Matthew Oliver
The difference between pre-qualified vs. pre-approved
You're looking for an auto loan, but you're not sure if you are eligible. You keep hearing terms like pre-approved loans and pre-qualified loans. Are they the same thing? If they are different, how do they differ? You may see both of these terms from different lenders but ultimately, what terms mean is that a lender has done a preliminary assessment to determine if you can get approved for a loan.
Pre-qualification is an easier process. While getting pre-approved can require you to share more information with the lenders, usually, lenders will look at your income and assets, employment history, and even your tax returns to see if you are eligible to not only get a car loan but you can also pay it off. Here's more about the differences between pre-qualification and pre-approval!
What does pre-qualified mean?
What pre-qualification means is that an auto lender has reviewed your basic creditworthiness to determine if you meet the criteria to qualify for a car loan. The requirements for the pre-qualification process can vary depending on the lenders you use. Most lenders will look at financial documents and other financial information like your credit score and pay stubs to see if you, the potential borrower, can qualify for an auto loan.
For lenders to check out your credit profile, they will use a soft credit inquiry; this type of inquiry typically does not affect your credit score. Getting pre-qualified does not automatically mean you are approved for the loan. However, it is a good idea to complete a pre-qualification if you are unsure that you will meet the criteria for a loan. Plus, pre-qualifications typically do not impact your credit score
If you do get pre-qualified and want to move forward with a loan application, then that is when the lender will need a more detailed look at your overall financial picture. This may require you to apply and submit official documents.
Benefits of getting pre-qualified
There are two major benefits of being pre-qualified for a loan. One is knowing your credit is good enough for a car loan. If your financial documentation is all in order and you have a good credit score, then that can give you the confidence to apply for the loan application. Though you still need to wait to be approved.
The other benefit is skipping the dealership financing. If you already have a loan approved, you do not need to get one through the dealership and that will save you a lot of money in the long run. If you have a loan approved by an outside lender, the dealership will contact them to make final arrangements for buying your car and that's one less thing that you have to do.
What does it mean to be pre-approved?
The pre-approval process is different and can even be a little more intense than the pre-qualification process and will need much more than basic information about your financials. There are many types of pre-approved loans to get, like a credit card, a mortgage loan, and of course a car loan. you may get a letter from a credit card company saying you have been pre-approved for a certain amount on the card. These offers usually mean that you appeared on a credit reporting agency's list of customers that meet the creditor's criteria.
Car loans on the other hand are a much more intensive process. Many lenders need to make sure you are a serious buyer so they will ask for bank statements, credit history, and more of your financial history to see what kind of loan amount you may be pre-approved for.
The review of your financial documentation can take much longer than trying to apply for a credit card.
The review of your financial documentation can take much longer than trying to apply for a credit card. The pre-approval process gives lenders a chance to see if your financial situation and if you have had any major changes to your finances like your income or your credit report being impacted can ultimately change the loan amount or even be denied.
Getting pre-approved is a lengthy process and you want your dealership to have sellers' confidence when trying to buy a new car or get a car loan approved. With many lenders you can get pre-approval over the phone, and a loan officer will be on the phone with you to help with the process. Once you received a pre-approval letter from your lender or other financial institution, then you can move forward in your car buying journey.
The difference between pre-qualification and pre-approval
Just a few reminders that a pre-qualification/pre-approval are very similar, and certain lenders use them interchangeably. Make sure to ask them to define how they use the terms. The main difference is that a pre qualification means that your credit report went through a soft inquiry while pre approval means a lender or dealership does a hard credit check. A credit check is more useful for pre approval because that means you are ready to move forward with the process and a pre qualification is a chance to see if you can move onto the next step in getting a car loan.
What to do once you get loan approval
Once you get a pre approval letter from your lender, that is when you can discuss the specific loan amount. Reminder, getting a pre qualification letter does not mean you are approved for a loan, it just means that you can now apply for one due to your good credit check and wait to be approved. If you, your lender and the dealership can come up with a proper loan amount that satisfies all parties, then you can get your car loan and buy your new car. Or used car, they tend to be less expensive. If you already have a loan, you could potentially save hundreds of dollars by refinancing. Contact RateWorks and get you a free quote today!
