What does it mean to prequalify for a car loan?
Quick insights
- Prequalification provides an estimate of what auto loan terms you may qualify for without a formal commitment.
- A quick check of your options can help you set a realistic budget before you visit a dealership.
- This process typically requires some financial information and often involves a soft credit inquiry.
Buying a car can be an exciting major purchase, and choices like model and color can sometimes overshadow how you’ll actually pay for it. Prequalifying for an auto loan doesn’t guarantee financing, but it can help you gauge what loan options and terms you might qualify for.
What is prequalification for an auto loan?
A search for an auto loan often introduces new terminology. Prequalification is a way to get an idea of what your terms may look like. Lenders provide an estimate of what they may be willing to offer based on information from your financial profile. This step does not guarantee your request has been approved, as you still have to formally apply for a car loan with your lender. It may, however, provide some clarity on the terms you may receive.
Why should I prequalify for an auto loan before I shop?
A review of your financing options before you visit a dealership can provide several distinct advantages.
- Establish a clear budget: An estimate of your potential terms can help you understand exactly how much you can afford. Consider investigating how to save up for a car to prepare for your down payment and lower your monthly obligations.
- Shop with knowledge: A preliminary offer gives you the assurance that you may be able to secure the funds you need when you find the right vehicle.
- Demonstrate serious intent: Dealerships typically view buyers with preliminary financing estimates as prepared and ready to make a purchase.
- Compare multiple options: Comparing options from different lenders may help you to evaluate potential rates without a formal commitment.
What is required for prequalification?
Lenders typically ask for a few basic details to evaluate your financial profile and provide an estimate.
- Personal identification: You generally need to provide your full name and current address to verify your identity.
- Income details: A lender may ask for your employment status and estimated annual income to gauge your repayment ability.
- Credit history: A brief review of your financial background helps the institution determine your potential interest rate.
- Vehicle preferences: Some applications might ask for the expected purchase price or the type of vehicle you plan to buy.
Will auto loan prequalification affect my credit score?
A check of your credit can result in either a soft inquiry or a hard inquiry on your credit. A soft inquiry won’t impact your credit score, but a hard inquiry might. Prequalification often entails a soft inquiry and should not impact your credit score.
How to get prequalified for a car loan
You can typically complete a brief online application with your chosen financial institution to see your potential terms. For example, you can prequalify for auto financing or refinancing online through Chase. It usually takes just a few minutes to get started and may help provide insight into your borrowing power.
Prequalification vs. preapproval
As you find options to get prequalified for an auto loan, you may see the term “preapproval” in your research. Though some lenders use the terms interchangeably, they are distinct. It can be beneficial to check with your lender to get specifics on how they use these terms. Depending on the lender, prequalification may simply require some self-reported information.
Auto loan preapproval, however, generally implies a hard inquiry with a lender-initiated credit check. It is an estimate—it doesn’t guarantee approval of financing. Whether you get prequalification or preapproval, you’ll still have to clear a formal application process.
The bottom line
Trying to prequalify for a car loan is a common process that can help to give you a sneak peek at what terms you may qualify for. This step can be a helpful way to set expectations when shopping for a car and applying for your auto loan.
