Securing financing for a new car can be a bit frustrating, especially if you don’t know where to start and how it will affect your credit report and scores. The dealership might be able to help you by providing different banks that can potentially get the loan approved but should you move forward? Will a new loan increase or decrease your credit score? What if you are trying to purchase a home soon? Here a few key points to consider before buying a new car
INQUIRIES – Every time a financial institution such as a bank pulls credit, the scores decrease about 3-6 points. A dealership usually pulls credit with multiple banks in order to get the best deal. If 5 banks pull credit at 3-6 points each time, it will be about 15-30 points!
SHOPPING WINDOW – The credit bureaus allow you to have numerous inquiries within a “shopping window” in which you won’t get penalized for every individual inquiry; however, all inquiries must be for the same tradeline (car loan, mortgage, credit card) and once that shopping window expires all those inquiries will affect your credit scores.
PREAPPROVAL – Getting in contact with your favorite bank and getting preapproved before walking into a dealership can help avoid having numerous inquiries on your file. It will also give you an idea of exactly what you can afford and not go over your budget.
INTEREST RATES – The higher your score, the lower the interest rate will be. Most dealership will approve the loan even with “bad credit” but the interest rate will probably be extremely high. Scores in the 800s usually mean interest rates in the single digits (0%-9%) while scores in the 500s could mean interest rates in the upper twenty’s or even higher (26% and up)
It is always a good idea to improve your credit and increase your scores before moving forward with a new car loan, otherwise, you could end up paying thousands more due to the high interest rates imposed by the dealership. Having access to the right tools and resources to help you make the best responsible financial decision will give you the ability to save money in the long run. Please do not hesitate to contact us if you, your colleagues or any of your clients have any questions or need further details. We are here to help!