How Does Auto Loan Preapproval & Prequalification Work?

Auto loan prequalification and preapproval are two different ways to get a sense of what kind of financing you might get from a potential lender before sealing the deal — or even going to the dealership. Sometimes you may see the two terms used interchangeably. But they’re not identical: Preapproval involves a deeper and more formal review of your financial status and likely loan offer.

It’s important to understand the similarities and differences between the two.

What Does Preapproval Mean?

Auto loan preapproval is a way to learn from a potential lender what kind of car loan offer you are likely to be extended. This conditional estimate includes the amount of money it will be willing to provide and loan details. This information is based on a thorough review of your finances. In order to be preapproved, you typically have to share information about your identity, address, income, and employment status. And lenders will typically do a hard credit pull to verify your creditworthiness.

With a preapproval, you typically receive a letter from the lender listing the exact loan terms, interest rate, and the amount you can borrow. Preapprovals typically expire in 30 to 60 days, so it’s wise to request one only when you’re serious about buying your car soon.

Remember that getting preapproval does not mean that you have gotten the loan. You could still be refused or the terms could change, especially if your financial situation changes before you take out the loan — if, for instance, you lose your job.

What Does Prequalifying for a Car Loan Mean?

Auto loan prequalification is another way for a would-be borrower to determine whether they’re eligible to receive a loan from a lender. But prequalifying is typically less rigorous and has fewer requirements than preapproval. If the lender does a credit check for prequalification, it will usually be a soft inquiry.

If you want to be prequalified for a car loan, you’ll likely be asked to provide your financial information to a lender or institution, which may also do a soft credit check. Then, if you are prequalified, the lender will offer you an estimate of what you might receive. As with preapprovals, these numbers are not set in stone and can change before you purchase a car or you could even be denied the loan, especially if your information changes.

Preapproval vs Prequalification: What’s the Difference?

The below table compares preapproval vs. prequalification:

	Preapproval	Prequalification
What is it?	A detailed letter or quote from a lender that specifies how much it can offer a potential borrower, based on a comprehensive review of the borrower’s personal and financial information	An estimate of how much financing a borrower might be eligible for based on personal and financial information provided by the would-be borrower
How rigorous are the requirements?	May require extensive paperwork, such as bank statements, W-2s, and a Social Security number	Information is typically self-reported, and there are usually fewer formal requirements
How long does it take?	Could take 15 minutes to 24 hours	Can be processed quickly (potentially in minutes) over the phone or online
What kind of credit inquiry is involved?	Lenders may conduct a hard inquiry on the borrower’s credit report, which can affect the borrower’s credit score	Typically involves a soft credit pull, which doesn’t affect the borrower’s credit score
Why get one?	Provides a more detailed and definitive estimate of how much a lender is willing to loan a specific borrower	Gives a general estimate of how much the borrower might be able to borrow and what the loan terms might be
How important is it?	Signals that the borrower is a serious buyer	Isn’t typically considered as significant or definitive as a preapproval letter

Prospective car buyers don’t necessarily have to choose between prequalification and preapproval. Prequalification can be an initial step, when you’re at the browsing stage. But when you get serious about your car purchase, you may want to get preapproved.

Bear in mind that, unlike prequalification, preapproval typically requires a hard credit pull, which can have a negative impact of several points on your credit temporarily, so you may not want to take it lightly. But it can also signal to car dealers that you are a serious buyer — and that you’re not reliant on the dealership for funding.

What Are the Benefits of Getting Preapproved?

Below are several benefits to getting preapproved for a car loan.

1. It Can Reduce Purchasing Guesswork

Getting preapproved can make it easier to visualize the exact terms of a car loan, so you can have a firm budget in mind before you even start to shop. With a clear idea of how much you can spend, you can focus on vehicles that fall within that price range.

