What's the difference between prequalification and preapproval for car loans?

I was thinking about getting a preapproval or prequalification for my car loan, but I'm not sure what the difference is. Can you explain them?

Answer
Terms surrounding car loans and car buying can be confusing, especially when they’re very similar sounding. Both prequalification and preapproval for a car loan give you a good idea of what car loan rates to expect, a possible monthly payment, and your total budget. However, they have one major difference: an impact on your credit score.
  • A prequalification only requires a soft inquiry, meaning that you won’t see any impact on your credit score.
  • A preapproval includes a hard inquiry on your credit, which will cause your score to drop between five and 10 points.
That said, a preapproval is more of a guarantee that you’ll get the loan. Prequalification doesn’t guarantee that you’ll get the loan at all. It’s not legally binding, so you will have to apply for a car loan even after the prequalification process.
Once you get a preapproval, you will usually have 30 to 60 days to find the car and close the deal. In the meantime, you should also shop around for car insurance. By using the Jerry app, you can compare rates from 50+ insurers, so you always get the best rate possible for the coverage you need.
Eric Schad
Answered on Dec 10, 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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