Auto Loan Prequalification vs. Preapproval: A Guide To Help You Choose
Many auto loan lenders offer both a prequalification and preapproval process. Lenders sometimes use the terms interchangeably, but they’re not the same.
- Prequalification is a quick shopping tool that shows likely rates without affecting your credit.
- Preapproval requires a hard credit check and verification, so it gives a closer estimate of the rate you’ll actually get.
Getting preapproved can help you negotiate a better loan rate and car price, so it’s a step worth taking when you’re ready to buy. Here’s what to know about prequalification versus preapproval for auto loans.
- Prequalification is less accurate but is good for casual shopping since it doesn’t impact your credit.
- Preapprovals are more accurate but require a hard credit inquiry, so they make sense for more serious shoppers.
- Getting preapproved and comparing offers can make your budget more predictable and help you secure the lowest rate.
Auto loan prequalification vs. preapproval at a glance
Both prequalification and preapproval help you see if you qualify for an auto loan and, if so, what rates and terms are available to you. However, each serves its own purpose, and one impacts your credit score while the other doesn’t.
| Prequalification | Preapproval | Keep in mind | |
|---|---|---|---|
| What it is | Estimated rates and terms based on basic information | Firmer rates based on a hard credit pull | Application timing is important to minimize credit score impact |
| Credit check type | Soft credit check | Hard credit check | Hard credit checks can slightly drop credit score |
| Vehicle information needed | Year, make and model is usually sufficient | May require VIN | May need a specific vehicle in mind to get preapproved |
| Income verification | Self-reported | May require proof | Paperwork depends on the lender and income source, in some cases |
| Rate certainty | Estimated range | Not locked in, but highly accurate | Rates can change between prequalification and preapproval |
| Dealer negotiation power | None | Can provide buyer leverage | Can use preapproval to ask for a lower rate/lower asking price |
| Expiration window | Does not typically expire | May only be good for 30 to 90 days (varies by lender) | Prequalify when window shopping but get preapproved when ready to buy |
Window shopping? Consider prequalification
Prequalifying for an auto loan may be best when you’re starting to research what car you should buy.
If you’ve just started thinking about buying a car, prequalification makes sense for you. Prequalification can give you an idea of what annual percentage rates (APRs) you could expect on an auto loan.
Prequalified rates are based on self-reported information and a soft credit pull. The rates and terms you see may change if you move forward and the lender runs a hard credit pull. Still, prequalification is a low-stakes way of seeing if you might qualify for an affordable car loan.
What to expect during auto loan prequalification
Prequalification is informal and typically takes just a few minutes. You’ll provide details such as your:
- Name and contact information
- Estimated credit score
- Annual income
- Social Security number (sometimes optional)
- Requested loan amount
- Vehicle details like year, make and model (in some cases)
After you provide the required information, the lender typically runs a soft credit pull. This won’t impact your credit score. All of the information combined will help the lender estimate your auto loan rate.
Our car affordability calculator translates your desired monthly payment into an out-the-door price that you should aim for while you’re car shopping.
What to expect after auto loan prequalification
Many auto loan lenders make prequalification approval decisions in seconds to minutes. If you qualify, the lender will show you the offers you may qualify for so far.
You should also expect to receive emails and/or phone calls from the lenders you prequalify with. It may be a good idea to set up a separate email and Google Voice phone number while loan shopping.
You may get several offers with varying rates and repayment terms. Use an auto loan calculator to see which offer works out best for you.
If you’d like to move forward after seeing your prequalified rate, the lender will give you the next steps. Usually, this means preapproval or a formal auto loan application.
Ready to buy? Time for preapproval
A preapproved car loan may be best later on in the car-shopping process, when you’re getting closer to buying a specific vehicle.
Preapproved car loans don’t lock in your rate — that only happens when you accept the loan. Even so, preapprovals typically require a hard credit inquiry and are more accurate than prequalifications.
A preapproved car loan is as close to loan approval as you can get without actually signing a contract. As long as the underwriting department doesn’t find unexpected information between preapproval and when you finalize your loan, your preapproved rate is likely to be close to or the same as your final offer.
What to expect during auto loan preapproval
Along with agreeing to a hard credit inquiry, you may need to upload or send additional documents during preapproval; however, this depends on the lender. Some lenders confirm information electronically, while others may require documents only if the borrower has bad credit or if it finds a discrepancy in the borrower’s application.
You should have the below documents available when applying for preapproval:
- Government-issued ID
- Proof of income (tax documents like a W-2 or 1099, pay stubs or bank statements showing direct deposit)
- Proof of residency (utility bills, mortgage bill, lease agreement)
- VIN, in many cases
Note that you may also need to supply similar documents for auto loan cosigners.
What to expect after auto loan preapproval
If you’re preapproved, the lender could send you a voucher as proof, or it may send your preapproval directly to your dealership of choice. Your preapproval should show the rate, terms and amount you’re conditionally approved for.
The hard credit hit from the preapproval will be added to your credit report, where it’ll appear for two years. However, it’ll affect your FICO Score for one year, usually by five points or less.
