If you are looking for an auto loan, it’s a good time to shop around. The number of auto loan accounts in the US has been steadily rising over the past six years. The total outstanding auto loan debt reached $1.2 trillion at the end of 2016, 9% higher than 2015. Find out which lenders offer an auto loan pre-approval soft pull.
Here’s a closer look at auto loan pre-approvals without a hard credit inquiry, what they are, and if you can get one.
What does “pre-approved for a car loan” mean?
First, it’s important to understand the difference between a soft and hard credit inquiry (often called a pull).
Hard credit inquiry
A hard credit inquiry is the result of a credit application with a creditor, such as an auto dealer, credit card company, or mortgage lender. You apply, and the creditor contacts one or more of the major credit bureaus to check your credit report and score.
The credit bureaus track how many hard credit inquiries you incur because inquiries lead to new credit accounts. Opening several accounts within a short period has shown to correlate with higher risk, as people often show this behavior when they are having trouble keeping up with bills, are desperate for credit, and can’t get approved by several lenders.
Several hard inquiries will cause your credit score to drop and will stay on your report for two years. Of the five credit score categories, hard inquiries fall into the “new credit” category which comprises 10% of your FICO score.
Note that there is an exception if you are shopping around for a specific type of loan. For example, if you are applying for multiple auto loans and several lenders are checking your credit.
Experian says, if inquiries for the same type of loan were made within a short period, typically 14 days, then they will all only count as one.
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Soft credit inquiry
Soft credit inquiries occur when someone checks your credit, but you are not applying for a new line of credit. These will only be visible to you when you check your credit report, and they do not impact your score. Soft pulls typically occur if an employer checks your credit, or if a lender offers you a pre-approval. Your permission is not required.
In the case of an auto loan, pre-approval enables a lender to check your credit to find out if you are likely to qualify for their loan products. The lender may also provide you with a quote stating what rates and terms they can provide you.
It is not a final decision or a guarantee of approval; it’s a statement that says whether you are likely to get approved or not. If you decide to go with the offer, the lender will perform the hard credit inquiry.
Do pre-approvals affect credit score?
Being that pre-approvals use a soft credit inquiry to offer the approval, they will not affect your credit score.
Can you get pre-approved for a car loan?
In most cases, the answer is yes.
From credit unions and banks to direct and marketplace lenders, many financial organizations offer pre-approval for car loans. Some examples are SpringboardAuto, LightStream, Autopay, Prosper, and LendingClub.
CEO of SpringboardAuto, Jim Landy, says, ““At SpringboardAuto, you can get pre-approved in minutes by simply filling out a form that takes about three minutes and hitting the submit button. In seconds, we’ll let you know if you’ve been pre-approved – all without hurting your credit because we do a soft credit check. Once you are pre-approved by us, we continue to help you through the remainder of the process – including paperwork, notary and DMV services.”
But who has the best auto loan rates?
You can research various lenders and apply for pre-approval with those you are interested in. Then, compare the offers and find the best deal for you. Learn more about getting pre-approved.
Streamline the auto loan pre-qualification process
If you’d like to streamline the process, SuperMoney offers a free auto loan engine that will generate competing personalized pre-approvals in just a few minutes.
You simply answer a few questions to disclose what you need and the details of your financial situation, then you’ll get your offers. Since these are pre-approvals, the process won’t lower your credit score.
Nobody wants to hurt their credit when shopping for an auto loan, and pre-approvals can help. Find the right solution without worrying about too many credit inquiries or a set amount of time. Then, when you find the loan you want, you can make the hard inquiry count!