In many cases, it can be a good idea to tell the dealership you have your own financing for a car lined up because it could mean a better deal for you. But, timing is everything – when you tell the dealer about your pre-approval is key if you're looking for the best deal you qualify for.
When Should I Tell the Dealer I Have Financing?
Most finance experts suggest holding back the fact that you have a pre-approval until you’ve settled on the price of the vehicle. Once you have the selling price settled, you can discuss financing options later. It’s possible that telling the dealer you have car financing right at the start could harm your chances to negotiate on the selling price of the vehicle you’re looking at. Dealerships typically make more profit when you finance with them, and your pre-approval could represent less money for them.
With that in mind, we suggest negotiating for your next auto loan in this order:
- Choose a car
- Settle on the vehicle’s price with the dealer
- Let them know if you have a down payment and/or trade-in
- Discuss financing options and tell them you have your own financing
- Possible negotiations of rates and loan terms
- Choose your financing and finalize your contract
How Do I Get My Own Financing?
Get your auto loan pre-approval. Getting your own financing before you walk into a dealership means taking out an auto loan somewhere else. Usually, this means heading to a direct lender such as a bank, credit union, or online lending service for financing. If you qualify for a car loan, you get a pre-approval that determines the maximum amount you can finance.
With a pre-approval, you can go to a dealership and shop like a cash buyer.
Your Pre-Approval Can Become a Bargaining Chip
If you walk into an auto dealership and tell the salesperson you have a pre-approval you could lose your only bargaining chip to lower your interest rates. Telling a dealer upfront that you have financing could lead to potential markups since the dealer knows they won't be making money financing a vehicle through their lenders.
However, if you don’t tell the dealer immediately that you have auto financing, more than likely, they inform you of all the lenders they’re signed up with through their finance and insurance (F&I) department. Most dealers are signed up with third-party lenders that you can apply for at their location, and these lenders sometimes assist bad credit borrowers.
Getting better rates with a pre-approval. If you explore the dealership's financing options before you mention your own financing, you can compare their interest rates against your direct loan rate. Say you were pre-approved for a 5% interest rate with your bank. You can use this rate as a starting point, and see if the dealer can offer you a lower rate to finance through their lenders. The dealership may tell you that they have lenders financing for a lower rate, and suggest you drop your pre-approval and finance with them, instead.
Can’t Get a Car Loan Pre-Approval?
Not everyone qualifies for pre-approval. Some borrowers can’t quite get their hands on a direct auto loan, especially if they're dealing with bad credit. Pre-approvals can be difficult to qualify for if you have bad credit. You’re more likely to get approved for a car loan in this situation if you apply with a dealership that’s signed up with bad credit lenders. These are called special finance dealers, and they're generally signed up with one or more subprime lenders that specialize in assisting borrowers in unique credit situations, such as bad credit, no credit, or bankruptcy.
Subprime car loan requirements. Qualifying for a subprime auto loan means having stability. Since these lenders don’t just look at your credit score, you need to prove you have enough income, provide a down payment, and show them your living situation is stable. The longer you’ve lived in the same area, held the same job, and have had a steady income, the better your chances of qualifying for a subprime car loan typically are.