If you're serious about buying a car, one of the smartest moves you can make is getting preapproved for auto financing. But what does it mean to be preapproved, and why does it matter?

Simply put, preapproval is a conditional commitment from a financial institution. Based on an evaluation of your financial profile — including your credit history, income, and existing debts — the company will determine the amount and interest rate you may qualify for.

Preapproval vs. pre-qualification: Know the difference

If you’ve heard both terms and are wondering whether they’re interchangeable, they’re not.

Pre-qualification is an estimate based on self-reported financial data. It’s quick, involves a “soft” credit inquiry (which doesn’t affect your credit score), and gives you a general sense of how much you might be able to borrow. It’s a helpful starting point if you’re early in the process and just want to explore your options.

Preapproval, on the other hand, is more formal. It involves a “hard” credit inquiry, requires detailed documentation, and results in a specific amount you can borrow, along with the terms. This clarity gives you more credibility when you walk into a dealership and shows you’re ready to buy.

What financial institutions look at for preapproval

You’ll typically need to submit:

• Personal identification: Name, address, Social Security number, contact info

• Employment and income verification: Recent pay stubs, tax returns, or W-2s

• Housing information: Rent or mortgage payments

• Financing preferences: How much you want to borrow and for how long

• Trade-in details (if applicable)

In some cases, details about the vehicle you want to buy may be requested later.

What preapproval offers

Preapproval allows you to shop like a cash buyer. With financing already secured, you’re in a stronger position to negotiate the actual price of the car — not just the monthly payment. Dealers know you’re serious, and that confidence often translates to better service and potentially better deals.

Because you also already know what you can afford, you’re more likely to stick to a realistic budget and avoid pressure to overspend. Lastly, preapproval simplifies your time at the dealership by reducing paperwork and financing back-and-forth, allowing you to focus on the vehicle itself.

What preapproval is — and isn’t

It’s important to understand that preapproval is not a guaranteed loan. Final approval still depends on verifying your financial documents and ensuring the vehicle you choose meets the lender’s criteria (such as age, mileage, or condition). Preapproval offers are typically valid for a limited time, so it’s best to start this process when you’re ready to shop.

Not ready or able to go through the pre-approval process?

If you’re just starting to think about car ownership, or know your credit score will present a challenge — a great first step is getting pre-qualified through Credit Acceptance. If you’re ready to explore your auto financing possibilities, start the pre-qualification process today.