so intimidated. 

Negotiating a car sale isn’t most people’s cup of tea.  If you’re buying from a dealer, it means sitting down with someone who may have more experience than you do, particularly with car sales.  It doesn’t have to be an intimidating process, though.  You have all the power in the transaction:  you can buy a car from the first person or the 10th, while the salesperson needs to make every sale he or she can. 

Question:  How can I make the negotiation go smoothly?

Know your price – The Internet is a fantastic resource.  Once upon a time, the salesperson knew more than the customer about car prices, and that was particularly true of used cars.  Now, you can determine the price you’re willing to pay before you ever walk in, and refuse to pay one cent more than that.  If you want, you can even email back and forth between multiple salespeople, letting them bid against each other.   

Don’t say too much – There’s very little you can say to make a negotiation go better, but there’s a lot you can say to make it go worse.  You’re not going to cause the other person to have a sudden change of heart and cut you a better deal, but you might give the clues they need to know they can hold out for more money.  If in doubt, don’t say anything.  It can be difficult, particularly when the silence is awkward and tense, but saying nothing is often the right thing to do.

Walk away – It’s an old saw in sales: “He or she who can walk away controls the deal,” and it’s been passed down from bullpen to bullpen because it’s true.  If you aren’t willing to walk away and leave the salesperson without a sale, then what incentive does he or she have for lowering the price?  It feels terrible to spend an entire Saturday on car lots and still wake up on Sunday without a car, but you need to get over it.  When you go out to buy a car, make a resolution to wait a week before you buy.  That will make it easier to walk away and give you time to make sure you’re certain of your purchase.  If you wait, you might even get a phone call during the week with a better price, particularly if it’s near the end of the month or if it’s been raining.  Is it worth a few day’s wait and another day’s work to save a few hundred dollars?  In most cases, it is. 

Question:  Should I finance the car at the dealer? 

One of the keys to negotiating a car deal, whether at the dealership or from a private seller, is securing the best financing available.  After all, even one percent difference in your interest rate can be worth hundreds, or even thousands, of dollars over the life of the loan. 

Get your financing first – The best way to get the best rate is to borrow from your credit union.  Our auto loans have fantastic rates, and we’re not trying to sneak in any hidden charges or fees.  If you come to us first, you can make a clear plan for how much you can spend, so you’re not surprised when that first payment is due.  We can also tell you how much you’ll need as a down payment, and we might even have some good tips on who you can trust in town.  You can start the pre-approval process online. 

Hopefully, if you’re planning on buying a used car, you’ll save money and get a vehicle that will make you happy for years to come.  If not, feel free to trade your vehicle in and start the guide over from the beginning. And remember, you’re always welcome to talk with your partners at Destinations Credit Union for more information and guidance to make your car buying experience as enjoyable as possible.

Buying A Used Car, Part One: Finding The Car

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You’ve probably heard that a car is the second-largest purchase the typical American makes after their home, but that’s not really true.  It might seem like it, since the median home price in the US was just under $190,000 last year, while a new Honda Civic starts at about one-tenth as much.  When you look a little deeper, though, you’ll probably only ever own one home at a time, and when you sell it, you’ll get your money back. You might even make a profit on the sale.
With a car, though, the life expectancy is just under a decade, it has limited resale value, and many families own several automobiles. Because of facts like these, the actual cost of car ownership over a lifetime can be staggering. More specifically, you can still expect to spend a minimum of $120,000 (in 2015 U.S. dollars) per driver over the course of a lifetime. That number goes up if you trade in your cars in less than nine years or if you drive a vehicle that’s nicer than an entry-level coupe.  A two-car family who drives a new pickup truck and minivan and trades in every five years can expect to spend roughly three-quarters of a million dollars on their cars in their lifetimes.
So why do we assemble a team of professionals to buy a house and then spend weeks or months agonizing over our decision, but dedicate little more than a Saturday afternoon to buying a car?  This guide is meant to help bridge the gap between the seriousness with which we tend to take home buying and car buying.  It’s meant to make an important financial decision easier, but it is just a simple guide.  When you’re done, be sure to talk to Destinations Credit Union before you head to the dealership.  We can get your loan secured, walk you through the buying process and make sure you walk onto the lot ready to hold your own with whatever slick salesperson greets you. 
Question:  Why am I buying a used car? 
Answer:  Maybe you’re not.  Some people only want to buy new cars. New cars have time left on their warranties, can be customized to exact specifications of the buyer and help reduce uncertainty.  If those are important to you, you might be willing to spend the extra money to buy a new car.  Grab a copy of Consumer Reports’ 2016 car buying guide, or pay the $6.95 for a one-month subscription. Consumer Reports is generally fantastic and its car guide is still better than anything you’re going to find online for free.
Buying a used car is a much better value for most people, however.  Few products lose their value faster than a car, whose value plummets the minute it’s driven off the lot.  Maybe buying dinner at a fancy restaurant loses its resale value more quickly than a new car, but little else does. Buying a one- or two-year-old vehicle can save thousands of dollars off the sticker price of a vehicle, but even buying a used version of this year’s model can be a windfall, because someone else has paid for the initial depreciation once the vehicle lost its new car smell. 
Question:  How do I know if a used car is in good condition?  I don’t know much about cars. 
Answer:  Even if you know a lot about cars, you should take it to someone who knows as much or more about cars as you do.  You’re not going to be objective, because your bias toward a car you like (or your desire to just be done with test drives) will lead you to overlook flaws that a neutral observer will not. Dealerships will usually let you take a used car to a mechanic you trust, which is your best bet to make sure the car is in good condition. 
Question:  What if I’m not buying from a dealer?  What if I’m buying from a friend or off of Craigslist? 
Answer:  If, for some reason, you can’t take the car to a mechanic – which should make you skeptical – or if you want to find out about a car before you meet up with the seller, ask for a CarFax report.  They cost around $50 and will tell you about all sorts of things you’ll want to know.  Many sellers will foot the cost of the CarFax, because they can still use it for the next potential buyer even if you don’t buy the car. 
Question:  Anything else I can do to protect myself? 
Answer:  No matter if you’re buying from a dealer, a friend, your pastor or the reanimated corpse of Henry Ford himself, you should always take a car for a test drive.  Find a route that simulates your morning commute; don’t just go on the route the dealer wants to take you. Take some left turns.  Accelerate to freeway speeds.  Ride in the back seat for a while.  Make sure you actually like the car before you spend thousands of dollars on it.
There are few feelings worse than writing a sizable check every month for something you resent.  Just ask anyone who’s paying off student loans but not using their degree.
The first part of buying a used car is not the most fun, that’s for sure.  It’s all about research and preparation.  If there’s anything we all hate more than driving around to used car lots, it’s homework.  But this is the best way to make sure you get a car you’re going to love for a long time, which means the more time you put in now; the longer you can wait until you have to do it again.  

