Auto Loan Pre-Qualification and Pre-Approval: What’s The Difference?

Are you gearing up to buy a new ride? If you need financing, it pays to know the difference between being pre-qualified and pre-approved for an Auto Loan. Although the terms are similar, they are two distinct steps in the car-buying process.

So, what’s the difference between being pre-qualified and pre-approved for an Auto Loan? Let’s find out.

What does it mean to be pre-qualified for an Auto Loan?

The primary purpose of pre-qualification is to help you understand how much vehicle you can afford. You tell the lender basic information about your financial situation, such as your credit score and income. Based on that, they provide the estimated annual percentage rate (APR) and loan amount for which you will qualify.

The important thing to know is that when a lender pre-qualifies you for a loan, they are essentially taking your word that the financial details you’ve provided are accurate. They only do a soft credit pull (so no hit to your credit score), and they don’t independently review your finances.

The upside to getting pre-qualified before you shop is that you better understand your budget and what you can afford. You also won’t have a hard credit pull (which briefly dings your score).

There are downsides to pre-qualification, too. It’s important to understand that it’s not a firm offer of credit, nor is the quoted APR anything other than an estimate. The estimated loan amount or APR is subject to change once the lender pulls your credit and reviews your finances.

The other drawback is that pre-qualification might be less attractive at the dealership. The dealer knows that a pre-qualification is not a firm offer of credit, so you lose some of the negotiating power you may otherwise have with a firm pre-approval in hand.

What does it mean to be pre-approved for an Auto Loan?

Now that we know what it means to be pre-qualified, what exactly does a pre-approval entail? Why might it give you more negotiating power at the dealership?

Being pre-approved means you’ve gone through a more formal application and approval process. To become pre-approved, a lender will verify the financial information you provide them. This information might include gross annual income, employment status, and credit history. This step will require a hard pull of your credit score, which will remain on your credit history for two years.

Going to the dealership with a pre-approval in hand gives you more negotiating power than if you only have a pre-qualification because the sales team sees that you are already approved for a specific dollar amount. Plus, the APR that the lender quoted is unlikely to change much.

Why get pre-approved for an Auto Loan?

We suggest getting your pre-approval from a lender before walking into the dealership. Dealers like to sell vehicles as a “monthly payment” instead of a total amount—$300 a month sounds like less money than $30,000!

However, by looking at your monthly payment instead of the final price tag (plus interest), you run the risk of buying a more expensive vehicle than you wanted. Having a pre-approval for a specific amount means you’re more likely to stick to your budget.

Plus, your pre-approval shows the dealer you’re ready to buy, giving you more leverage on the sales floor. Learn more about the benefits of getting pre-approved for an Auto Loan.

Getting started

As you can see, there is a difference between being pre-qualified and pre-approved for an Auto Loan. Pre-qualification helps if you’re starting to shop for a vehicle and want to know what you can afford. Getting pre-approved requires the lender to verify your information and loan details, putting you in a better buying position.

Ready to get pre-approved for an Auto Loan? At Connexus, we offer competitive rates on new and used vehicles and flexible terms so you can choose an option that fits your budget. Use our Auto Loan calculator to determine your monthly payment, then get started on your application today.