Is Being Pre-Qualified for a Car Loan the Same as Being Approved?
You may have received a notice from a lender in the mail stating that you were “pre-qualified” for a car loan. It will even tell you how much you were qualified for and that all you need to do now is take the notice to a dealership and shop like you’re a cash buyer. But does being pre-qualified the same thing as being approved for a loan?
Getting pre-qualified means that you could be eligible for a car loan
When you see a letter in the mail telling your that you’re prequalified for an auto loan, it means that your credit score and other financial information lined up with the initial eligibility for obtaining a car loan. According to Capital One, a pre-qualification is reserved for those that meet a general credit score range. That means that if your credit score is a 630 and you got a letter, then the lender may be targeting potential car buyers that fit within a target credit score range – like 620 to 700, for example.
However, a pre-qualification does not technically mean that you were approved for a loan and that you can start car shopping like you have $30,000 in your pocket. Instead, if you read the fine print, you’ll realize that you will have to take the notice to a dealership and then apply for the actual loan. Upon doing so, the amount, term, and interest rate that you’re approved for could end up being different than what the letter in the mail tells you.
Again, that letter is based on a few basic credit factors, not your entire score, history, and other financial information that will factor in when you actually apply for the loan. Also, when you do apply for the loan, you will get a “hard check” on your credit, which will show up on the report. Pre-qualifications, on the other hand, only do a “soft check,” and don’t show up on your credit report.
What are the benefits of getting pre-qualified for an auto loan?
While getting pre-qualified for an auto loan is not the same as getting approved, there are some benefits to taking the initial qualification step. According to Credit Karma, some of these benefits include:
- You’ll know how much of a car you can afford: Getting pre-qualified for an auto loan will let you know if you can get a loan in the first place. It will also give you ballpark numbers on the loan amount and monthly payments so that you’ll know how much you can realistically afford.
- You can skip the dealership financing: Instead of filling out a loan application with the dealership, you can apply straight through the lender that pre-qualified you.
- You’ll know if you can get approved for a loan: If you have been pre-qualified, then there’s a good chance that you will get the an auto loan.
What you’ll need to get pre-qualified for a loan
If you didn’t receive a pre-qualification letter in the mail from a lender, then you can apply for a pre-qualification with your personal bank or credit union. You’ll need roughly the same type of information that you will need for an auto loan approval including:
- Employment information
- Current debt obligations
The lender will then do a “soft check” on your credit to see how much and what type of interest rates you may receive when applying for the actual loan. The reason for this two-step process is that you can deny the terms of the impending loan and walk away without taking a hit to your credit report. But if you agree to the terms and find a car that you like, then pre-qualifying for a loan can take a lot of guesswork out of the payments and loan amount.