While just about everyone knows about the pre-approval process for home mortgage loans, fewer know that pre-approval can also be used when purchasing an automobile. The process works in much the same way, with the lender reviewing the borrowers credit history and credit score, and coming up with an amount that can be borrowed, and the associated monthly payment.

Knowing how much you can afford to pay for a car certainly makes the process of car shopping a lot easier. While it might be nice to shop for a Ferrari, if all you can afford is a Volkswagen you would be well advised to focus your shopping in that direction.

Being certain about your financing options will also aid in the negotiating process for the car. Those car dealers who know that you are truly able to afford the car you are looking at will often be more willing to work with you, and they may be more willing to lower the price in order to make the sale.

Knowing the terms of the loan from the lender of your choice will also help you compare that loan offer to what the dealer has to offer. Most car dealers will try to arrange their own financing for the car they sell. In some cases, financing the car you buy through the dealer may make sense, but in other cases it will make more sense to finance through the bank. Having two solid offers to compare will help you to see where you stand and help you to make an intelligent and informed decision.

No matter where you finance your car, through the dealer or through the bank, however, it is important to pay close attention not only to the interest rate and the monthly car payment but to the length of the loan as well. As the average prices of new cars and used cars have continued to rise, the length of the average car loan has gone up as well, and a long term car loan can be a bad idea for a number of reasons.

First of all, a long term car loan will mean that you will be paying far more for the car in the long run, no matter how low a price you have negotiated. In addition, a lengthy car loan could leave you owing more than the car is worth, and this can be a highly undesirable situation.