Want to take a car loan but have no idea what rates you can afford? Applying to pre-qualify for an auto loan can help you find what your financial position is, and what loan rates you can possibly get from lenders.
When you first start looking for a car loan, you’ll see a lot of terms bandied about. This includes 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.
Pre-qualifying for a loan gives you a good indication of what type of loan is best for you. Here’s a lowdown about it and how to make the best use of it when financing a car!
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.
How does this help 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 ask 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.
1. 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
- Offer can change after formal application
2. 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
- Offer can change after 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 enough 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)
- You 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 Way.com. 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.
Frequently Asked Questions (FAQ)
What Does Pre-qualified Mean for a Car?
A pre-qualified auto loan is offered by a lender after a preliminary check of your financial background. This will help you get an idea about what APRs you qualify for without going through a formal application. You can apply for pre-qualification with as many lenders as required and then choose a good offer to go through with.
What Is Better: Pre-qualified or Pre-approved?
Going through pre-qualification for an auto loan is a good idea at the start of your loan-hunting process when you have no idea about the rates and lenders. Pre-qualification will only need a soft credit pull. However, once you have zeroed in on a lender and have finalized the loan amount, it’s best to apply for pre-approval to see if the loan can come through. This will include a hard credit pull which may temporarily affect your credit score.
Does Pre-qualifying for an Auto Loan Affect Your Credit?
Most lenders use a soft credit pull to assess if a borrower pre-qualifies for an auto loan. Hence, it will not affect your credit score.
Is It Better to Pre-qualify for a Car Loan?
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.
Can You Be Denied a Car Loan after Pre-approval?
Yes, 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.
Here’s more info on top-rated airport parking, the best parking spots in your city, the most affordable auto insurance for your car, and top-rated car washes near you.