How Does Applying for a Car Loan Affect Your Credit?

Considering buying a new or used vehicle? If you end up finding the perfect vehicle for you, you may need to take out a loan to purchase the vehicle. Many customers, especially those taking out a first time car buyer loan, are not sure how applying for a car loan can affect their credit. If that sounds like you, here is some information about car loans and their effect on your credit. 

Basics of a Car Loan 

A car loan is a loan from a bank or financial lender that allows a customer to purchase a vehicle when they cannot pay for it in full at the time of purchase. Any type of loan, whether it’s an auto loan or education loan, will typically result in a slight dip to your credit score. This is completely normal, and it likely won’t have any long lasting or significant impacts on your credit.

Car Loan and Your Credit Score 

When applying for a car loan, you will fill out the loan paperwork, giving the dealer permission to run a credit check. This credit check generates a hard inquiry on your credit report, meaning it will affect your score, but there’s no reason to panic. Hard inquiries will only reduce your credit score by about 5-10 points for a year. This is a really small number relative to all of the factors that determine your credit score. 

Multiple Inquiries to Comparison Shop

Many customers prefer to comparison shop for vehicles by checking out the options at multiple dealers, so they may apply for a car loan at multiple dealers to find the best deal. Fortunately, credit bureaus understand this. To make sure multiple inquiries don’t hurt a customer’s ability to find the best deal, many credit bureaus consider multiple inquiries within a 14 to 45 day period (the specific time period depends on the lender) a single inquiry. This means that if you do decide to comparison shop, your credit score won’t be negatively affected multiple times. 

Applying for classic car loans may result in multiple inquiries because your dealer’s finance department will send it to multiple lenders to find you the best interest rate and payment terms. Again, there is no reason to worry here. The credit bureaus will also consider these multiple inquiries as a single inquiry, so shopping for the best rate among lenders even from one dealership will not affect your ability to qualify for credit.

What if I’m Worried About my Credit? 

If you have a poor credit score or are worried about it dropping too much, there are some easy things you can do to avoid your score dropping too much. A hard inquiry for a car loan will only decrease your score by a few points. To minimize any further decrease in credit, it may be a good idea to avoid other hard inquiries for a year after your car loan, such as by buying a new home or taking out other loans. 

Chevrolet Dealer Near You

Searching for a “Chevrolet dealer near me“? Your search ends here. At Gordon Chevrolet, we have a wide selection of new and used cars Orange Park, FL. A premier Orange Park car dealership, we also have an excellent finance department with knowledgeable and friendly staff to help guide you through the car loan process. Visit us to learn more about how applying for a car loan can affect your credit!