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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 interactive financial calculators and tools as well as publishing original and impartial content. This allows you to conduct your own research and compare data for free – so that you can 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 Earn Money The offers that appear on this site come from companies that compensate 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 for our mortgage or home equity products, as well as other home lending products. But this compensation does affect the information we publish, or the reviews appear on this website. We do not include the entire universe of businesses 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 and preapproval are two different methods to get an early review of your options when it comes to financing for your vehicle. Prequalification is not as rigorous and requires you to provide basic information about your financial status, and provides you an estimate of the 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’s basically an application that is only partial. Prequalification is different from preapproval A is that it is a formal request from a lender, with conditions, and provides an estimate of the car loan terms you could be eligible for. Because a prequalification is not an official offer, it’s of no use when negotiating at an auto dealership. It doesn’t matter if you go with an auto loan prequalification or preapproval neither of them are guaranteed offers- final approval will depend on the underwriting department of the lender finding no surprises in your full credit history , as well as other aspects, like employment and income verification. Advantages of preapproval and prequalification for auto loan preapproval and prequalification Both preapproval as well as prequalification permit you to have an accurate idea of how much money you can feasibly get, as well as the cost you’ll have to pay for it. Preapproval benefits: With preapproval allows you to shop with confidence knowing that you will most likely receive the exact or comparable interest rates. You could also make use of your preapproval rate an indication to the dealership when you go to the financing office, putting the dealership under pressure to beat that rate. Benefits of prequalification Prequalification is an easy option to discover the type of loan you might qualify for particularly if you’re not yet ready to shop in earnest. Credit scores aren’t affected as the lender will not conduct a thorough credit test. Things to consider with prequalification for auto loan prequalification and preapproval When you prequalify for an auto loan you will receive an approximate estimate of the loan amount and rate you will be offered. Then, you can use this information to shop around for the most competitive rate and remember that prequalifying isn’t the same as an offer that is officially made. Rates cannot be guaranteed and their value is contingent on how precise the information you provide is. Preapprovals don’t guarantee anything either. If your earnings, employment or credit significantly change between the time you’re preapproved and when you fully apply, you may be denied the loan. Be aware of this when shopping, and be mindful about your spending — especially with credit cards. How do you obtain pre-approval for a car loan If you decide that a car loan is the right choice for you, you’ll be required to gather all the documents and fill out an application for preapproval. It is advised to look into reputable lenders prior to making an application. After you’ve been approved, you will be aware of what you can pay and will have control when it comes time to bargain. Preapproved auto loans are typically valid for 30 to 60 days. If you’re preapproved and you are not sure, there are some steps you can do. Examine your application for errors or increase the amount of your down payment, reduce the total amount of debt you have or consider an alternative lender. Before trying with a different lender, however, discuss the reason for the denial with the lender you made an application to. The information you must provide in order to prequalify or get preapproved Preapproval and prequalification need certain information. Make sure you provide the following information the following information: Personal information, such as your name, address , and your phone number. Financial information, which includes your income and your housing payment. Information regarding the loan which includes the amount you’re looking to be able to. Preapproval will likely require you to submit more details, such as your Social Security number and birthdate so that the lender can access your complete credit report. This is referred to as an “hard credit pull” and will temporarily reduce your credit score by several points. The bottom line Prequalification and preapproval are two useful instruments for understanding the amount you can spend on your auto loan. Preapproval can also help you find a lower rate at the dealership if you’re thinking about financing it. But the offers aren’t guaranteed, so spend wisely while you’re shopping. Find out more
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Written by
This article was written with the help of automation technology, and then verified and edited by an editor on our editorial staff.
Edited by Rhys Subitch Edited by Auto loans editor
Rhys has been editing and writing for Bankrate since late 2021. They are committed to helping readers gain the confidence to control their finances through providing clear, well-researched information that breaks down complicated topics into bite-sized pieces.
Auto loans editor
Reviewed by Mark Kantrowtziz Reviewed by Nationally recognized expert on student financial aid
Mark Kantrowitz is an expert on student financial aid The FAFSA, 529 plans, scholarships, education tax benefits and student loans.
Nationally acknowledged expert in student financial aid
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