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Pre-qualification and pre-approval are two different ways to get an idea of your auto finance options. Prequalification is less rigorous and only requires sharing of basic information about your financial situation and provides you with an estimate of the rate and conditions for which you may qualify. Pre-approval requires you to give a creditor more personal and financial information because it is essentially a partial application.
The difference between prequalification and pre-approval
A pre-approval is a formal offer from a lender with terms, and pre-qualification is an estimate of what auto loan terms you might qualify for. Since a prequalification is not fixed, it is not very helpful when negotiating with a dealer.
But whether you choose prequalification or preapproval for a car loan, neither are guaranteed deals — final approval is dependent on the lender’s underwriting department finding no surprises in your full credit history and additional factors like employment and income verification .
Benefits of pre-approval and pre-qualification for auto loans
Both pre-approval and pre-qualification allow you to get a good idea of how much money you can borrow and how much you will pay for it.
Benefits of Pre-Approval
With pre-approval, you can shop with confidence, knowing you are most likely getting the same or a very similar rate. You can also use your pre-approval rate as a bargaining chip with the dealer once you enter the finance office and put pressure on them to beat that rate.
Benefits of Prequalification
Pre-qualification is a low-risk way to find out what kind of credit you could get, especially if you’re not ready to start shopping in earnest. Your credit score will not be affected as the lender does not perform a hard credit check.
What to consider when pre-qualifying and pre-approving car loans
When you pre-qualify for a car loan, you will be given a rough estimate of the loan amount and interest rate you will be offered. You can then use this information to shop around for the best deal, but note that prequalification is not an official offer.
Prices are not guaranteed – and their validity depends on the accuracy of the information you provide.
Pre-approvals are also not guaranteed. If your income, employment, or credit rating changes drastically between the time of your pre-approval and the time you complete your application, you may be denied the loan. Keep that in mind as you shop and watch your spending — especially with credit cards.
How to get pre-approval for a car loan
If you decide that a car loan pre-approval is right for you, you will need to gather the necessary documents and submit a pre-approval application. It is recommended that you check out several reputable lenders before applying.
Once pre-approved, you’ll have a clear idea of how much you can spend and be in control when it’s time to negotiate. Pre-approved auto loans are typically valid for 30 to 60 days.
If you are denied pre-approval, there are a few steps you can take. Check your application for errors, increase your down payment, reduce your total debt, or try a different lender. However, before trying another lender, discuss the reason for the rejection with whoever you applied to.
Information You Must Provide to Pre-Qualify or Be Pre-Approved
Pre-approval and pre-qualification require some of the same information. Be prepared to provide:
- Personal data such as name, address and telephone number.
- Financial information, including your income and housing benefit.
- Information about the loan, including the loan amount.
Pre-approval will likely require you to submit additional information, including your social security number and date of birth, so the lender can retrieve your full credit report. This is called a hard credit pull, and it temporarily lowers your credit score by a few points.
The final result
Pre-qualification and pre-approval are two useful tools when estimating how much you can spend on a car loan. Pre-approval can even help you get a better price from the dealer if you’re considering financing through them. But deals aren’t guaranteed, so spend wisely when shopping.