What does it mean to prequalify for a car loan?
Buying a car can be an exhilarating experience, not least of all because it’s a major purchase for most people. Consequently, many finance the cost with an auto loan. While shopping for an auto loan, you may see the option to “prequalify” for a car loan. Prequalification doesn’t guarantee financing, but it can give insight into what types of loans you may be eligible for.
What is prequalification for an auto loan?
So, what does getting prequalified for a car loan mean, anyway? It’s a way to get an idea of what your loan may look like. Lenders provide an estimate of what they may be willing to loan you and what that loan might look like, based on some basic information on your financial profile. Worth noting, prequalification doesn’t mean your loan has been approved — you’ll still have to formally apply for it with your lender. It should, however, provide some clarity on what you may be approved for.
What is required for prequalification
Getting prequalified for an auto loan is good practice for your actual application, since they have a few things in common. You’ll usually be asked to provide the following when looking to prequalify: name, address, income and credit history.
Will auto loan prequalification affect my credit score?
Checking your credit score can result in either a soft inquiry or a hard inquiry on your credit. A soft inquiry won’t impact your credit score, but a hard inquiry might. Prequalification often counts as a soft inquiry but it’s good practice to verify that with the lender first, just to be sure.
Prequalification vs preapproval
As you find options to get prequalified for an auto loan, you may see the term “preapproval” in your research. Though some lenders use the terms interchangeably, they are distinct. It’s best practice to check with your lender to get specifics on how they use these terms. Depending on the lender, prequalification may simply require some self-reported information.
Auto loan preapproval, however, generally implies a hard inquiry with a lender-initiated credit check. That sounds more official (and in some ways, it is), but that “pre” in the name shouldn’t be ignored. Preapproval is still just an estimate — it doesn’t guarantee approval of financing. Whether you get prequalification or preapproval, you’ll still have to clear a formal application process.
In summary
Trying to prequalify for a car loan is a common process that can help to give you a sneak peek at an auto loan you may qualify for. This step can be a helpful way to set expectations when shopping for a car and eventually applying for your auto loan.
