“Congratulations! We’re pleased to inform you of your prequalification status for a ‘Super Duper Spend Freely’ car loan of up to $50,000. But you must act now, this is a limited time offer!” Many of us have found letters emblazoned with some form of that “Great News” on the envelope in our mailboxes. But how many of us know what car loan prequalification really means?
Here’s a hint prequalified— as Freedom Debt Relief reviews will tell you— doesn’t mean you’ll get the loan.
Prequalified vs Preapproved
While you might see the two terms used interchangeably, the reality is there are differences between prequalified and preapproved. While neither term always guarantees you’ll get the loan, both are designed to lure you into applying for it.
Prequalified – This means the lender has taken a preliminary look at your credit history (or at least the computer algorithm they employ has done so) and determined you might be a good candidate for the loan, if they can get you to apply for it.
The letter they send is typically based upon the outcome of a soft credit check and is designed to entice you into providing the lender with more information and permission to run a formal credit check so they can determine if you can repay the loan.
Preapproved – This often means the lender has run a hard credit check on you, verified your income and expenses, and has determined you could be trusted with a loan up to a certain amount. In most cases, you’ll have to request preapproval, while you might receive an unsolicited prequalification letter.
However, there are instances in which a lender will send you a preapproval notice without you asking for one. In this case it usually means the same thing as prequalified. They think you might be a good candidate for a loan, but they have yet to check you out to be sure. Which, in turn, means you are not guaranteed to get the loan—yet.
The Benefit of Loan Preapproval
Getting preapproved for a car loan before you go shopping puts you in a better negotiating position when it comes to the interest rate you’ll pay on your car loan. If you’re already pre-approved at say, 4% and the dealership is trying to get you to pay 5%, you can push them to match or beat the rate you already have. Otherwise, you can go with your preapproved rate if they cannot do so.
Prequalified vs Preapproved and Your Credit Score
As mentioned above, a prequalification offer usually means the lender has run a soft credit check on you. Based on the result of that inquiry, it thinks you might be a good candidate for one of its loans. This typically won’t influence your credit score.
A formal preapproval offer, in which you’ve submitted a loan application, supplied the required documentation and given the lender permission to run a hard credit check, will have an impact on your credit score. One of the criteria by which your credit score is calculated is the number of loans for which you’ve applied over a certain time period. Requesting a loan pre-approval is usually considered an application for credit and your score will reflect the fact you’ve done so.
In Summary
A car loan prequalification means you might get a loan if you submit a formal application. In most cases, the arrival of a prequalification letter in your mailbox signals a lender is fishing for your business—hoping to get you to apply for one of its car loans. The notification doesn’t mean you’ll get the loan, it just means you’re “qualified” to apply for it.