2. It May Create Negotiating Power

When you have a preapproval in hand, it lets dealers know you’re a creditworthy buyer who doesn’t have to be dependent on their financing. This may give you an extra bit of negotiating power, which can remove some of the stress from the car purchasing process. Car salespeople may be less likely to try to pressure you into dealership financing options that could cost more than you’re comfortable paying.

3. It Can Help You Avoid Upsells

When it’s time to sit down and sign the paperwork, having a preapproval letter can help you stave off unnecessary upsells and add-ons. You can simply commit to not going over the preapproved amount. In some cases, the dealer might even try to beat the preapproval rate, helping you lock in a better deal.

Are There Any Disadvantages to Preapproval?

Here are a few possible downsides of preapproval to consider.

1. It Has a Specific Time Frame

One of the disadvantages to preapproval is that you may have a limited time to act. Your preapproved car loan letter offer may expire within 30 to 60 days. That means your preapproved financing and interest rate could fall through if you fail to take advantage of the offer before it expires.

2. You May or May Not Be Able to Extend the Preapproval

You may apply for preapproval a second time if your initial preapproval letter expires, but there’s no guarantee. Even if you are preapproved a second time, the terms and conditions of your second preapproval may not be right for you. The second preapproval letter could potentially feature a higher annual percentage rate (APR).

3. The Preapproval May Limit You to Certain Dealerships

A preapproved car loan letter offer may also restrict where you can buy a vehicle. For example, a lender may require that you buy a car from its list of authorized dealers, limiting your car buying options.

4. A Preapproval Is Not Final Approval

Another disadvantage to preapproval is that it’s not equal to full approval. A lender may cancel your preapproved loan letter offer if you fail to meet its underwriting and qualification standards on the date of sale. If you get preapproval for a car loan, there’s still a chance you may be denied financing.

How Do You Get Preapproved for a Car Loan?

If you’re wondering exactly how the car loan preapproval process works, here are six steps on how to get preapproved for a car loan:

1. Estimate Your Budget

Try to assess what you can afford to spend by way of down payment initially and then every month for your payments.

2. Review Your Credit Report

Before issuing a preapproval, lenders will typically review your credit history to see if they think you’re likely to repay the loan on time. In order to do this, the lender generally conducts a hard inquiry, which can have a direct but temporary impact on your credit score.

It can be a good idea for you to review your credit report before meeting with a lender. That way, you can help ensure there are no unexpected issues. If any of the information on your report is incorrect, you can dispute it.

3. Gather Information About Your Ability to Pay

Lenders will also typically want extensive personal and financial information to show that you’ll be able to afford the payments. It can be helpful to start pulling this information in advance so you’ll have it ready. Consider preparing the following:

•   Proof of employment status

•   W-2s and any other income verification information

•   Social Security number

•   Identifying documents, such as driver’s license, military ID, state ID, or passport

•   Proof of assets

4. Review Loan Preapproval Terms

You’ll want to be sure that the deal you’re offered meets your needs. Factors to examine can include:

•   Loan amount: This is the total amount you can borrow. You can generally take out less money, if you so choose, since this may be more than you want to take out or may require higher monthly payments than you can make.

•   Loan term: This is how long you will be paying the loan back.

•   Interest rate and APR: This will let you know how much the loan is costing you.

•   Monthly payments: This is how much you will have to pay the lender back each month.

Recommended: What Credit Score Do You Need to Refinance a Car?

5. Shop Around for the Best Loan Offer

Generally speaking, simply taking the first loan offer you receive is not the soundest borrowing strategy. Getting multiple car loan offers from a few different lenders can help you review and compare different loan features in depth, helping you get a desirable rate with terms that stay within your budget.

6. Hit the Dealership Floor

Once you’ve received auto loan preapproval from multiple lenders, it’s time to take the best offer to the showroom and start shopping around. Since most preapprovals expire within 30 to 60 days, it’s wise to apply for preapprovals within a short period of time and then get to the dealership sooner rather than later.

