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Preapproval, research help shoppers get the most out of their auto loan

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Buffy Hedrick of Indiana Heartland Federal Credit Union said there are two things car shoppers should do before stepping into a dealership: research and get preapproved.

By having that information, shoppers will know exactly what kind of price they should pay for a vehicle and the exact interest rate they’ll be paying on the loan, she said.

“I always say people need to be prepared. You need to know what you’re doing and what you’re purchasing,” she said.

By getting preapproved, buyers will save time in the dealership by being able to shop like a cash buyer and avoiding the finance department. Hedrick said buyers can save money by taking this step ahead of time and shopping around for an interest rate.

She said shoppers should start with the credit union or bank they have a relationship with to see what kind of interest rate would be available to them there. Many credit unions will match interest rates, so Hedrick said shopping around for interest rates can be beneficial.

Even though some dealerships have relationships with area banks and credit unions, indirect lending can cause buyers to end up paying more if they go through a middleman instead of doing it themselves.

“They can get a lower rate by going to the credit union and getting preapproved than they can from the dealer for the same financial institution. Financial institutions have it set up where they have deals worked out where the dealership will secure the loans for them, and the finance person gets 2 to 3 percent of the loan,” she said. “As far as I’m concerned, indirect lending is the worst thing that has happened.”

It’s also important for people to know what they should be paying for the vehicle before they purchase it. In a world where information is at everyone’s fingertips, Hedrick said it doesn’t take much work to check Kelly Bluebook or NADA price guides.

She also said buyers should research whether there are potential rebates on vehicles. Dealers, she said, can’t always know exactly what rebates are being offered on all of their cars.

By overpaying, buyers can end up upside down on their loan or have a hard time getting refinanced if they owe more on the loan than the car is worth.

For those who didn’t prepare ahead of time and have a loan with a higher interest rate, she said they’re not necessarily stuck, as there’s the option to refinance later. For those who think they can save, she said to visit a credit union or bank to see what their options are. If someone purchased a warranty at a dealership and they’re paying more for it than they should, they have 60 days after the purchase to cancel the warranty, she said.

Those who may run into problems are those who realize their car isn’t worth as much as they thought.

“Most financial institutions, unless you have impeccable credit, a score of 730 or higher, they’re not going to refinance that when you owe more than it’s worth. So it’s best for you to know what your car is worth. It’s only in your best interest when you go in there to know what you’re paying for,” she said. “Everyone has a smartphone, so go into your Google and enter in ‘nada.org’ and look to see what the value of that vehicle is.”

Those who secured a loan through a “buy here, pay here” business still may be able to save through refinancing their loan.

“A lot of people who buy at those types of places are paying 20-some percent for interest. Credit unions can’t go higher than 18-percent, so it’s best for them to try to get a loan at a credit union if they can,” Hedrick said. “You want to save yourself interest. No one gets rich paying interest on loans.”

And for some car shoppers, she said they might be better off leasing than buying if they find themselves upside down on the vehicle they currently have.