Buying a car with cash is a pipe dream for many. In fact, traditionally some 35 percent of used cars and more than 80 percent of new cars are financed with loans, according to J.D. Power & Associates. Depending on the vehicle, most loans are between 24 and 84 months. Because loan terms and interest rates can make a significant difference in your monthly payment, it makes sense to shop around for the best deal.
Inquiries count
Unfortunately, you can’t get preapproved for a car loan without affecting your credit score, at least a little bit. Each time you apply for a loan, a “hard” inquiry is sent to the major credit bureaus — and your credit score is lowered five to 10 points. That means if you apply for a loan at a handful of banks or credit unions, your score could drop 50 points — reductions that last about a year. Since higher credit scores typically mean a lower interest rate, you could be hurting yourself simply by seeking out the choicest offer.
One and done
To avoid additional finance charges on a car loan, do your shopping all at once. Credit bureaus such as Experian and Equifax treat auto loan requests made within a certain period — usually 14-30 days — as one incident. This means it won't significantly lower your score, even if you have multiple credit checks.
Personal checkup
To get a better idea of what terms and rates you might qualify for, you can check your own credit report. The major credit bureaus will provide your FICO score upon request, free of charge, as will many credit card companies. This “soft” inquiry does not affect your credit score. Your FICO score is determined by the length of your credit history and how consistently you’ve paid your loans and credit card bills on time.
Improve your score
How do car loans affect your credit score? The good news is that once you’ve secured a loan, you can start improving your numbers. Every time you make your auto loan payment by the due date, your score is positively impacted. That better FICO should lead to a better interest rate for future loans, be it for a vehicle or a home.
Have it all
Ready to start shopping? Get preapproved for an auto loan, then find your perfect match on KSL Cars, where you can narrow your search based on the price, year, model and mileage.
