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What's the difference between preapproval and prequalification for a car loan?
I've been shopping around for car loans and some dealers tell me I should get either prequalified or preapproved for a car loan. What's the difference? Does it matter?
Eric Schad · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
That’s a great question, especially considering that
car loan
prequalification and preapproval are often used as interchangeable terms.However, these have two distinct differences:
- A prequalification only does a soft inquiry on your credit, so you won’t see a hit on your credit score
- A prequalification isn’t set in stone, so you may see some changes to your interest rate or payments when you actually apply for the loan
On the other hand, preapproval all but locks in your interest rate and monthly payment. Furthermore, a preapproval creates a hard inquiry on your credit, which can cause your credit to drop by five to 10 points.
One isn’t necessarily better than the other; it’s all about how serious you are about getting a loan or if you’re just testing the waters. In either case, you should receive a letter that gives you the maximum amount the lender is willing to loan you, which is great for budgeting and negotiating.
If you decide to pull the trigger on a car loan, make a mental note that you will need to have full coverage car insurance per the stipulations of your loan. Download the
Jerry
app to compare quotes to find the best rates for your car insurance from up to 50 different providers.View full answer
- Gregory R.
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