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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 better financial choices by offering you interactive tools and financial calculators as well as publishing original and impartial content. We also allow you to conduct your own research and compare data for free and help you make sound financial decisions. Bankrate has partnerships with issuers such as, but not restricted to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make money The products that are advertised on this site are from companies who pay us. This compensation could affect how and where products appear on this website, for example, for example, the order in which they may appear within the listing categories, except where prohibited by law. This applies to our mortgage or home equity products, as well as other home lending products. This compensation, however, does not influence the content we publish or the reviews that appear on this website. We do not include the vast array of companies or financial deals that could be accessible to you.
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3 min read Published November 02, 2022
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Prequalification as well as preapproval can be two alternative methods to get an early review of the options for financing your car. Prequalification isn’t as strict and requires only the most basic details regarding your financial situation and gives you some idea of interest rate and terms you may be eligible for. Preapproval requires you to share more of your financial and personal details with a lender since it is essentially an incomplete application. The distinction between prequalification and preapproval A is that it’s a formal request from a lender, with conditions, and provides an estimate of what is the car loan terms you might qualify for. Since prequalifications aren’t firm, it’s not much useful when you’re negotiating with an auto dealership. It doesn’t matter if you go with a car loan prequalification or preapproval, neither of these are guarantees -the final approval is contingent on the underwriting department of the lender making sure there are no surprise in your complete credit report and other factors such as income and employment verification. Advantages of auto loan Preapproval as well as prequalification both preapproval as well as prequalification let you get an accurate idea of how much money you can feasibly borrow, and how much you will pay to borrow it. Advantages of preapproval When you have preapproved means that you can shop with confidence, being confident that you’ll likely pay the same or very comparable interest rates. You could also use your preapproval rate as an argument with the dealership when you go to the finance department, placing the dealership under pressure to beat that rate. Benefits of prequalification Prequalification is a low-risk option to discover what kind of loan you could get even if you’re not ready to start shopping in earnest. Your credit score won’t be affected because the lender won’t run a hard credit check. What to keep in mind when you apply for prequalification for auto loan prequalification and preapproval If you apply for a prequalification for an auto loan you will receive an approximate estimate of the loan amount and interest rate you will be offered. Then, you can use this information to search for the best rate and remember that prequalifying does not constitute an official offer. Rates aren’t guaranteed and their value is contingent on how exact the information you supply is. Preapprovals don’t guarantee anything either. If your income, job or credit drastically change between the time you’re preapproved and when you fully apply, you could be rejected the loan. Keep this in mind while shopping, and be mindful about your spending — particularly with credit cards. How do you be preapproved for a car loan If you decide that a car loan is right for you, you’ll have to collect the required documents and submit a preapproval application. It is advised to look into reputable lenders prior to making an application. After you’ve been approved, you will have a firm idea of what you can pay and will be in control when it’s time to negotiate. Preapproved car loans are usually valid for between 30 and 60 days. If you are for preapproval and you are not sure, there are some steps you could take. Examine your application for errors and increase your down payment, reduce the total amount of debt you have or consider a different lender. Before attempting to work with a different lender, however, be sure to discuss the reasons of the rejection with the one you applied to. Information you need to provide in order to prequalify or get preapproved Preapproval and prequalification require some of the same information. Be prepared to provide personal information like your address, name, and your phone number. Financial information, which includes your earnings and the amount you pay for housing. Details about the loan that you are applying for, such as the amount you want to be able to. Preapproval will likely require more information, including details about your Social Security number and birthdate to ensure that the lender will be able to pull your complete credit report. This is referred to as an “hard credit pull” and can temporarily lower your credit score some points. In the end, prequalification and preapproval are both useful tools when it comes to knowing how much you could spend on the auto loan. Preapproval can also help you find a lower rate at the dealership if you’re thinking about financing it. However, these offers aren’t guaranteed, so spend prudently when shopping. Find out more
The article was created using automation technology and thoroughly edited and fact-checked by an editor on our editorial staff.
Editor: 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 take control of their finances with clear, well-researched data that breaks otherwise complicated topics into bite-sized pieces.
Auto loans editor
Reviewed 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 529 plans, scholarships educational tax benefits, student loans.
Nationally recognized student financial aid expert
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