Tips for a Smooth Car Loan Preapproval Process

Here are some tips for how you can approach the car loan preapproval process.

•   Shop around and compare rates. Banks, credit unions, and private lenders may offer preapproved car loans. You can shop around and compare rates from different financial institutions. Comparing terms can help you buy a car with financing that’s right for you.

•   Understand hard inquiries. A hard inquiry can cause your credit score to drop several points for several months, but credit scoring models may calculate multiple hard inquiries as one inquiry if you’re rate-shopping for car loans over a short period (typically within 14 to 45 days at the maximum).

•   Be familiar with auto financing. There are different types of car loans. Getting secured or unsecured auto financing from a bank can be difficult with bad credit, but other lenders may offer subprime auto loans at high rates of interest.

•   Search for deals online. Going to brick-and-mortar retail banks to apply for car loans can be time-consuming. You may save time by applying for an auto loan online.

•   Don’t confuse preapproval with final approval. Getting preapproved for a car loan doesn’t guarantee final approval. Auto lenders may cancel your preapproved loan offer if your financial circumstances change for the worse. It can be helpful to know when a car loan is finalized.

Who Can Preapprove You for a Car Loan?

Here are some of the financial institutions that may offer you a preapproved car loan:

•   Banks, both traditional and online

•   Credit unions

•   Private lenders

The way auto loans work is that lenders provide financing to help borrowers purchase a new or used vehicle. Borrowers are expected to repay the car loan over a set term, and these loans may include APR finance charges.

Borrowers also must provide proof of identity and proof of income when applying for auto loan financing, among other auto loan requirements.

Does Preapproval Guarantee Getting the Car Loan?

As mentioned earlier, getting preapproved for a car loan doesn’t guarantee final approval. Auto lenders may cancel your preapproved loan offer if your financial circumstances change for the worse.

Some lenders, for example, may revoke the preapproved offer letter if you experience a large and sudden increase in your debt-to-income ratio or DTI.

In terms of how to buy a car with preapproved financing, you will need to meet a lender’s underwriting and qualification standards by the date of sale. Meeting those standards may give you full approval to purchase a vehicle with your car loan.

Here are several auto loan shopping tips that may guide you in the car buying process:

•   Set your budget, including your target purchase price

•   Check your credit report and scores before car loan shopping

•   Consider whether you’ll need a cosigner

•   Shop for car loans from multiple sources

•   Consider getting prequalified or preapproved

•   Read the fine print before committing to an auto loan

How to Buy a Car With a Preapproved Loan

You can get preapproved for a secured auto loan before going to a dealership. Here are the basic steps of buying a car with preapproved financing:

1.    Apply for a preapproved car loan with a financial institution

2.    Receive your preapproval

3.    Go to an eligible car dealership

4.    Look at the new or used vehicles within your budget range

5.    Test-drive any new or used car that you like

6.    Negotiate for a sales price that’s right for you

7.    Finalize the deal with the dealer and the lender

8.    Have your lender listed as the lienholder on the car title

9.    Drive off the lot as the owner of the financed vehicle once details are handled

10.    Make car loan payments in accordance with the terms and conditions of your financing agreement

The best auto loan interest rate is 0% APR, but the average interest rate on new car loans stood at 6.73% during the first quarter of 2025 and 11.87% for used car loans, according to Experian®.

Recommended: How Does Car Leasing Work?

What Are the Benefits of Getting Prequalified?

Prequalification is a way to get a better idea about your odds of approval and the loan terms you might be likely to get before you submit a loan application. Some of the other benefits of getting prequalified can include the following.

1. You Get a Take on What You Qualify For

Getting prequalified may be less intensive than getting preapproved, but it still paints a pretty detailed picture of how creditworthy you look to a lender. Seeing what responses you get from potential lenders can give you a good sense of what kind of loan you’re likely to be offered.