In our next installment, we’ll go over the negotiation process, including everything you could want to know about financing.  If you’re planning to buy a car this weekend, the most important thing to know for now is that you’ll want to come see us about our auto loans before you go to the dealership. If you’re looking to research a particular model, our AutoSmart buying service may help. It can save you hundreds or even thousands of dollars to talk to us first.  You can find our rates and apply online here.

Sources: 
http://web.consumerreports.org/cars/v1.html?EXTKEY=SG72C00&gclid=Cj0KEQjwkeiwBRCzmo-wiKL49pEBEiQAhvGKYR5ohiXqwx6y0ifJ4370XmXyp6vp5rCY6KQC3StG2b8aAqCX8P8HAQ http://www.cars.com/go/advice/Story.jsp?section=fin&story=car-loans-how-long&subject=car-loan-tipshttp://www.huffingtonpost.com/2014/03/13/median-home-price-2014_n_4957604.html

http://automobiles.honda.com/civic-sedan/

http://www.chrysler.com/en/town-country/?sid=1037056&KWNM=%252Bprice+%252Btown+%252Bcountry&KWID=43700005857714820&TR=1&channel=paidsearch

http://www.latimes.com/business/autos/la-fi-hy-ihs-automotive-average-age-car-20140609-story.html

http://www.ford.com/trucks/f150/?searchid=199279626|11841765906|17527972|&ef_id=VZinGAAABSKGYTa4:20151011161224:s

New School Year’s Resolutions

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Ah, autumn.  That wonderful time of year when the leaves change color, football takes over the television for five uninterrupted months and students head back to school. Alright, it’s not actually autumn, it’s August. It’s still summer outside, and more of the country is watching grass turn brown than observing the leaves transitioning to orange. School is starting, though, and you’ve probably already gone through a lot of the rituals that accompany a new school year, so you may be in a back-to-school mood. 
Here’s a tradition you might not have tried: Have you made a new school year’s resolution?
We’re not talking about those promises you make to yourself every year about doing homework on Friday nights or not wearing sweatpants to class.  Have you made a resolution for this year that you actually intend to keep?  Now is the perfect time to make a change, while you’ve got a new planner just waiting to have milestones and goals written into it.  We’ve got some tips to aid you in keeping your resolution this school year.
 
First, set a clear goal.  Goals are only as useful as they are attainable, and goals are only attainable if they’re clearly articulated.  For example, “I want to eat better” is an admirable goal, but it’s difficult to figure out if you’ve actually done it or how that affects your decisions. Eating two cookies is better than three, for example, but would you have eaten three cookies before?
That’s why it’s important to be specific. Instead of saying, “I want to be better with money so I won’t need to eat toast sandwiches at the end of the month,” try making a resolution like “I won’t date freshmen” or “I will set a budget every month.”  You can tell if you’ve set a budget even if you don’t always do a good job of following it.  Having a tangible goal gives you freedom as well.  Are you being good with your money if you buy a latte every once in a while?  Who can tell?  But if you have a budget, you can clearly see when you can afford a latte, and what else you might have to give up to get it. 
You also need to keep the goal simple enough so it is achievable.  “I’m going to work out for two hours every day” sounds great … for about a week.  Then it sounds like a hassle.  What do you do for two hours every day that you’re willing to give up?  Sleep? Homework? Xbox?  An easy to achieve resolution might be something like “I will spend Monday afternoons cleaning,” or “I’ll save $1,000 to put a down payment on a car within a year.”  Saving $1,000 might sound harder than working out, but it’s really not.  Put $85 per month away for a year or $43 per month for two years.  Even if you make minimum wage, $43 is only about one day’s salary each month.
It’s easy to fool yourself into believing you’re living up to your resolutions, which is why you need someone to keep you accountable and help you out when you need it.  That’s a place where Destinations Credit Union can really help.  We’ve got internal experts in budgeting and financial counseling partners who’d love to talk to you, and we offer great rates on Kasasa Cash Rewards Checking, Savings Certificates, Holiday Club accounts, and all sorts of savings plans to make saving for that down payment even easier.  We also have tools, such as MoneyDesktop and simple budgeting software.