Though pre-qualified and pre-approved sound very similar, they play very different roles in helping you to get into an auto loan. We're going over the differences so that you can move toward your next car with confidence!

Pre-Approved Car Loans

Pre-Qualified vs. Pre-Approved Auto LoansPre-approved auto loans come from direct lenders such as banks, credit unions, and online lenders. They essentially turn you into a cash buyer at the dealership. When you visit the lender, you're approved for a certain amount of money, which is given to you in a check, or sent directly to the dealer when you complete your purchase.

These loans are typically given to people with good credit. And, because they're based on credit score, your interest rate may even be a little bit lower than on other loans. Once you're pre-approved, you can go to the dealership of your choice and shop like any other traditional buyer.

If you're able to get pre-approved, you can also use it to negotiate a lower rate or a better deal on a car loan through a dealer's captive lenders. The lenders the dealership is signed up with may offer you a lower interest rate if you choose to finance with them instead. But, getting pre-approved for a direct loan isn’t for everyone.

If you have bad credit, it might not be possible to get pre-approved with a direct lender, as they tend to have higher credit score requirements. However, you may still be able to get pre-qualified with a dealer that has lending resources to work with people in unique credit situations.

Pre-Qualified Auto Loans

Traditional borrowers with good credit who don't get pre-approved may begin shopping for a vehicle and financing with the dealership. These buyers typically pick out a car, then talk to the finance manager, who sets up a loan through their lenders. Once the paperwork is complete, they can take delivery of their vehicle.

With bad credit, however, the process is reversed. You get your financing first, and then choose a car from dealer inventory that falls within the maximum monthly payment range given by the lender. This is where a pre-qualification comes in.

When you're pre-qualified for an auto loan, you're matched with a dealership based on specific requirements. Not all dealers and lenders can work with borrowers who have less than perfect credit. Using a pre-qualification, though, you can cut your chances of searching for the right lender and having your credit score hit over and over again.

A pre-qualification begins with a request for financing that saves dealerships and lenders time by getting the process started up front. When you're struggling with poor credit, it's important that you take care not to have your credit score pulled multiple times stretched over weeks or months. Each hard pull generally dings your credit score around five to 15 points.

If you're pre-qualified, you're matched to a dealer based on the information you give. Getting matched with the right dealership that's signed up with the right lenders makes a world of difference when you're seeking a car loan approval.

Visiting a Car Dealership

When you're matched to a dealer through a pre-qualification, you should be prepared for the process from the start. The dealership finance manager acts as the middleman between you and the lender, verifying your qualifications and documents.

Since lenders that work with poor credit know that you're more than just a credit score, they ask for proof of income, residence, and employment, as well as look at other factors to determine your auto loan approval. They're looking to see that you have the ability, stability, and willingness to take on a car loan.

Lender requirements vary, but the subprime lenders who deal with bad credit borrowers typically require similar documents. These usually include your most recent computer-generated check stubs, a current utility bill or bank statement in your name, and proof of a working landline or contract cell phone.

You also generally need to provide a valid driver's license, a list of five to eight personal references, and a down payment of at least $1,000 or 10% of the vehicle's selling price.

Get Started Right Now!

If you need to find your next car, it's a good idea to start by checking your credit score. Once you know where you stand, you can decide whether a pre-approval or a pre-qualification is the route for you. Getting pre-approved may not be an option for everyone, but that doesn't mean others aren’t out there.

If you're struggling with a lower score, you can improve your chances of getting the auto loan you need by getting pre-qualified for a local dealer. At Auto Credit Express, we've connected consumers to the dealerships that can help for over 20 years. You can get started right now by filling out our fast, free, and no-obligation car loan request form.