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Auto financing: Prequalification vs. preapproval Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our mission is to help you make smarter financial decisions by offering interactive tools and financial calculators that provide objective and original content. This allows you to conduct your own research and compare information for free and help you make informed financial decisions. Bankrate has agreements with issuers, including but not restricted 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 such things as the order in which they be listed within the categories of listing, except where prohibited by law. Our mortgage, home equity and other home lending products. But this compensation does affect the information we provide, or the reviews that you see on this site. We do not contain the entire universe of businesses or financial offerings that could be available to you.
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3 min read Published November 02, 2022
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The prequalification process and the preapproval procedure are different methods of getting an initial read on your options when it comes to financing for your vehicle. Prequalification is not as rigorous and requires only basic information about your financial situation, and offers some idea of interest rate and terms you might qualify for. Preapproval requires you to provide more financial and personal information with a lender, since it’s essentially an incomplete application. The difference between prequalification and preapproval A is that it’s a formal offer from an lender and comes with terms, and is an estimate of the is the car loan terms you could be eligible for. Because a prequalification is not binding, it’s not of much useful when you’re negotiating with an auto dealership. But whether you opt for an auto loan prequalification or preapproval, neither of these are guarantees — final approval will depend on the underwriting department of the lender making sure there are no surprise in your complete credit history , as well as other aspects like income and employment verification. Benefits of auto loan the preapproval and prequalification allow you to get an accurate idea of how much money you are able to borrowand the amount you’ll pay to borrow it. Preapproval benefits: With preapproval means that you can shop with confidence, being confident that you’ll likely pay the same or very comparable interest rates. You can also make use of your preapproval rate an indication to the dealership once you enter the finance office, and put pressure on them to beat that rate. Benefits of prequalification Prequalification is a low-risk way to find out the kind of loan you could get particularly if you’re not yet ready to shop for a loan in the first place. Credit scores aren’t affected since the lender won’t run a hard credit check. What to keep in mind when you apply for prequalification for auto loan prequalification or preapproval. When you are prequalified to receive an auto loan and get an approximate estimate of the loan amount and interest rate you’ll be offered. You can then use this information to compare prices to find the best rate and keep in mind that prequalification does not constitute the same as an offer that is officially made. Rates aren’t guaranteed — and their value is contingent on how accurate the information you provide is. Preapprovals also aren’t guaranteed. If your income, job or credit significantly change between when you are preapproved and when you apply, you could be refused the loan. Remember this when shopping, and be careful when you spend money — particularly when using credit cards. How to be preapproved for the car loan If you decide that a car loan is right for you, you will have to collect the required documents and fill out an application for preapproval. It is recommended that you look into reputable lenders prior to making an application. Once you have been preapproved, you will have a clear idea of what you can pay and will be in control when it’s time to negotiate. Preapproved car loans generally last for 30 to 60 days. If you’re in the preapproval phase and you are not sure, there are some actions you can do. Review your application to find any mistakes and increase your down payment, reduce your overall debt or try a different lender. Before trying with a different lender but, do discuss the reason of the rejection with the one you submitted your application with. The information you must provide to prequalify or be preapproved Preapproval and prequalification require some of the same details. Prepare to supply the following information: Personal information, like your name, address and telephone number. Financial information, including your income and your housing payment. Information regarding the loan that you are applying for, such as the amount you want to take out. The preapproval process will likely require you to submit more information, including the Social Security number and birthdate so that the lender can pull your full credit report. This is referred to as a hard credit pull, which can lower your credit score by several points. In the end, prequalification and preapproval are two helpful tools when it comes to understanding the amount you can pay for your auto loan. Preapproval could even allow you to find a lower rate on the dealer if you’re contemplating financing with it. However, these offers aren’t guaranteed, so spend wisely while you’re shopping. Learn more
This article was generated with the help of automation technology, and then checked for accuracy and editing by an editor on our editorial team.
Edited by Rhys Subitch Edited by Auto loans editor
Rhys has been writing and editing for Bankrate from late 2021. They are passionate about helping readers gain the confidence to manage their finances through providing clear, well-researched information that breaks down complicated topics into bite-sized pieces.
Auto loans editor
Review by Mark Kantrowtziz. Reviewed by Nationally known student financial aid expert
Mark Kantrowitz is an expert on student financial aid, the FAFSA and scholarships, 529 plans, education tax benefits and student loans.
Nationally recognized student financial aid expert
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