How will shopping for an auto loan affect my credit? | Consumer Financial Protection Bureau (2024)

FAQs

Does shopping around car loan affect credit score? ›

Shopping for the best deal on an auto loan will generally have little to no impact on your credit score(s). The benefit of shopping will far outweigh any impact on your credit. In some cases, applying for multiple loans over a long period of time can impact your credit score(s).

Does applying for a car loan hurt your credit score? Shopping around for a car loan can potentially impact your credit score. That's because every time you apply for a loan and have a hard credit check, your score can drop by roughly 1 to 5 points.

In most cases, an auto loan preapproval has the potential to impact your credit. For example, if you go through the preapproval process with the lender and submit all of your information and documentation, the application will typically result in a hard inquiry, which can temporarily impact your credit score.

By searching for things like a credit card or loan, you're not actually applying for them but simply asking for a quote. This is called a soft check. Soft checks aren't visible to lenders and have no impact on your credit score. Only you can see them on your report and it doesn't matter how many they are.

If you're shopping for a new auto or mortgage loan or a new utility provider, the multiple inquiries are generally counted as one inquiry for a given period of time. The period of time may vary depending on the credit scoring model used, but it's typically from 14 to 45 days.

Why credit scores can drop after paying off a loan. Credit scores are calculated using a specific formula and indicate how likely you are to pay back a loan on time. But while paying off debt is a good thing, it may lower your credit score if it changes your credit mix, credit utilization or average account age.

For your credit score to drop 100 points at once, you're most likely talking about being 90 days late or more on a loan or credit card payment you're on the hook for. Believe it or not, a single late payment could cause damage in that ballpark, especially if your credit score is higher to begin with.

If you apply for multiple car loans in a short period of time, the effect on your credit score will be temporary. However, you shouldn't apply for other types of loan that require a hard credit check—such as a credit card—at the same time, or your credit score might take a hit.

You should avoid using a personal loan to pay for college tuition, investments, basic living expenses, vacation, discretionary purchases and gambling, as well as a down payment and the costs associated with starting a business.

Not only will having a preapproval offer help you find a vehicle that fits your budget, it will also strengthen your negotiating position. A dealership's finance office may be able to beat your preapproval offer in order to lock in your business.

Is Capital One good for auto loans? ›

Capital One auto loans are great for people who don't have perfect credit, offering no-risk prequalifications. However, using one makes it hard to shop around for cars and you may not live in a state where the loans are available.

If you find a loan within 30 days, the inquiries won't affect your score while you're rate shopping. The credit-scoring model recognizes that many consumers shop around for the best interest rates before purchasing a car or home, and that their searching may cause multiple lenders to request their credit report.

Compare loans before visiting a car dealer

You'll be able to negotiate better, as you'll know: exactly how much you can spend. the best interest rate you can get. how much your repayments will be.

When you use an auto loan to buy a car, your credit score will likely take a slight hit due to the increase in your debt load and the hard inquiry that results when the lender checks your credit. Thankfully, the credit score should only dip a few points temporarily.

Each inquiry can shave a few points off your score. That's why you want to be careful to rate shop within a window of time, so multiple hard inquiries can be treated as one for scoring purposes. The other type of credit check, a "soft inquiry," won't harm your score.