Prequalified or preapproved? Confusion online slows process in-store

Despite a wealth of information online about vehicle financing, consumers lack confidence in the car-buying process, a recent study by Capital One suggests. Part of the problem? Dealership customers are unwilling to seek out financing offers online ahead of time.

The largest noncaptive auto lender in the U.S. found more than half of consumers believe financing is the most time-consuming and cumbersome part of the car-buying processes but were reluctant to try online tools that might expedite their in-store experience by making them more informed and prepared for what they will face in the dealership.

Most respondents — 88 percent — said they understood what it meant to prequalify for financing, but only half said they would be willing to try it, according to the study conducted in September. The reason could be that consumers who are wary of adversely impacting their credit score won’t take advantage of online opportunities to begin applying for a loan.

David Kang, managing vice president of marketing and analysis for Capital One’s consumer auto finance business, said consumers can confuse terms like preapproval and prequalification.

“Those terms get used in such a way that sometimes it doesn’t imply the same thing that we deliver, which is no impact to your credit score,” Kang said.

For the record, prequalifications provide customers with estimates of a loan they could qualify for based on unverified information about their income, assets and debt levels — and don’t affect the consumer’s credit score. Preapprovals require a hard credit pull — which will affect a credit score — and mean customers are actually approved by a lender for a set loan amount after providing documentation verifying identity and credit history, among other things.

Neither process guarantees that customers will receive loans at those terms, as customers still need to fill out credit applications online or in a dealership. Capital One offers its own prequalification tool for customers through Auto Navigator.

Opportunities remain for auto lenders and dealerships to educate customers on financing options before they enter a store. Most dealership sites today offer tools for consumers to calculate potential vehicle payments and seek prequalifications with lenders, but the onus is on dealerships and lender partners to promote those tools — and make sure shoppers understand them. Putting in the effort will drive traffic of educated buyers to dealerships.

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