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Be selective when choosing your car loan

Be selective when choosing your car loan

Be selective when choosing your car loan to avoid impacting your credit score. Choice is definitely not something you’re short of when shopping for a car loan or any form of finance. It is easy to get carried away and apply for every loan you can to see if you can yet a low rate. There is one good reason why you shouldn’t.

This point was highlighted the other day by a customer at one of our dealerships. They had compared the car loan market to see what rates they could get. In theory, a great idea as it would let you know whether the deal you’re being offered at the dealership is a good one or not. In reality, the way this customer did it at least, it was anything but a good idea.

Rather than comparing rates on a comparison website or checking pre-approvals, this customer actually applied for a selection of car loans. They had no intention of taking them, but didn’t know the difference between a soft inquiry and a hard inquiry on their credit report. The result was a drop in their credit score and a more restricted range of loan options at the end.

Hard inquiries versus soft

If you apply for any type of credit, the company will perform a hard inquiry. This is where a recordable check will be made on your credit report which will be written into it. Too many hard inquiries can impact your credit score as it looks as though you are trying to max out credit.

Checking comparison websites should involve no credit checks. Prequalification or pre-approvals will include a soft inquiry. This is the same type of inquiry you will see for car insurance or a phone contract. These inquires are regarded as standard, are not recorded on your report and will not impact your credit score.

We always recommend customers perform their research ahead of visiting the dealership. It gives you the confidence in knowing the market and is will show you that the deals Car Nation Canada can provide are genuinely competitive.

There are a range of resources online that compares car loan rates across Canada and they are fairly accurate. If you want to make sure the advertised rate is close to the one you would actually get, pre-approval can help with that. Most pre-approvals will only make a soft inquiry on your credit report.

Researching car loans

Researching car loans is a vital part of the car buying process. You need to know what you can comfortably afford and how much the loan payments will be each month. You also need to know that the deal you’re being offered at a dealership is a good one or not.

You do not have to apply for the loan to see the rate. Use comparison websites to check average rates and perform pre-approval if you find a particularly good one. This is purely optional though. As long as you have an idea of current market rates, this should be enough to help you make an informed decision.

Never apply for a car loan unless you fully intend on taking it out. You can back out as that is your right but it will impact your credit score. Pre-approval is as far as you need to go. If you need help with any aspect of car loans, visit Car Nation Canada, we can help.

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