You’ve spent countless hours reading reviews and comparing prices. You’re now prepared to start the process of purchasing the truck of your dreams. Before applying for an auto loan, there is just one more thing you must do: get pre-qualified.
This guide is for you if you’re unsure of the difference between pre-qualifications and pre-approvals, let alone when you need them or what to do with them.
What Does Pre-qualified for a Car Loan Mean?
When you are pre-qualified for an auto loan, it means that a lender has looked over your fundamental financial records to determine how much money you may be able to borrow and at what interest rate (typically a range). A pre-qualification can help you determine your loan eligibility chances and determine how much money you can comfortably spend on a new or used car.
Our guide can help you decide whether to purchase a new or used car.
What Does Pre-approved for a Car Loan Mean?When you’re pre-approved for an auto loan, it means a lender has conditionally agreed to help you finance a vehicle. Typically, pre-approvals show the exact amount of money you’ll be able to borrow, as well as the interest rate and length of time you’ll have to repay the loan (term).
For instance, you can typically get pre-qualified for a loan by telling a prospective lender how much money you make annually and how much debt you have overall. The lender will rely on your statements and may or may not quickly check your credit score. The lender will inform you if you are likely to be approved for a loan based on this information.
Pre-qualification requires little time or effort from either you or the lender. So, there’s no real commitment from either side.
On the other hand, if a financial institution gives you a loan that has already been pre-approved, they are essentially promising to lend you money. Be assured that they have examined every aspect of your credit report, confirmed your annual income, and examined all of your debts.
Pre-approval does not represent a firm promise that your loan application will be accepted. It is, however, a fairly strong commitment and the closest thing to a binding agreement you can make before signing the actual contract and receiving the loan funds.
Pros and Cons of Getting Pre-qualified vs. Pre-approved for an Auto LoanDeciding whether to get pre-qualified rather than pre-approved for an auto loan really comes down to personal preference and where you are in the buying process. Each has advantages and disadvantages that more or less revolve around several key factors.
Learn the distinctions between your credit report and score.
Credit ImpactWhen you get pre-qualified for an auto loan, the lender may check your credit score, which is known as a soft inquiry or soft pull. The process is quick, simple, and doesn’t affect your credit score in any way. On the other hand, when you apply for pre-approval, the lender will pull your full credit report to review your credit history and determine if they’re comfortable loaning you money. This is known as a hard inquiry, or hard pull, and it will temporarily lower your credit score by approximately five points or less, which can make it harder to qualify for other loans or credit cards until your score rebounds.
Remember to apply for all of your pre-approvals within a two-week window if you want to receive them from multiple lenders. If several hard inquiries are made within a 14-day period, they are typically treated as a single pull on your credit report, which means your credit score will only be impacted once.
You can estimate how much you might be able to borrow if you pre-qualify for an auto loan by looking at the range of interest rates. Your loan application won’t necessarily be approved, so don’t count on it. Therefore, if you are ultimately approved, the loan amount, interest rate, and term length may be different from what was indicated by your pre-qualification.
A pre-approved auto loan guarantees that, barring any unforeseen problems with your application, credit, or the vehicle itself, you’ll receive a certain sum of money that you’ll repay over a predetermined period of time at a particular interest rate. It is, for all intents and purposes, a guarantee.
Although planning your budget for an auto loan pre-approval is helpful, it doesn’t give you much negotiating power because the loan hasn’t actually been approved. Before you get the seller’s best price, you might have to engage in a back-and-forth negotiation and listen to their pitch for dealer financing.
You can negotiate better at a dealership if you arrive with a pre-approval or, in some cases, an actual check from a lender. Instead of attempting to “sell” you on a monthly payment, the seller will be more likely to give you their best price because they will perceive you as a cash buyer.
You still don’t know if you’ll be approved for the amount needed to purchase the car you want when you pre-qualify for an auto loan. This can divert your attention from test drives and gathering as much information about features and benefits as you can to worries about financing, adding stress to a task that is already frequently nerve-wracking. In the meantime, being pre-approved for a car loan enables you to concentrate on choosing the ideal vehicle without worrying about your finances or monthly payments. You can focus on how the car feels when you’re driving it because there are a lot fewer numbers in your head, which should improve your overall buying experience.
| Pre-qualification Pros & Cons | Pre-approval Pros & Cons |
|---|---|
| No impact on credit score | Temporarily lowers credit score |
| Not a guarantee you’ll be approved for a loan | Usually guarantees loan approval |
| Allows you to estimate what you can afford | Helps you know exactly what you can afford |
| Interest rate may be higher than estimated | Interest rate is established for the loan |
| Limited leverage for negotiating | Considerable negotiating power |
| No cost to pre-qualify | Usually no cost for pre-approval |
How to Get Pre-approved for a Car Loan
The simplicity of obtaining pre-approval for a car loan is one of its best features. To increase your chances of getting the lender’s approval, follow these four steps:
- Driver’s license, passport, or state or military ID
- Social Security number
- Pay stubs or W-2s
- Bank and credit card statements from several months
- Copies of other loan agreement
Our guide to personal loan agreements teaches you how to read the small print.
How to Buy a Car With a Pre-approved Loan
In most cases, purchasing a car with a pre-approved loan is similar to doing so in the “traditional” manner. The price negotiation and contract signing are when you’ll see the biggest differences.
Since you already have financing arranged, you don’t have to accept the dealer’s financing offer — or even listen to it. You can skip the back and forth by asking for the out-the-door price. If you’re comfortable with the number, you can move straight to the paperwork.
But even so, if you’re not in a rush, you might want to learn about the dealer’s financing offer. After you’ve reached a final agreement on price, contrast their loan offer with the one you independently obtained. then decide on the option with the most favorable rates and conditions.
Can You Be Denied a Car Loan After Pre-approval?Although it isn’t common, you can be turned down for a car loan after being pre-approved. Instances when a lender might not honor their pre-approval include:
Why You Should Get a Pre-approved Auto Loan at a Credit Union
Although traditional banks and online lenders can pre-approve you for an auto loan, there are some advantages to applying through a credit union. They typically include:
If you’re wondering how credit unions are able to provide these benefits, membership is the answer.
Since members own credit unions, profits are reinvested in the organization rather than distributed to shareholders. Members benefit from lower interest rates, higher dividends, fewer fees, and increased charitable giving in their communities as a result.
Visit our help center if you need assistance with PenFed auto loans.
Whether you’ve just started your car search or are prepared to start haggling, your plan should include an auto loan pre-qualification and pre-approval.
Spending a little time now, at the beginning of your car-buying process, can result in significant energy, effort, heartache, and money savings later on in the process and over the course of your loan.
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FAQ
Does PenFed do pre approvals?
Pre-qualifying online with a soft credit check allows you to see your potential rates and loan amounts without affecting your credit score, unlike other credit unions or even some major banks. PenFed
What credit score is needed for a PenFed auto loan?
Although PenFed does not disclose a minimum credit score requirement, most auto loan providers typically reserve their best rates for borrowers with credit scores over 660. If your credit needs a little work, there are many lenders who offer bad-credit auto loans, and you can check your score here for free.
How long is a PenFed auto pre-approval good for?
Personal loan checks and two-party vehicle loan checks have a 30-day expiration date. Pre-approval drafts are valid for 90 days.
Is PenFed good for car loans?
PenFed may be a good fit for those who: Are interested in receiving a rate discount and reduced vehicle pricing when they apply for a new or used car through the online service PenFed advertises rates as low as 0. 99% for borrowers with excellent credit and a 36-month term. Are looking for a lower loan amount minimum.