How to Protect Your Credit While Buying a Car| North Loop Official Blog
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09 Dec 2020

How to Protect Your Credit While Buying a Car

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Introduction -

Most people are aware that financing is an acceptable method of buying a car unless it is one of those rare occasions where enough money has gotten saved to pay for it in cash. However, what many do not realize is the fact that financing can get done through various channels and at far better rates.

Experts recommended exploring all these options that include those available on online platforms, to find the best deal where you have to pay the least amount of interest over time. But there is one more thing that requires equal attention during the purchase of a car, and that is your credit score. In this article, we will talk about how car shopping can decrease your credit score and some potential strategies that may help you to protect it.

How to buy a car with a pre-approved loan and the impact of car shopping multiple credit checks -

Car shopping multiple credit checks are the most common reasons for a declining credit score. Every time a lender runs a credit check to either pre-approve or approve you for a loan, your credit score reduces. Auto loan pre-approval without affecting credit score is nearly impossible.

If you are wondering about how to buy a car with a pre-approved loan, then you should know that experts suggest you get pre-approved through different lenders to compare your financing options even if you would only get approved on it once to buy the car. That way you can also compare the APR on the dealer’s financing offers with the best pre-approval you have.

Auto loan pre-approval without affecting credit score is tough because when you apply for financing through an auto-dealer, they usually send your information to multiple lenders who in turn, run inquiries on your credit.

Though single inquiries do not do much damage and lower credit scores only by five points or less, multiples done by dealers during the approval of auto loans can cause more harm. However, there are a few ways by which you can avoid this trouble. Read further to know about them.

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Protecting your credit when buying a new car -

One of the steps that you can take to protect the credit score while financing the purchase of your car is to restrict your auto loan applications to the shortest possible time frame. That is because the enquiries made within short periods get grouped under a single category.

Checking potential loan terms with pre-qualifications -

Many lenders offer pre-qualification tools that require less of your personal information and only run a soft credit check on you. These do not affect your credit score at all, but unlike pre-approvals, do not provide any guarantee of the amount that you can borrow. The pre-qualification checks only give an estimate based on the information you provide and are sufficient for early examinations during a car search.

Frequently-asked questions -

Do I need credit to buy a car?

Answer - It is possible to buy a car with no credit, but your financing options can get limited. That is because most lenders prefer applicants who have an established pattern and history of responsible borrowing and repayment. So before you wonder ‘do I need credit to buy a car’, it is best to assess if you’re ready to face the challenges that applicants with a solid credit history may not encounter.

Does buying a car with cash help your credit?

Answer - If you have been thinking ‘Does buying a car with cash help your credit?’, then you must understand that buying one with cash does not build credit. While it may be a tempting proposition if you have the money, it is not a great idea if you are trying to improve your credit score.

Can car dealerships run your credit without permission?

Answer - A car dealership usually requires your permission to run a credit check that can harm your overall credit score. They provide a document that you have to sign for giving your consent to run the credit check. We hope this provides an answer to your question ‘Can car dealerships run your credit without permission’.

What is the best way to get approved for a car loan?

Answer - We are giving a few examples that can help you understand what is the best way to get approved for a car loan. These include - Make sure you have a good credit score, consider getting pre-approved, get a clear idea about how car financing happens, work on your credit before applying, and arrange all the requisite residence and identity proofs in time.

Conclusion -

It isn’t too difficult to buy a car without harming your credit if you know what you are doing. Therefore, the best course of action is to gather enough information and knowledge about financing and the various available options before you visit the dealers to make the purchase.

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This publication is provided for general information purposes only and is not intended to cover every aspect of the topics with which it deals. It is not intended be advice. You must obtain professional advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax, investment or other professional advice from North Loop or its affiliates. We make no representations, warranties or guarantees, whether express or implied, that the content in the publication is accurate, complete or up to date. All opinions expressed do not reflect the views of North Loop nor are endorsed by North Loop.