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Auto financing: Prequalification vs. preapproval Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our goal is to help you make smarter financial decisions by offering you interactive financial calculators and tools, publishing original and objective content, by enabling you to conduct research and compare information for free to help you make sound financial decisions. Bankrate has agreements with issuers, including but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money The offers that appear on this website are provided by companies that pay us. This compensation may impact how and where products appear on the site, such as, for example, the sequence in which they appear in the listing categories, except where prohibited by law for our mortgage or home equity products, as well as other home loan products. This compensation, however, does affect the content we publish or the reviews that appear on this website. We do not cover the entire universe of businesses or financial offers that may be open to you.
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3 minutes read. Published November 02, 2022
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Edited by Rhys Subitch Edited by Auto loans editor
Rhys has been editing and writing for Bankrate since the end of 2021. They are passionate about helping readers gain the confidence to take control of their finances through providing concise, well-researched, and clear information that breaks down otherwise complex topics into manageable bites.
Review by Mark Kantrowtziz. Reviewed by Nationally acknowledged student financial aid expert
Mark Kantrowitz is an expert on student financial aid The FAFSA as well as scholarships, 529 plans as well as tax benefits for education and student loans.
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Prequalification and preapproval are two different methods of getting an initial understanding of your options when it comes to financing for your vehicle. Prequalification is less rigorous and requires only the most basic details about your financial status, and gives you an estimate of the rates and terms you might qualify for. Preapproval requires sharing more financial and personal information with a lender since it’s basically an incomplete application. The distinction between prequalification and preapproval A is a formal offer from an lender, with conditions, and is an estimate of the car loan terms you might qualify for. Since a prequalification isn’t firm, it’s not much to use when trying to negotiate with the dealership. But whether you opt for an auto loan prequalification or preapproval neither are guaranteed offers — final approval will depend on the lender’s underwriting department not finding any surprise in your complete credit report and other factors, like employment and income verification. Advantages of preapproval and prequalification for auto loan Preapproval as well as prequalification both preapproval and prequalification permit you to have an accurate idea of how much money you can feasibly borrow, and how much you’ll pay to borrow it. Preapproval benefits: With preapproval, you can shop with confidence knowing that you’ll likely receive the exact or similar interest rate. You could also utilize your preapproval as an indication to the dealer once you have entered the financing office, putting pressure on them to beat that rate. Benefits of prequalification an easy option to discover the kind of loan you might qualify for particularly if you’re not ready to start shopping for a loan in the first place. Your credit score isn’t impacted as the lender will not conduct a thorough credit test. What should you be aware of with auto loan prequalification and preapproval If you prequalify to receive an auto loan you will receive a rough estimate of what loan amount and rate you’ll receive. This information to compare prices to find the best rate, but remember that prequalifying is not an official offer. Rates aren’t guaranteed and their legitimacy is contingent on how precise the information you give is. Preapprovals also aren’t guaranteed. If your earnings, employment or credit significantly change between when you are preapproved and the time you apply, you may be denied the loan. Keep this in mind while shopping, and be careful when you spend money — especially with credit cards. How do you obtain pre-approval for a car loan If you decide that a car loan is the best option for you, you will be required to gather all the documents and fill out an application for preapproval. It is suggested that you look into reputable lenders prior to making an application. After you’ve been approved by a lender, you’ll be aware of how much you can spend and have control when it’s time to negotiate. Preapproved car loans are typically valid for 30 to 60 days. If you’re in the preapproval phase and you are not sure, there are some steps you can do. Review your application to find any mistakes, increase your down payment, reduce your overall debt or try a different lender. Before attempting to work with a different lender, however, discuss the reason of the rejection with the one you submitted your application to. Information you need to provide to be prequalified or prequalified Preapproval and prequalification require some of the same information. Be prepared to provide the following information: Personal information, like your address, name, and telephone number. Financial information, which includes your income and housing payment. Information about the loan which includes the amount you’re looking to borrow. Preapproval is likely to require you to submit more information, including details about your Social Security number and birthdate so the lender can pull your full credit report. This is referred to as a hard credit pull, which can reduce your credit score by a few points. In the end, prequalification and preapproval are two helpful tools when it comes to gauging how much you can spend on your auto loan. Preapproval can also help you find a lower rate at the dealership if you’re considering financing through it. However, these offers can’t be guaranteed, so choose carefully when you shop. Find out more
The article was created using automation technology and thoroughly checked for accuracy and editing by an editor on our editorial team.
Editor: Rhys Subitch Edited by Auto loans editor
Rhys has been writing and editing for Bankrate since the end of 2021. They are passionate about helping readers gain the confidence to take control of their finances with concise, well-studied facts that break down complicated topics into bite-sized pieces.
Auto loans editor
Reviewed by Mark Kantrowtiz Reviewed by Nationally recognized student financial aid expert
Mark Kantrowitz is an expert on student financial aid, the FAFSA and 529 plans, scholarships, education tax benefits and student loans.
Nationally acknowledged expert in student financial aid
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