Category Archives: Auto Financing

The Important Difference Between Hard & Soft Credit Checks

If you’re getting ready to apply for financing of any sort, you’ve probably got some questions about credit—especially if you’ve heard the rumor that simply applying for credit could hurt your credit score. Don’t let this rumor stop you from getting the financing you want. We’ll help you understand the difference between hard and soft credit checks, as well as how they come into play when you apply for an auto loan.

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What Are Hard and Soft Credit Checks?

Any time your credit report is accessed, it’s recorded with a credit reporting agency (the three biggest being Experian, Equifax, and TransUnion). This is technically called an “inquiry,” though you may also hear “check” or “pull.” Inquiries include information about who’s making the inquiry, what it’s for, the date it’s made, and the type of inquiry. There are two types of credit checks or inquiries: soft and hard, which we’ll explain below.

No time to read it all now? Take a quick look at our reference table for the key points.

A quick look at Hard & Soft Credit Inquires
Hard Credit Inquiries Soft Credit Inquiries
Factor in lending decision Yes No
Visible on credit report Yes No
Time on credit report 2 Years N/A
Your permission required Yes No
Can impact credit score Yes No

Soft Credit Checks

Soft credit checks occur when you check your own credit, when your credit is reviewed as part of a background check, or when a company checks your credit to pre-approve you for an offer. A potential employer may run a soft check on you, too.

Soft checks don’t impact your credit score and are typically only visible to you when you review your credit report. Potential lenders can’t see soft inquiries and according to Experian, “soft inquiries are never considered as a factor in credit scoring models.”

Examples of soft inquiries include “pre-qualified” credit card offers, “pre-qualified” insurance quotes, and employment verification.

Hard Credit Checks

Hard credit checks are tied to actual credit applications, usually ones that you initiate. They require your permission and occur when a lender or financial institution checks your credit in order to make a lending decision.

Hard checks stay on your credit report for about two years and can lower your credit score by a few points. This is a key difference between hard and soft credit checks. Most of the time, though, a single hard inquiry won’t play a major role in whether or not you’re approved for financing. Lenders understand that most people compare loan options when buying something as big a house or car.

Still, it’s not a good idea to apply for a bunch of different credit cards and loans at one time. Multiple hard inquiries for different types of credit in a short period of time can signal to lenders that you’re in a financial pickle. They may assume you’re having trouble paying bills, getting ready to rack up debt, or that you’re short on cash—all signs that you could be a risky loan recipient.

Examples of hard inquiries include applications for a mortgage, auto loan, credit card, student loan, personal loan, or apartment rental.

What to Know About Hard Credit Checks & Car Loans

Applying for an auto loan requires a hard credit check. In the long term, applying for an auto loan usually doesn’t hurt your credit score. Most reporting agencies recognize that when people shop for an auto loan, they’re going to compare multiple loan options in a short period of time. That’s why the top three credit reporting agencies (for the purpose of credit scoring) roll multiple auto inquiries into one inquiry on a continuous, 14-45 day cycle.

Remember that hard inquiries are only one factor used in calculating your credit score. There are many others! Your payment history, mix of credit types, length of credit history, and credit utilization ratio could all have a much greater impact on your score.

Now that you know, do you feel like a credit pro? You should! Worries over a hard credit inquiry shouldn’t prevent you from applying for financing when you need it most. A record 107 million Americans have auto loans, reports the Federal Reserve Bank of New York. That’s about 43% of the entire adult population in the US. Put your newfound knowledge to use building your credit score and apply for auto financing today.

How to Get a Car Loan with Little to No Credit

Looking to get a car loan with little credit? Maybe get a car loan with no credit? You’re not alone. Research by the Consumer Financial Protection Bureau found that 26 million American adults have no histories with national credit reporting agencies. An additional 19 million have credit reports that are so limited or out of date that they are unscorable. If you’re one of these Americans, you don’t have to be stuck riding the bus or bumming rides from friends. With the right information and a little hard work, you can get behind the wheel of a new or used car in no time. Just follow these 7 steps to get a car loan with little to no credit!

7 Steps for Getting a Car Loan with Little Credit

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1. Check your credit report. It may include inaccurate information that’s unfairly impacting your credit score, an issue that’s relatively common. In 2016, more than 43,000 complaints posted to the Consumer Financial Protection Bureau’s website were complaints about credit reporting. A whopping 74% of these complaints were about the credit reports including incorrect information, notes MarketWatch.

You’re allowed one free copy of your credit report from each of the credit reporting bureaus (Equifax, Experian, and TransUnion) each year. Before trying to get a car loan with little to no credit, check your report for errors. Then, dispute any errors with the credit bureau who distributed the report. Once any errors are corrected, you may find that your credit score improves. Even if there aren’t any errors that need resolving, it’s still a good idea to see exactly where you stand before applying for an auto loan. Check your credit scores from all three bureaus at FreeScore360.com.