Preapproved car loans are usually good for only 30 to 90 days. Pay close attention to the expiration date on your preapproved offer, especially if you aren’t buying within the next few weeks.
At the dealership, you’ll finalize vehicle details and complete any remaining verification steps. If everything checks out, the lender will issue a formal loan agreement showing your final rate, terms and payment details.
Turning preapprovals into predictable payments
Getting a preapproved car loan can make it easier to budget for a new car since it provides firmer rates and terms.
A little over 5% of Americans with auto loans are delinquent on at least one account, according to LendingTree research. Preapproved car loans can help you make sure that a car payment fits into your budget before heading to the dealer.
For instance, imagine that you were prequalified for a 6.50% APR on a $40,000, 60-month car loan. When you applied for preapproval, your rate went up by 2%. This would lead to a monthly increase of about $38. The difference in total interest is more substantial, at a little under $2,281.
| Loan amount | APR | Loan term | Monthly payment | Total interest paid | |
|---|---|---|---|---|---|
| Prequalified car loan | $40,000 | 6.50% | 60 months | $782.65 | $6,958.76 |
| Preapproved car loan | $40,000 | 8.50% | 60 months | $820.66 | $9,239.68 |
Using a preapproved car loan to negotiate
A preapproved car loan can be a powerful thing. It shows the dealer what you’ve been approved for and what rate they might have to beat in order to earn your business.
Car dealerships make much of their profit through financing. To get you to switch, the dealer might try to match or beat your preapproved rate and/or provide price incentives.
Haggling at the dealership can be nerve-wracking. In his book, “Ask Questions, Save Money, Make More: How to Take Control of Your Financial Life,” author and LendingTree chief consumer finance analyst Matt Schulz gives readers a word track that may boost your confidence.
“I’m preapproved for financing. If you can match the rate and knock a bit off the price, I’d be willing to finance through you instead. I know you make money when that happens, so let’s make it a win for everyone.”
Where to find auto loan prequalification and preapprovals
Not all auto loan lenders offer prequalification and/or preapproval. Some offer only prequalification and then require that you formally apply, skipping preapproval altogether. Others offer only preapproval, so checking rates will always require a hard credit hit.
You can find how a lender handles prequalification and preapproval on the lender’s website, usually in the disclosures or FAQs sections. Typically, phrases like “no impact to your credit score” indicate prequalification.
You can find auto loan prequalifications and preapprovals at:
Banks, credit unions and online lenders
Prequalification and/or preapproval is frequently offered by banks, credit unions and online lenders. Each has a unique benefit.
- Bank auto loans may come with APR discounts for current clients.
- Credit union auto loans require membership but usually offer some of the lowest rates.
- Online auto loans are usually fast, but can have more fees than banks and credit unions.
Dealerships
Your dealer may offer to get you preapproved with its network of lenders. Authorized auto brand dealers may have access to 0% APR car loans and other incentives that only authorized dealers and the manufacturer can provide.
If you let the dealer shop for you, always compare the dealer’s offer to ones you’ve gathered yourself. Lenders typically allow dealers to mark up interest rates by a certain percentage, called a dealer reserve.
Loan marketplaces
Loan marketplaces like LendingTree don’t fund loans themselves. Instead, we match potential car buyers with partner lenders. If you find an offer you like, you’ll typically finalize it with the lender directly.
Marketplaces can speed up the loan process by helping you weed out financing options that you may not qualify for. Marketplaces also provide a one-stop platform where you can compare offers.
Average LendingTree marketplace auto loan rates
Auto loan rates depend on factors that are specific to your credit history and the car you’re buying. To get you started, here are the average auto loan rates users are offered through the LendingTree marketplace, organized by credit score.
Borrowers with lower scores pay substantially higher rates than those with higher scores. In fact, a LendingTree study found that improving credit scores from fair (580-669) to very good (740-799) could save borrowers an average of $2,316 in interest over the life of a five-year auto loan.
| Credit score range | Average new car APR | Average used car APR |
|---|---|---|
| Excellent (800 and above) | 6.81% | 7.92% |
| Very good (740-799) | 6.83% | 7.59% |
| Good (670-739) | 8.22% | 10.75% |
| Fair (580-669) | 19.15% | 21.13% |
| Poor (Under 580) | 22.11% | 23.82% |
Frequently asked questions
No, auto loan preapproval doesn’t lock in your rate. The only way to lock in your rate is by accepting and finalizing a loan offer. However, preapprovals are generally accurate since lenders typically run a hard credit inquiry before issuing them.
Yes, you can switch lenders after preapproval. Preapprovals require a hard credit pull, but they aren’t a contract or a promise.
Multiple preapprovals can hurt your credit score, but you can use the rate shopping window strategy to minimize the impact. Preapprovals require a hard credit check, which typically drops scores by about five points, according to FICO.
However, VantageScore and FICO Score treat all hard inquiries as one as long as they’re completed within 14 to 45 days, depending on the model. To be safe, submit your auto loan preapprovals within 14 days of each other to ensure that only one hard credit inquiry will impact your score.
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