When shopping for a new car, many people overlook one important step: getting preapproved for a car loan. It's a straightforward process that can make car buying go more smoothly and save you money.

Preapproval is a quick assessment of your ability to repay a loan based on your credit history and current financial situation. This is how it works: You visit a bank, in person or online, and provide proof of your identity — such as your driver's license or Social Security number — your household income, and perhaps your housing costs. The lender will likely run a credit check. Then you'll find out how much it would be willing to lend you and at what rate, sometimes on the spot.

Here's why you should get preapproved.

You can get a better interest rate.

If you haven't done your homework, your dealership might try to talk you into a loan at a not-so-great rate. However, getting preapproved at a bank means you can assess the dealership's offer and decide whether to accept it. Bringing your interest rate down just one or two percentage points can save you hundreds, maybe thousands, of dollars over the life of your loan.

You can set a proper budget.

Once you're preapproved for a loan, you can plan your purchase. Use an auto loan calculator to factor in a down payment, the value of your trade-in — which you can find online — and your desired monthly payment. Add about 10% for sales tax and other fees. And don't forget about insurance and the various costs associated with owning a car.

Adjust your dreams—and your budget —accordingly. Then go shopping.

You can negotiate more effectively with the dealer.

Letting your dealer know that you're preapproved shows that you're a ready-to-buy customer who can walk away at any time. That curtails much of the early verbal banter. Instead of "Please let me know when you have your pre-approval, and we'll discuss the price." Try something like this: “I'm looking for this model, in a deep blue with black leather interior and rear parking sensors. I just stopped in quickly to find out the price I would pay after you take my car as a trade-in.” If the salesman doesn't listen, say, "I just want to hear that one number." It's not rude to be assertive in this situation.

And as you're signing all the papers in the finance office, if a salesperson tries tempting you with an extended warranty or other last-minute add-ons, you can use your preapproval to stick to your price.

When you're preapproved for a loan, you have the competitive edge in car-buying. You can say no until they say yes.

Contact one of our Lenders to get pre-approved today!