2. It Gives You a Sense of Your Budget Limits

Going through the prequalification process may not give you a definitive loan offer, but it can help you estimate how much loan you’re likely to get and how much you can expect to pay in monthly payments before you even enter the dealership.

3. It Doesn’t Impact Your Credit Score

Getting prequalified for a loan offer typically doesn’t impact your credit score, so there may be no downside to exploring whether you prequalify for financing.

Recommended: What Happens to a Car Loan When Someone Dies?

Are There Any Disadvantages to Getting Prequalified?

There are a few possible disadvantages to prequalification for a car loan.

1. It Doesn’t Allow You to Skip a Full Application

One of the disadvantages to getting prequalified is you still need to submit an application to know for sure whether the lender will approve your request for financing. Submitting a loan application may require a hard pull inquiry, which can cause your credit score to drop by a few points.

2. The APR and Terms May Change

Another disadvantage to getting prequalified is lenders may not honor the APR and repayment terms as outlined in your prequalified loan offer. This means the lender may approve you for financing at a higher rate of interest than outlined in your prequalified loan offer.

3. It Doesn’t Guarantee Approval or Terms

A major disadvantage of getting prequalified is it may not be a reliable indicator of what the lender will do if you submit an application for auto loan financing. You may not be approved, or you might be approved but for a different APR and terms.

How Do You Get Prequalified?

The process of getting prequalified for a loan is somewhat similar to getting preapproved for a loan, though typically a little less rigorous. Here are a few steps you might typically take.

1. Determine Your Budget

As with preapproval, the first step in the prequalification process is figuring out a budget that fits your financial goals so there are no surprises.

2. Gather Information for Lenders

Your potential lender will likely want to know about your identity, income, employment status, and current debt obligations. Having things like your Social Security number, photo ID, proof of income, and housing payment info handy can be helpful. In most cases, it will also make a soft credit pull, so if you have concerns about your credit, you may want to look at your credit report prior to contacting a potential lender.

3. Pay Close Attention to the Loan Terms

Prequalification isn’t considered a guarantee of loan approval. So this is a good time to review the loan terms — before any formal agreement. Here are some figures to review in detail:

•   Loan amount: How much you can borrow from the lender

•   Loan term: How long you’ll have to repay the loan

•   Interest rate and APR: How much you’ll pay the lender in auto loan finance charges each year as a percentage of the outstanding loan balance

•   Monthly payments: Your minimum monthly payment over the loan’s lifespan

The steps outlined here for prequalification and preapproval are similar to those that you’d follow when refinancing an auto loan, too.

The Takeaway

Regardless of whether you apply for car loan prequalification or preapproval — or end up doing both sequentially — you may be able to use the processes to your benefit. Both options can potentially help you develop a budget before you begin shopping seriously. Just remember that asking for a preapproval serves as a more formal declaration that you intend to buy a car (and it takes more work), while getting a prequalification is a more casual request for an estimate of what a lender could offer you.

Once you purchase your car, even if you get a good deal, you may eventually want to refinance.

If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.

With SoFi’s marketplace, you can quickly shop and explore options to refinance your vehicle.

FAQ

Does car loan preapproval hurt your credit score?

Yes, car loan preapproval may hurt your credit score if the lender conducts a hard pull inquiry into your credit report. Hard inquiries may cause your credit score to drop by several points temporarily.

Can you be denied an auto loan after preapproval?

Yes, a lender may deny your auto loan application and cancel your preapproval if you fail to meet its underwriting and qualification standards on the date of sale. Remember that preapproval is not a guarantee of financing. If you get preapproved for a car loan, there’s still a chance you may be denied financing.

How long does car loan preapproval take?

Applying online for car loan preapproval can take anywhere from several minutes to 24 hours in most cases, depending on the lender and when you initiate the request. The process may take longer in some cases, but getting car loan preapproval can be a quick and easy process for creditworthy consumers who have proof of identity.

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Photo credit: iStock/Jinda Noipho

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