Does Pre-Qualifying for an Auto Loan Hurt Your Credit?

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Contributing Writer

David Topham is an Automotive Content Manager for Internet Brands. He works as the lead editor for CarsDirect and Auto Credit Express, and contributes to those sites alongside other Internet Brands' properties like The Car Connection. He was born and raised in Michigan and is a graduate of Michigan State University.


, Contributing Writer - February 21, 2017

When an auto lender obtains information on a consumer to make an informal assessment of their chances of success as a borrower, it’s called pre-qualification. And don’t worry, pre-qualifying won’t hurt your credit score.

It’s not, however, the same thing as pre-approval. While often used interchangeably, these are two separate things.

Pre-Qualification vs. Pre-Approval

Both pre-qualification and pre-approval come before a car loan application is fully processed, but they differ in purpose and meaning.

Pre-qualification is an informal process. Lenders pre-qualify potential applicants as a way to let them know that they appear to be a good loan candidate. They can do this using a limited amount of information, and the way they obtain it shouldn't affect a borrower's credit. Consumers should understand that pre-qualifying for an auto loan doesn't guarantee approval in any way (although it is a good start).

Pre-approval is much more concrete, although it still is not a guarantee. When lenders pre-approve somebody for a car loan, they have taken a closer look at their financial and credit backgrounds.

Lenders may even be able to quote a potential maximum loan amount and interest rate during the pre-approval process. However, this still does not guarantee a borrower's loan will match the terms quoted to them, or that they will even be approved in the first place.

So, pre-qualification and pre-approval are similar in nature, but they aren't definite. Borrowers still have to submit a formal application in order to get approved.

Does Pre-Qualifying for a Car Loan Hurt Your Credit?

Put simply, no, pre-qualifying for an auto loan will not hurt a consumer's credit score. Pre-approval doesn't typically have an effect either. Lenders are able to pre-qualify and pre-approve potential applications by performing a "soft pull" of credit-related information. This means that they do not formally place a "hard inquiry" on a person's credit.

However, when a borrower finally does formally apply for a car loan, they give the lender permission to perform a "hard inquiry" and pull their credit. A hard inquiry can ding a consumer's credit score, but the impact is typically minimal and they drop off the report relatively quickly.

Additionally, it can pay to apply for a car loan with multiple lenders. Many borrowers shop around and compare interest rates to see which lender can offer them the lowest one. This common practice is known as "rate shopping," and it doesn't adversely affect a person's credit score.

This is because the credit bureaus and most credit scoring models are able to recognize rate shopping. Therefore, multiple inquiries for the same line of credit made in a short period of time will only count as one hard inquiry. The amount of time can vary depending on the credit scoring model in question, but the typical grace period is 14 to 45 days.

Help for Those Who Need It

Some people dealing with credit issues have a hard enough time trying to find one lender that is able to work with their situation. If you are dealing with imperfect credit and need a car loan, CarsDirect can help.

We match borrowers with local dealerships that are trained in special finance. This can save you time and hassle if you are struggling to get approved. Get the process started by filling out our free, simple, and secure online auto loan request today.

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, Contributing Writer

David Topham is an Automotive Content Manager for Internet Brands. He works as the lead editor for CarsDirect and Auto Credit Express, and contributes to those sites alongside other Internet Brands' properties like The Car Connection. He was born and raised in Michigan and is a graduate of Michigan State University.


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