Auto loan pre-examination vs.Pre-approval

Pro Stock Studio/Getty Images

Pre-qualification and pre-approval are two different ways to get a first read on auto financing options. Pre-qualification is less rigorous, just sharing basic information about your financial situation will provide you with an estimate of the rates and conditions you might qualify for. Pre-approval is essentially a partial application, so more personal and financial information must be shared with the creditor.

Differences between prequalification and preapproval

A preapproval is a formal offer from a lender with conditions, and a prequalification is a quote for car loan terms that you may qualify for. Not very helpful.

However, choosing either prequalification or preapproval for a car loan neither guarantees an offer. Final approval depends on the lender’s underwriting department finding no surprises in a complete credit history and additional factors such as verification of employment and income.

Advantages of auto loan pre-approval and pre-examination

Both pre-approval and pre-screening give you a good idea of ​​what you can do and how much you’ll pay to borrow.

Benefits of pre-approval

With pre-approval, you’ll likely get the same or very similar interest rates, so you can shop with confidence. You can also use the pre-approved rate as a bargaining point with your dealer once you enter the financing office to pressure them to exceed that rate.

Benefits of prequalification

Pre-screening is a low-risk way to find out what types of loans you can get, especially if you’re not ready to start shopping in earnest. Lenders do not conduct rigorous credit checks, so your credit score will not be affected.

Things to be aware of in pre-screening and pre-approval of auto loans

Prequalifying for a car loan will give you a rough estimate of the loan amount and rate you will be offered. You can then use this information to find the best deals, but please note that prequalification is not an official offer.

Rates are not guaranteed. Validity of fees depends on accuracy of information provided.

Also, pre-approval is not guaranteed. Loans may be denied if there is a significant change in income, employment, or credit status between the time of preapproval and the time of this application. Keep this in mind when shopping, and be especially careful with credit card payments.

How to get preapproved for a car loan

If you decide that it is appropriate to have your car loan preapproved, you will need to gather the necessary documents and submit a preapproval application. We recommend researching several reputable lenders before applying.

With pre-approval, you know exactly how much you can spend and have control when it comes time to negotiate. Pre-approved auto loans are usually valid for 30-60 days.

If your pre-approval is denied, there are several steps you can take. Check your application for errors, increase your down payment, reduce your overall debt, or try another lender. However, before trying another lender, discuss the reasons for rejection with the lender you applied for.

Information you need to provide for pre-screening or pre-approval

Some of the same information is required for pre-approval and pre-qualification. Please prepare the following items.

• Personal information such as your name, address, and phone number.
• Financial information such as income and housing costs.
• Information about the loan, such as the amount you want to borrow.

Pre-approval requires you to submit more information, such as your social security number and date of birth, so that the lender can pull your full credit report.This is called a hard credit pull and your credit score is temporarily reduced by a few points.

Conclusion

Prequalification and preapproval are two tools that can help you determine how much you can afford to spend on your car loan. Pre-approval can also help you get better rates at dealers if you are looking to finance through it.

learn more