Shopping around before committing to a car loan is always a good idea. But this doesn’t mean you should apply for every loan offer you see. Every time you apply for a car loan, the lender does a hard credit inquiry. Though how this affects your credit varies depending on the different credit scoring models.
Yes, applying for multiple car loans will temporarily hurt your credit score. That’s because submitting a car loan application results in a hard inquiry on your credit report, which will cause your credit score to drop slightly. However, by consistently making your loan repayments on time, your credit score should recover quickly.
On the other hand, car loan quotes and pre-approvals usually only use a soft inquiry — which doesn’t affect your credit score at all. Before going ahead with a quote though, you should check with the lender to make sure that they only do a soft inquiry as part of its quote process.
A soft credit inquiry is typically used for pre-approvals and doesn’t affect your credit score. It gives creditors a surface-level look at your credit, without digging in to your payment history or credit use.
On the other hand, a hard credit inquiry is usually used with most loan and credit card applications. Each hard credit inquiry typically drops your score five or so points, though it can vary.
While a single hard pull will hurt your credit score, you can minimize the damage to your score by submitting any other car loan applications within a short amount of time. Canadian credit bureaus don’t penalize you for shopping around for the best rate since it proves you’re trying to be a responsible borrower. So after the first pull, your credit score won’t be continually hit if you allow multiple hard pulls for the same type of loan within a certain time frame, usually 45 days. Basically, instead of listing each car loan application as a separate inquiry on your credit report, in that situation, credit bureaus will group all of the applications into one hard inquiry.
So if you plan on submitting multiple car loan applications, make sure to do submit them within 45 days of the first one in order to prevent your credit score from being hurt too much.
There’s no one number that is “too many,” but generally, one credit inquiry every 3 to 6 months is not considered to be risky behavior by lenders and shouldn’t affect your credit score too much. Multiple factors determine how many inquiries will affect your score, such as the length of your credit history and how many accounts you have. Keep in mind, hard credit inquiries remain on your credit report for 3 years, but typically only impact your score for about 12 months.
You can get credit reports directly from the 2 major credit bureaus: Equifax and TransUnion. It’s possible to get your credit score for free. You can read our comprehensive guide to credit scores to learn more.
If you don’t get approved for a car loan, you might want to consider waiting a few months before applying with another lender. This will give you time to strengthen your application, whether that means improving your credit score, coming up with a larger down payment or paying off some of your current debts.
If you’re in a position where you need to make a car purchase quickly, consider calling the lender to explain your situation and finding out whether or not your recent rejections will be an issue. You can also consider using an online car loan broker, which can help you find lenders you might qualify with by filling out one online form.
Now that you know how applying for a car loan will impact your credit score, it’s time to find the right lender. You can browse through our list of reputable Canadian car loan providers below to help narrow down your options.
Yes, there are some car loan providers that work specifically with bad-credit applicants. Before you begin your search, you should build up a small deposit and examine your budget to figure out how much you can reasonably afford to pay each month. Then begin to research and compare the different lenders who specialize in high-risk car loans.
Depending on how bad your credit history is, it may also be worth getting in touch with your current bank to see if it would be willing to consider your application. Make sure to contact your bank before submitting an application.
It’s possible to shop around for a car loan without it having a huge affect on your credit score. But it all depends on the credit scoring model and whether it groups your multiple credit inquiries into one. You can learn more about how credit scores work or visit our guide to car loans to compare options.
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