2. Open a checking or savings account. You may already have a bank account in your name, but if not, this is the perfect time to open one. (And it can help you with the next step!). A bank account can act as financial proof that you can afford your car loan payments. While it’s not technically required in order to be approved for financing, it could improve your chances with lenders. Opening and maintaining a savings account can also help you establish healthy saving habits and get closer to your dream of buying that new car— one dollar at a time!

3. Save for a big down payment. The bigger your down payment, the less you’ll need to borrow. It’ll make a car loan easier to get with no credit and you’ll end up paying less for the car in the long run. How much should you put down? An Edmunds analysis of new- and used- car purchases in 2017 showed that the average car down payment was about 12%, however, conventional wisdom says that you should shoot for 20%. As someone who’s looking to get a car loan with little to no credit, you’ll want to lean toward a down payment that’s closer to 20%.

“Making a bigger down payment could increase the chances of being approved for a loan,” advises Edmunds. “Banks and finance companies want to lower their risk of not being paid, so they prefer loans of smaller amounts. The more you put down, the greater your chances will be of being approved.”

What about those catchy “zero down/zero APR” advertisements? Forget about them, for now at least. As few as 10% of shoppers actually qualify for them, says Edmunds, and your credit typically has to be in “great shape.”

4. Get a co-signer with better, more established credit. In the eyes of a lender, a co-signer reduces risk. If you aren’t able to make your loan payments for any reason, the cosigner is expected to do so. Co-signers are additional assurance that the loan will be repaid. A co-signer can be a friend, spouse, parent, or other family member. Lenders can’t require that you have a co-signer if you’re trying to get a car loan with little to no credit, but they may not offer you the loan based on your financial situation alone. A co-signer can make it possible for you to get financing approval or a better interest rate.

5. Compare financing options. Shop around! As much as you want to get behind the wheel of a new car as soon as possible, patience can pay off. Your first option might not be your best financing option, especially when you’re trying to get a car loan with minimal credit. Different lenders offer different loan terms and interest rates. Even loans with the same interest rate will yield different payment amounts depending on the length of the loan, so make sure you’re comparing “apples to apples” before committing to one auto loan.

6. Build your credit. Ideally, you’ll work to build and improve your credit so that you’re eligible for the loan amount, interest rate, and loan terms you really want. This process can involve getting a credit card, paying bills on time, and staying within your credit limit—all habits that can take months to establish. For many people, though, waiting to buy a car until you have perfect credit isn’t realistic. Life doesn’t stop. The kids still need to get to school. You need to get to work. Thankfully, making car payments on time is a great way to build your credit (and keep your means of transportation).

7. Apply for a car loan! Whether you’re working on saving up for a big down payment or searching for a co-signer, you’ve got to start somewhere. At myAutoLoan, we work to meet your needs as quickly as possible. We welcome all drivers to apply to get a car loan, even drivers with little to no credit. Use our application and you’ll save time and money, since we only present you with offers that match your situation. Submit your auto loan application today and compare up to four offers in minutes! (Remember step #5?!)

 

4 Key Ideas for Getting an Auto Loan

Shopping for a new car is mostly a pain – it is from my perspective anyway and over time, there are things that can be shared to make this process a lot easier. To start with, getting pre-approved is one of the best things you can do.  The “Why” is very obvious if you have ever spent 3 hours in the “Penalty Box” at a car dealership!  It’s all meant to wear you down and keep you invested in the “buying” process.  The loan process can seem like a daunting and difficult process but it is not.  I’ll share a few things that can make this easy.  Here are a few tips for getting a car loan the easy way.

  1. Know How Much You Want to Spend

If you already know what you have to spend, great! So many car buyers really don’t know until they get on the dealers’ lot. If you don’t have a budget set, list your monthly income after taxes and subtract all your monthly expenses. If you are trying to save, don’t forget to put that on the list as to how much you want to put back. Consider that if you end up with being able to afford $600 per month, that is could take away from your monthly savings. If you have annual expenses that come in once a year, just divide the total expense by 12 and add to your monthly worksheet. One more thing to consider – You will have some “new car costs” from your purchase so don’t forget to add insurance, registration, car maintenance and possible repairs to your list. Keep working with the numbers until they come in at a range that will make your car easy to afford.

2.  What Can you Afford

If you have done your due diligence, you are now close to understanding and deciding on a reasonable monthly car payment that will fit your budget. Now, with a payment amount in mind it is smart to utilize a car payment calculator to get an idea of a total dollar amount you can establish for your car purchase.  You can use auto loan calculators to get an idea of interest rates, monthly payments and total costs that you are able to afford.  You can choose if you want a 36, 48 or 60 month loan and it calculates all the above for your convenience.  Knowing this puts you in a much better position to work with the dealership and can help keep you out of the lengthy negotiations with the finance manager.

