Car Loan Prequalification and Preapproval: Complete 2025 Guide

Getting preapproved or prequalified for a car loan is crucial when purchasing a vehicle in 2025, though the two processes are slightly different. Preapproval provides a conditional loan commitment from a lender, while prequalification offers an estimate of what you might qualify for based on basic financial information.

Understanding how these two steps fit into the car financing process can help you compare options effectively, avoid hidden fees, and stay within budget. By the end of this guide, you’ll be prepared to secure a loan before visiting a dealership.

Preapproval vs. prequalification for car loans

Prequalification for a car loan is an initial assessment performed by a lender that estimates your eligibility for a loan. This includes checking your income and conducting a soft credit check, which doesn’t impact your credit score. In return, you get a general idea of the loan terms you could qualify for, but it does not guarantee approval.  

Preapproval is when a lender reviews your financial documents and conducts a hard credit check for the purpose of a conditional loan offer. This can impact and lower your credit score. If approved, you’ll receive terms for the approved loan amount, interest rate, and repayment. 

While preapproval doesn’t guarantee final loan approval, it provides a detailed picture of your potential loan terms, including the loan amount, interest rate, and repayment plan. This can help you better understand your financial commitment and make informed decisions during the car-buying process.

Here’s a closer look at how the two compare:

Prequalification is a great starting point when you’re exploring financing options, as it lets you compare potential loan offers without impacting your credit score. It’s a low-commitment way to understand what you might qualify for and refine your budget.

Preapproval goes a step further, offering a conditional loan offer based on a detailed review of your finances. This gives you leverage when negotiating at the dealership because it shows you’ve already secured financing. 

With preapproval in hand, you can focus solely on negotiating the car’s price rather than being pressured into the dealership’s financing options. To make the most of your preapproval, use it to stick to your budget, compare vehicle prices at multiple dealerships, and push for the best deal.

By using prequalification to research and preapproval to solidify your financing, you can confidently secure the best terms for your car loan.

Pros and cons of preapproval for car loans

Here are some advantages and disadvantages to preapprovals for car loans to help you decide if you’re ready to take this step:

Pros and cons of prequalification for car loans

Prequalification is helpful when shopping for loan options without making a commitment. Here are some of its advantages and disadvantages:

Where to apply for prequalification and preapproval

You can apply for prequalification and preapproval at several financial institutions. Here is a selection of lenders that offer these services.

Banks

Some banks offer prequalification, and many offer preapproval after meeting a conditional requirement, such as opening a checking or savings account. For example, Bank of America offers auto loan prequalification without impacting your credit score. 

Credit unions

Some credit union auto loans allow its members to prequalify and explore loan options without affecting their credit score. Many offer preapproval with competitive interest rates. PenFed Credit Union offers auto loan prequalification and preapproval with competitive interest rates and personalized service. 

Online lenders

Online lenders like MyAutoLoan have a quick prequalification process that lets you compare car loans from multiple lenders with a single application. This is a convenient way to shop around for the best rates. 

Once you’ve finalized your comparisons, you can proceed to preapproval with the lender you select.

Dealerships

Some dealerships offer prequalification through their finance departments. Most dealerships can also help you get a preapproved car loan, but it’s often done through multiple lenders, and each lender could potentially do a hard credit check, which will impact your credit score.

Here are our recommendations for the top auto loan lenders:

I’ve seen many clients get 0% financing on cars and trucks at the dealer. I would also say try one large bank and one local credit union or co-op.

Catherine Valega

,

CFP®, CAIA

Requirements for car loan prequalification and preapproval

A preapproval usually requires more documentation than a prequalification. Here is a look at the typical requirements for each. 

Common requirements for prequalification and preapproval

• Personal information: Your name, address, date of birth, and Social Security number are used to verify your identity. 
• Employment information: You must list your current employer and length of employment.
• Estimated loan amount: You will need to list your desired loan amount and repayment period length.

Additional requirements for preapproval   

• Hard credit check: A hard credit inquiry is required to proceed with preapproval. Unlike a soft inquiry, which gives lenders a general overview of your creditworthiness, a hard inquiry provides a detailed review of your credit history, including payment records, outstanding debts, and overall credit usage. This process temporarily lowers your credit score because it signals to credit bureaus that you are actively seeking new credit, which can increase perceived risk.
• Proof of income: Financial documents such as pay stubs, tax returns, or bank statements are needed to verify your ability to repay the loan. These documents help lenders assess your income stability and determine if you meet their eligibility requirements.
• Vehicle information: If you know the exact car you’re buying, you can provide details such as its make, model, year, mileage, and vehicle identification number (VIN). Lenders use this information to evaluate the car’s value and ensure it meets their loan criteria.

How to compare offers

Comparing loans is one of the best ways to find competitive rates and amazing financing options. Here is a step-by-step guide on how to compare offers. 

Step 1: Use an auto loan calculator to compare the APRs

Enter the loan amount, desired APR and term to compare your monthly payments and total cost of the loan. 

Step 2: Adjust the terms to fit your budget

Prioritize shorter terms with lower interest. They will have higher monthly payments but will ultimately save you money.  

Step 3: Check for any added fees

Some loans include origination or application fees. 

Step 4: Review the terms and conditions of the loan

Some loans are only valid for a specific vehicle or length of time. Make sure you have the flexibility you need to get the vehicle you want. 

Example 

You provide personal information to an online lender for prequalification on an auto loan and receive a selection of rates. The best offer estimates that you’re eligible for $25,000 with an APR of 6% to 9% and a 36 to 60-month repayment term. These terms aren’t final—-they are based on a soft credit check and the details you provided. 

You submit additional financial documents to the lender offering the best terms, and it conducts a hard credit check. The lender preapproves you for $30,000 with an APR of 5.5% and a term of 48 months. This offer is valid for 30 days with zero vehicle restrictions. 

Steps to take after preapproval

Once you have a preapproved offer, you can finalize your purchase within the timeframe specified in your preapproval, usually 30 to 60 days. Acting promptly ensures your offer doesn’t expire before you secure your loan.

Step 1: Review your offer

This includes the loan amount, terms, and monthly payments. Remember to add costs like insurance, registration fees, and taxes to your final cost.

Step 2: Find a vehicle within your budget if you haven’t already done so

Most buyers go into preapproval knowing the vehicle they intend to buy. Focus on a vehicle that is within your preapproved loan amount. Some lenders may have restrictions on the vehicle’s age and mileage.

Step 3: Negotiate

You have leverage with your preapproval, so negotiate the price down. Compare offers from multiple sellers in your area to find the best price.

Step 4: Complete the loan

Provide the lender with the vehicle’s make, model, and VIN. Once the paperwork is complete, the lender will finalize the loan and disburse the funds. 

Step 5: Buy the car

Inspect the car before signing any paperwork. Be sure all the terms, fees, and conditions of the purchase match your loan agreement. 

Knowing the difference between a prequalification and a preapproval and how to leverage them, can make your car buying experience swift and easy. Remember, prequalification lets you examine your options without impacting your credit. Compare your offers, follow the steps above, and after preapproval, secure a loan that allows you to drive away happy.  

The smaller the loan, the better! Always use the preapproval as an upper limit, but realistically, try to keep your debt as low as possible. If you can buy a used car, with cash, that would be ideal. But don’t get lured by the upper limits if you must take a car loan. Rather, focus on the safest car you can get within the limits of the loan.
Also, you want to understand the actual payment amount monthly and for how long before signing anything. You do not want to get underwater with the loan (by not being able to make the monthly payments), as that will seriously harm your credit score.

Catherine Valega

,

CFP®, CAIA