What does prequalifying for a car loan mean?

I'm thinking about buying a new car and a friend told me I should prequalify for a loan. What does this mean?

Answer
You have a smart friend there. Keep them around!
Prequalfiying for a car loan is when you provide your personal information to a lender to determine your creditworthiness. The upside of prequalifying is that your credit is not impacted and you can get a basic idea of how much you might be able to spend.
It’s worth noting that prequalifying is different from preapproval. In the preapproval process, lenders run a hard inquiry on your credit that can drop your score by five to 10 points. Prequalifying also gives you an actual dollar amount that you can use to shop around and provide as a negotiating tool.
If you follow through on buying a car, don’t forget about your car insurance needs. You’ll most likely need full coverage auto insurance, so if you want to find the best rate, check out the Jerry app—we’ll get you personalized quotes from top providers so that all you need to do is choose the plan that works best for you.
Best of luck with your car loan, and with your new car!
Eric Schad
Answered on Oct 19, 2021
Eric Schad has been a freelance writer for nearly a decade, as well as an SEO specialist and editor for the past five years. Before getting behind the keyboard, he worked in the finance and music industries (the perfect combo). With a wide array of professional and personal experiences, he’s developed a knack for tone and branding across many different verticals. Away from the computer, Schad is a blues guitar shredder, crazed sports fan, and always down for a spontaneous trip anywhere around the globe.
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