3. Get Pre-Approved

You can now take control of the auto financing process by getting preapproved for your auto loan before you ever step on the dealers’ lot. Getting multiple loan quotes is an outstanding way to be in charge of your loan process.  Go online and see who offers multiple loan quotes and apply.  This is the best way to get the best interest rates, best terms and be in control of the loan amount that you can afford.  Since most loan offers online are only good for up to 30 days, make sure you are ready to get out and find the auto you want.  Know that some offers have stipulations attached to them but if you use a lending platform, you can get real auto loan offers in real time and they are all good at franchised dealers.  The better your credit, the better the offers as the lenders will try to be a competitive as possible to earn your business.

4. Start Shopping

Now the fun part begins – shopping for your new wheels. Make sure you do your homework and do some research to find the autos that will fit your needs the best. Consider things like miles you drive, MPG, color and size of car that you want and any extra features that you are looking for. If you do your research up front, you are going to be in a great position to come out on top when you finalize all the details. By using these steps, you’ll be in a position to not only find the best auto financing, but the best value auto. Be prepared. Be smart. Success!

 

Top 5 FAQs about Auto Loan Refinancing

If you’re stuck paying a high rate for your car loan, you may find yourself wondering if there’s a better way you could be managing that cost. Whether you are having a hard time making your monthly payments or you are simply trying to find the smartest way to save, exploring auto loan refinancing might help. If you’re struggling to understand what refinancing an auto loan means (and how it could work for you), check out the answers to these 5 frequently asked questions.

What is auto loan refinancing?

In short, refinancing an auto loan means you pay off your current loan with a refinancing loan from another lender. Many people don’t know that this is an option, or if they do, they don’t know how to refinance an auto loan. Fortunately, refinancing is possible in many circumstances, and can be a big help if you are looking to save money on your loan, both immediately and over time.

How do you refinance an auto loan?

One of the smartest things you can do is obtain refinancing offers from multiple lenders. This enables you to choose the refinancing option that best fits your needs, whether you are looking for an alternative to too-high finance charges, or want to reduce the amount you pay per month on your car loan. To get started, use myAutoloan.com to get up to 4 offers through a single application.

When should you consider refinancing an auto loan?

There are a number of situations that might make it worth refinancing your loan. If there has been a change in your credit score (whether up or down), you might want to rethink the way you’re managing your loan finances. If you’re having trouble meeting your monthly payments because of your financial situation, you may be able to lighten that load with refinancing.

How much can you save if you refinance an auto loan?

It depends on your situation (see above), but it can definitely be worth investigating. Savings can vary depending on the remaining balance on your loan, and what the difference would be between your current interest rate and the potential new one. Because some car loan lenders can have finance rates as high as 21%, some customers may find they are able to save thousands of dollars in the long run with the right loan refinancing. To get a better idea of your potential savings before you apply for an offer, use a car loan calculator to get an estimate.

Can your credit score affect your ability to refinance an auto loan?

It can, but fortunately for those with bad credit, it all depends on which lender you work with. Some lenders specialize in loans for those with less-than-perfect credit scores. For example, there are lenders that might let you reapply for a loan after you make six payments. When it comes to refinancing, though, it’s helpful to improve your credit no matter your circumstances. Start by learning more about credit scoring and use these tips to start improving your score.

How Your Credit Score Could Affect a Car Loan

Is there a connection between your credit score and your ability to get a car loan? What if you’re trying to buy a car even though your credit is less than perfect? Here’s what you need to know about credit scores and car loans.

What do I need to know about credit scores?

First, the basics about credit scores. Your credit score is a 3-digit number that will fall between 300 and 850, with 850 being a perfect score. This number is calculated based on your financial history, which is comprised of factors like your ratio of debt to available credit; the length of your managed credit history; the number of credit types you’ve managed; your recent credit inquiries; and your bill payment history. You can get your credit score for free by contacting one of the 3 major credit bureaus—Equifax, Experian, and TransUnion.

For a more detailed breakdown of credit scoring, see our articles about Understanding Credit Scoring and Tips for Improving Your Credit.

How are credit scores and car loans connected?

Your credit score helps lenders determine whether it may be a risk for them to lend to you. A higher credit score indicates better reliability, since lenders are considering your past financial activity to be indicative of your future activity. As such, a lower credit score may mean you’ll be charged a higher interest rate for your car loan (we’re talking up to 20%). Does that mean there is a minimum credit score to get a car loan? Not necessarily. It will vary from lender to lender.

Can I still get a car loan with bad credit?

It’s certainly possible to figure out how to get a car loan if you have bad credit—you just need to go about it the right way. One of the best things you can do is partner with a specialized lender that is willing to work with customers who have bad credit. To find one, start with a bad credit auto loan direct lender like myAutoloan.com. This will allow you shop around and get multiple offers to find the right lender for your situation.

Want a full breakdown? Read our 5 Steps to Find a Car Loan with Bad Credit.