Car Loan Pre-Approval: Why & How To Get It (2022 Guide)

Getting a preapproval means a lender has reviewed your credit report which includes credit score, employment history, and other factors that determine the loan amount and rate you are most likely to get. For many people, this happens after they’ve decided which car they want to buy. This can lead to people being denied financing after spending hours filling out paperwork and negotiating at the dealership.

Getting preapproved for a car loan may make the approval process easier before you attempt to buy the vehicle. Instead of waiting until the point of purchase, you provide a lender with some basic financial information upfront and the lender sends you a letter stating the loan amount you’re approved for, as well as the annual percentage rate (APR).

Preapproval is not the same as actually getting a loan. It usually requires less information and, depending on the lender, may result in a “hard pull” on your credit, which can affect your credit score. However, to get your loan once you’ve decided on a car, you’ll need to apply. Most preapprovals are only valid for a limited time — usually 30 to 60 days. An since they require a hard credit check which can bring your score down, you don’t want to have to apply for a loan again.

Auto Loan Preapproval vs. Prequalification

You may have heard some people use the terms “prequalified” and “preapproved” interchangeably. While they are similar, there are some key differences.

A prequalification is a general estimate from the lender of how much you can afford to borrow. It’s usually based on less information than a preapproval. As a result, there’s a chance you might not actually qualify for a loan amount equal to your prequalification amount.

Preapproval is much more accurate and definitive. In most cases, you can count on your loan application being accepted for the amount in your preapproval, or close to it. Many car dealerships consider a buyer with an auto loan preapproval as essentially a cash buyer.

Since a prequalification might not affect your credit score like a preapproval can, getting prequalified might be a good first step if you’re still in the early stages of looking for a car and a lender.