SJ Financial

Can shopping around for car loans ruin my credit rating?

Written by Sandra on May 18, 2018

The short answer is, yes! Shopping around for a car loan can actually do some damage to your credit rating, if not done correctly.

While every car dealership can now provide an on-the-spot finance check, it is easy to fall into a credit trap while looking for a car. 

Not many people realise the danger of seeking finance at a dealership, then deciding against the purchase, before moving onto the next dealer and repeating this process until you find the perfect car.  

The problem is, you’ve just added multiple credit checks to your file for loan applications you didn’t end up using! 

 

What is a credit score?

A credit score is one of the most important factors when applying for loans. Lenders use your credit rating to decide whether they will loan you money in the first place, for how much and at what interest rate. The higher your score, the more likely you’ll secure the loan!

Unfortunately, there are a number of things that can show up on your credit history and potentially ruin your score. Making matters worse, these small decisions will follow you wherever you go and have a much larger effect then you may realise for several years. 

 

Shopping around for lenders can be incredibly valuable in securing a loan that suits your objectives and requirements, the fact is that too many enquiries could reduce your credit score.

 Each time you apply for credit, it is recorded in your credit report regardless of whether you obtain the loan or not. If you’ve made a lot of enquiries in a short amount of time, some credit providers will reject your application, as it may look like you are in financial stress and unable to successfully acquire credit. 

How to avoid detriment to your rating

Before applying, research as many lenders as possible or seek financial advice before submitting a credit application. Financial Brokers are able to research multiple loan providers based on your requirements and objectives and in a short amount of time, saving you hours of investigating.

This doesn’t mean you shouldn’t shop around for the best loan, but be aware of how your credit is being impacted. Our advice is to only grant a lender permission to check your file once all of your research is done and you’re ready to apply. 

The added benefits of a finance broker is that they have already done the research and have their finger on the pulse of the lenders guidelines. This inside knowledge can be extremely beneficial in getting you the best loan.

If you would like to know more about how a finance broker could help you, please get in touch

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