When you first start looking for a car loan, you’ll see a lot of terms like Annual Percentage Rate (APR), pre-qualification, pre-approval, amortization, and more! Out of these, ‘pre-qualification’ is important to find out if you’ll actually get the best rates for your budget. It gives you a good indication of what type of loan is best for you.
What is pre-qualification for a car loan?
A pre-qualified car loan is a conditional offer put forward by auto lenders after a quick check of your overall financial position. Simply put, it uses the basic preliminary information from your side to assess whether you are loan-worthy and to estimate what types of rates will be best for you.
Pre-qualification is a nifty way to determine your various options before choosing one loan offer. It also gives you a better idea of your financial position without resorting to a hard credit pull.
It’s always best to shop around and compare a few pre-qualified offers before applying for your preferred one. This helps you be better informed and helps you avoid high APRs and monthly payments in the long run.
What does the pre-qualification process involve?
Most lenders will request you to submit your basic details like name, annual income, monthly expenses, vehicle type, valuation, and registration number to pre-qualify for a car loan. Most lenders use a soft credit check to inform their car loan pre-qualification process. Some others use in-house financial experts to analyze a person’s initial risk profile.
Based on the soft credit pull, the lender will give you a tentative loan offer with an estimated APR. However, keep in mind that this is subject to change later on in the process. You will still have to apply formally and go through a hard credit check and financial vetting before a final offer is made.
What is the difference between auto loan pre-qualification and pre-approval?
If pre-qualification is the starting point to buying a car, then pre-approval is a more comprehensive appraisal of your finances just before you buy a car.
Auto loan pre-qualification
You should apply for pre-qualification when you have no idea about which lender to choose, what APR is good for you, and what you can afford. Pre-qualification using a soft credit pull will give you a tentative idea about the best rates you qualify for.
- It is done before shopping around for loans
- It uses only preliminary information and is hence less accurate
- Quicker than pre-approval for a car loan
- Requires only basic details like name, annual income, vehicle model, etc
- Uses a soft credit check
- You can pre-qualify with multiple lenders and then choose one later
- The offer can change after a formal application
Auto loan pre-approval
You should choose pre-approval when you have already made up your mind to buy or refinance a car. This will result in a much more detailed inquiry (hard credit pull) along with other verifiable information like income proof, proof of insurance, registration number, and more.
- It is to be done after deciding to buy a car and before formal application to the lender
- It uses more detailed and verifiable information, hence is more accurate
- Takes more time than pre-qualification
- Requires detailed information like Social Security Number, Credit Score, Proof of Insurance, Employment Type, and more
- Uses a hard credit pull
- Pre-approval is done after you’ve chosen a lender
- The offer can change after a formal application
Reasons to apply for auto loan pre-qualification
Applying for pre-qualification with multiple lenders has the following benefits:
- You can determine if your credit is sufficient to get good APRs
- It allows you to skip dealership lending, which usually only gives you one option and one rate
- It gives you the upper hand when negotiating with other lenders (you have more choice)
What details should you submit to pre-qualify for a car loan?
Lenders will typically ask you for some basic information like:
- Identity details (name, contact number)
- Your annual income
- Your type of employment
- Current debt situation
Where can I get pre-qualified for an auto loan?
While you can always reach out to banks and other financial institutions, it’s easier to get pre-qualified offers when using lending platforms like the Way app. With a network of trusted lenders across the country offering both financing and refinancing, you can easily pre-qualify for auto loans, check out their terms and conditions, and choose lenders who fit your budget.
Final thoughts
Most lenders use a soft credit pull to assess if a borrower pre-qualifies for an auto loan. Hence, it will not influence your credit score. It’s always recommended to apply for pre-qualification with multiple auto lenders. You can compare several rates at the outset, go through the different terms and conditions, and choose a preferred lender. But you can be denied a car loan even after pre-approval if there are irregularities in the details provided. Application errors, inconsistency in details, credit irregularities, and more can cause your lender to reject your pre-approved application.
Renée Martin is a travel and car expert who focuses on road and air travel in the U.S. For the past 6 years, she’s been helping make driving and trip planning easier and budget-friendly for everyday travelers.
