Buyer Beware! What Does Pre-approved for a Car Really Mean?

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Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


, - November 14, 2018

There are certain terms we hear almost daily in advertising, on the internet, or while shopping for a loan – pre-approved, pre-qualified, accepted, no application turned down, etc.. These phrases all seem positive, and are often interpreted as a guarantee of approval, even when that's not the meaning. What do these phrases really mean, and what's the difference between them?

Pre-approved vs. Pre-qualified Offers

Pre-qualified and pre-approval are terms that are thrown around a lot in the US. We get envelopes in the mail promising pre-approved credit cards, car dealers tell people on the radio they're pre-qualified for certain specials, the list goes on.

Often, the terms pre-approved and pre-qualified are used interchangeably, but, in fact, these things are very different. In some cases, companies are using the terms as a good way to get you in the door. However, one is a legitimate offer of credit, and the other is not.

When you're offered something that may be a good fit for you based on certain criteria, but you've not yet applied for something specific, this is actually a pre-approval. But, pre-approved isn’t something that you've asked for. What it is, is a statement informing you that you meet certain qualifications that allow this offer to be extended to you, or that you might be a good loan candidate. Often, it's based on a soft credit pull that doesn't impact your credit, and the offer may include things like a maximum loan amount or credit limit, and a potential interest rate.

It's up to you to respond to a pre-approval by applying for the offered credit. Be aware though, that it's not a guarantee, since any major changes in your credit since the offer was made could affect your ability to get approved.

Pre-qualified differs from pre-approval in a very big, key way – the use of the word "may." For example, a pre-qualification offer that comes to you in the mail might say something along the lines of "you may qualify for a $25,000 car loan," while a pre-approval reads "you've been pre-approved for $10,000." A pre-qualification isn’t a firm offer of credit.

For both of these your credit isn't affected until you actually apply and the lender makes a hard credit inquiry. And while neither one is an absolute sure thing, unless your credit has changed dramatically, a pre-approval is almost a guarantee you are going to be approved.

Other Terms to Know

There are other phrases that often accompany offers, especially when you're searching for a car loan online. Websites that say things like "all applications accepted" and "no credit rejected" are often a gateway to getting the loan you need. But, in many cases, these websites aren't lenders themselves, so it's very important that you understand how they work.

Applications filed with one of these sites, much like here at CarsDirect, can put you in touch with a special finance dealership that works with a diverse network of lenders. These lenders can typically help people who are experiencing many types of credit challenges such as no credit, bad credit, bankruptcy, and even repossession. But, like any credit application, there are requirements that need to be met for loan approval.

For instance, lenders that work with poor credit tend to look beyond your credit score to base approval on other factors such as monthly income. Most of these lenders require a minimum pre-tax monthly income of at least $1,500.

What sites like these can do is put you on the right path toward the financing you're looking for, without the hassle of driving all over town, or having multiple lenders perform hard pulls on your credit only to find out that you don't meet their qualifications.

What these companies won't be doing is sending you a check to take to the dealer. But, even if you're struggling with credit issues, there's a way to get a pre-approved car loan.

Pre-approved Car Loans

Pre-approved loans, also known as direct loans, are what you get when you go to a bank, credit union, or online lender and get approved for a loan that you can take to the dealership. This is something you apply for and get approved for before you sit down with a dealer. This can be a great way to get a car and build your credit, too.

When you come to a dealership with a pre-approval in hand, it puts the negotiating power in your court and is especially good for people with bad credit. With this type of loan, you know exactly how much you can afford to spend, and often have a lower interest rate than you otherwise would receive. It also gives you an opportunity to see if the dealer can give you a better offer.

If you decide to go this route, but are struggling with credit issues, know that your options may be limited. It's often more difficult to get a loan through traditional channels like these without good credit. Starting with a credit union can be a good first step, as they often offer a wider range of services and are more lenient than big banks, especially if you're a member in good standing.

Also, because the interest rates and requirements for loan approval vary by lender, it's a good idea to shop around before you settle on an offer. Keep your rate shopping within 14 days or less – credit bureaus recognize this as the typical rate shopping window, and the impact to your credit is less than if you spread out your search.

If a Pre-approved Car Loan isn't an Option

In some cases, pre-approval just isn't an option, so rather than continuing down this route you can turn to CarsDirect. We work with a nationwide network of special finance dealers that have subprime lenders available to work with people who aren't otherwise able to get an auto loan.We can't guarantee you a car loan, because we aren't a lender, but we can give you a chance to work with a local dealership that can help you get the financing you need, without the stress of going from dealer to dealer only to be turned down. This no-obligation process is simple and free of charge. To get started on a hassle-free path to your next car loan, just fill out our online auto loan request form and see what your future holds.

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Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


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