Prequalified or preapproved for a car loan: What’s the difference?

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Ask a Lender
March 7, 2017 | Updated September 26, 2017


Key Points

Prequalification and preapproval in auto loans

  • Both prequalification and preapproval help you gauge how much you can borrow.
  • Getting preapproved can help you negotiate at a car dealership.
  • Getting preapproved could have a minimal effect on your credit score.

If you’re shopping for a car loan, you may have heard the terms “preapproved” and “prequalified.” But what exactly does it mean to be prequalified for a car loan, as opposed to being preapproved for one?

Although the two terms are similar, they are different. Both give you some idea of whether you will be approved for a loan, and how much money you will be able to borrow. But prequalification is a more preliminary process, subject to greater uncertainty that you’ll actually get approved for a loan, while preapproval is a more rigorous process and a greater predictor of whether you ultimately will get the loan — though the only way to know for sure if you will get approved for a loan is to actually apply for it.


During the prequalification process, lenders gather information from you, which may include your debts, assets, income, credit score, etc. Lenders typically will gather less information from you for a prequalification than they would for a preapproval, or to actually approve you for a loan.

If you do get prequalified for a certain amount, it is not a guarantee you will be approved for a loan. You still will need to go through the application process, which may cover some of the same ground as the prequalification process, but will include additional details used to gauge your ability to repay a loan.


Although preapproval is a more thorough process than prequalification, it still does not guarantee you will be approved for a loan. It merely tells car sellers that you are likely to be approved for a loan for a certain amount. Being preapproved can actually help you negotiate with the seller — either by negotiating a lower price for the car, or by negotiating a lower interest rate through dealership financing.

Another benefit of preapproval is that it allows you to shop around for the best rate without committing to a lender. Once you find a rate you like, you can apply for the actual loan.

Usually, when you get preapproved, you’re getting preapproved for a certain amount under certain conditions, but you have not actually determined what car you will buy. Once you have determined which car you intend to purchase, you can apply for the loan, and hopefully be approved for it.

Credit score

One major difference between prequalification and preapproval is the impact to your credit score.

Typically, getting prequalified doesn’t impact your credit score, because lenders won’t do a hard credit inquiry. Lenders may perform a soft inquiry of your credit score, but it will not impact your score.

During the preapproval process, however, lenders may perform a hard credit check, which could lower your credit score by a few points. Keep in mind, however, that lenders typically give some leeway when borrowers are rate shopping; if several hard inquiries appear on your credit score in a short time frame — typically within 14 days — lenders are likely to assume you were shopping for rates, and count it as one inquiry, rather than several.

With a better understanding of the difference between getting prequalified and getting preapproved for a car loan, you are in a better position to shop for an auto loan with the best rate. That will save you money in the long run, because the lower your interest rate, the less you will pay over the life of the loan.

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