If you’re considering buying a new car and have done a bit of research, you may have come across the term “blank check auto loan” and wondered what it’s all about. The idea of a blank check can be a little convoluted, so before breaking down exactly how and for whom it works, let’s look at what it is.
What Is a Blank Check Auto Loan?
Traditional car shopping consists of researching makes and models, looking at extras, acquiring insurance, and then preparing to negotiate with a dealer. It doesn’t apply to any private sales, but it’s a great choice for those who are in the market for a car from a dealer. If you’ve shopped for a car before, you know one of the best ways to do so is to know exactly how much you can afford to spend. After the negotiations, however, you might recall that there was a series of extra (and unforeseen) fees. For example, after a deal is reached and you start the financing process, the dealer will now tell you what sort of interest rate you can get for the vehicle loan.
Blank Check Auto Loan
A more savvy approach to a dealership purchase is to get financing on your own and, ideally, before you visit the dealership. This can be accomplished by getting a blank check auto loan from a lender. The number of lenders offering this sort of loan is increasing, so do your research and you’ll be sure to find a lender in your area.
Think of a blank check auto loan like a preapproval for a home. It gives you approval for a car loan for a specific amount so you can cover all the expenses that come with a new car purchase. Sometimes, a new-car buyer will be given a blank check they can fill in and write to the dealer upon completion of the deal. In other cases, the “blank check” part will just be a maximum that can be used to cover the costs.
One key thing to remember, however, is that it’s best to wait to inform the dealer that this is how you intend to pay for the vehicle. This is important so you won’t be pushed into extras that are only offered to increase the overall price. Take the time you need and talk with the dealer, give the car a few test drives, sleep on it, and only when you’re certain and the talks are through and a purchase amount offered, should the conversation move to financing.
This is a way to remove a lot of the hassle from the purchasing process since you have a pre-established maximum and are able to take that figure and select a car from it. That being said, there are still a couple of things to be keen on so you can be sure to get the best deal.
How to Buy and Finance a New Car with This Loan Type
As with any loan process, knowing your credit score is going to be the first thing you’ll want to do, even before you walk into a lending institution. You can visit a reputable free credit check website, such as Experian, so you’re prepared. If you’re boasting a good credit score, you’ll be eligible for a better interest rate. If your credit is mid-range, you may still be approved and able to lock in a rate, but you’ll need at least decent credit to be approved and get a competitive interest rate.
If you see advertisements about auto loans for candidates with poor credit, just know that the interest rates tied into the loan will be significantly higher.
Requirements for a Blank Check Auto Loan
When discussing the loan with a lender, some may ask you what type of car you’re hoping to buy, so be prepared to offer a short list of vehicles that you’re considering. As a general rule, lenders tie blank check auto loans to passenger cars, pickups, or SUVs. This wouldn’t cover the purchase of someone wanting to buy a commercial or recreational vehicle, nor someone interested in a motorcycle. Lenders will also commonly have a framework in place that sets restrictions for the age and mileage of the car; for example, a car that’s less than seven years old and doesn’t have more than 70,000 miles on it.
Know the Terms, the Rates, and the Potential for Extras
Be sure to also thoroughly review the terms of the loan. Although most have a set interest rate, some lenders do offer variable rates. It’s important to understand the terms and how the interest rates could play out over the course of the loan. Look at the potential penalties for late payments, and think about what they could mean. A blank check auto loan is a great type of loan for those who are interested in driving off the lot with a new car, but in doing your research, you can still verify what’s on the table is competitive.
As mentioned, don’t tell the dealer how you’re planning to pay for the car too early, including whether there are any trade-ins or how much you’ve been approved for, as you’ll want to make sure they don’t try to increase their overall profit. After the negotiation of price, the deal will continue into the financing and insurance stage. By then, they’ll know about the preapproval and may even know the approved maximum. If the final amount you’re paying is less than that maximum, they may try to offer a few pieces to up the overall price so that you stay in budget and they can make a few extra bucks. Say no to the things you don’t need and haven’t already discussed as part of the deal.
For your next car purchase, check with Rivermark Community Credit Union to see what car loan offers are available and to see what will have you driving a new car off the lot.