Pre-qualified, pre-approved, approved. The difference between these auto loan terms can be a head-scratcher for car shoppers who are starting to apply for auto financing. Shopping around for the best auto loan can be as important as shopping around for the vehicle itself, but it can also be risky if not done right. We’ll cover the distinctions between getting pre-approved and pre-qualifying for an auto loan, and answer some common questions including whether pre-approval guarantees an auto loan and what impact pre-approval and pre-qualification have on your credit score.

Auto Loan Pre-Approval vs. Pre-Qualification

car loan preapproval

If you’re unsure about the difference between auto loan pre-approval and pre-qualification, you’re not alone. The terms are oftentimes used interchangeably and each lender can define the process individually. Both terms define the process where you submit your information to a lender who then conducts an initial assessment to determine auto loan approval status, loan amount, and interest rates. 

According to Experian, pre-qualification generally refers to a less rigorous assessment process that requires less personal financial information compared to auto loan pre-approval. In turn, the offers you receive may not be as certain or accurate as pre-approval. Pre-qualification means a lender does a basic assessment of your creditworthiness using estimates that you provide on your application such as your income, employment information, identity, and debt obligations. 

car loan prequalification

Typically, pre-qualification involves a soft credit inquiry which does not hurt your credit. Getting pre-qualified for an auto loan does not guarantee final loan approval, but it can give you a better sense of whether you'll be approved or denied a car loan and the interest rates you’re eligible for. After getting pre-qualified, the next step is to complete a full loan application which involves submitting official documents and a hard credit inquiry. 

Car loan pre-approval is a better indication of your final loan status, terms, and rates than pre-qualification, and the process is more in line with a standard auto loan application. A lender may request official documents including proof of income and bank statements, and there may be a full credit check required. 

Does Pre-Approval Guarantee an Auto Loan?

lender handing over car keys
Car loan pre-approval is a good indication that you'll get those keys, but it's not a done deal.

Although auto loan pre-approval usually involves a deeper dive into your finances and is a more accurate representation of the final loan status, neither pre-qualification nor pre-approval guarantee that you’ll receive the auto loan offered. The offer can be impacted by changes to your income, work situation, and credit history.

The lender will often send a pre-approval offer letter which is valid for a specified amount of time (usually several months). Getting multiple pre-approval offers will allow you to compare loan terms and interest rates to choose the best option. You can then move forward on a final loan application with the lender of your choice.

Will Auto Loan Pre-Approval Hurt my Credit?

lender checking credit score
Lenders may require a hard credit inquiry for pre-approval which slightly dings your credit.

Most of the time, getting pre-qualified for an auto loan involves a soft credit inquiry which has no impact on your credit score, but car loan pre-approval is different. Some lenders will require a hard credit inquiry as part of the process, while others will only do a soft credit check. 

A hard credit inquiry can result in a ding to your credit score, but it's usually minor. If you're rate shopping, you can avoid multiple penalties by applying for several pre-approval offers in a short timeframe. This is because credit scoring models factor in the likelihood that car buyers will shop around for the best interest rates. These models usually count all hard credit inquiries in a 14-day period as one, and some will extend the grace period for as long as 45 days.

In most cases, the benefits of getting pre-approved for a car loan outweigh the risks of a slightly lower credit score. Pre-approval can result in better interest rates and save you thousands of dollars over the lifetime of the loan. It also helps you set a budget for the vehicle purchase by giving you insight into the monthly payment and the APR rate. To avoid any surprises to your credit score, make sure that you clarify if the pre-qualification or pre-approval process involves a hard or soft credit inquiry, and keep your rate shopping window to 14 days.    

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