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How to Get Approved for an Auto Loan Without Hurting Your Credit Score

If you’re not careful, applying for an auto loan can hurt your credit score. Fortunately, auto loan pre-approval can be your secret weapon to keep the process efficient, effective, and painless.

If you need an auto loan, get ready to shop around: the number of auto loan accounts in the U.S. has skyrocketed over the past decade. In the first quarter of 2018, the total outstanding auto loan debt had reached $1.1 trillion.

To meet this demand, lenders are finding ways to lend to more borrowers, more efficiently. One such example? You can now get pre-approved for an auto loan that won’t hurt your credit from the comfort of your home.

What is auto loan pre-approval?

First, it’s important to understand the different types of credit inquiries, or “pulls.”

Hard credit inquiries

A hard pull is the result of a formal credit application with a creditor, such as an auto dealercredit card company, or mortgage lender. Once you apply, the creditor contacts one or more credit bureaus to check your credit report and score.

Credit bureaus track how many hard pulls you incur, because they indicate that you’re about to open a new credit account. Submitting multiple credit inquiries over a short time reveals that you’re applying for multiple loans. This might mean that you are desperate for credit, or unable to pay off your bills without borrowing more money. As such, a string of several consecutive hard pulls will drive your credit score down.

Of the five credit score categories, hard inquiries fall into the “new credit” category which comprises 10% of your FICO score. Any damage it causes to your credit score will remain on your report for two years.

Note that there is an exception if you’re shopping around for a specific type of loan. If your inquiries are all for the same type of loan and are made within a short period of time (typically 14 days), Experian says you won’t be penalized. These inquiries will all count as one.

Soft credit inquiries

Soft pulls 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 affect your credit score. Soft pulls occur if an employer checks your credit, or if a lender offers you a pre-approval.

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. Crucially, soft pulls for the purpose of pre-approval will not affect your credit score.

Of course, pre-approval is not a guarantee of approval. It only indicates whether or not the lender is likely to approve your request. If you decide to take their offer, they will still need to perform a hard pull before approving your loan.

How can you get pre-approved for a car loan?

From credit unions and banks to direct and marketplace lenders, many financial organizations offer pre-approval for car loans. Some examples are SpringboardAutoLightStreamAutopayProsper, and LendingClub.

Jim Landy, CEO of SpringboardAuto, 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.”

Before you apply for auto loan pre-approval, you should research various lenders to find out who has the best auto loan rates. Upon selecting your candidates, apply for auto loan pre-approval to find out whether they’re likely to approve your request. Again, don’t jump at the first offer that pre-approves you — be sure to find the deal that’s best for you.

For more details, SuperMoney can tell you more about getting pre-approved.

Streamlining auto loan pre-approval

If you’d like to streamline the process, SuperMoney offers free auto loan engine that generates competing personalized pre-approvals in just a few minutes.

Just answer a few questions about your desired loan and your financial circumstances, and you’ll get your offers. Since these are soft pulls, the process won’t lower your credit score.

Nobody wants to hurt their credit when shopping for an auto loan. Auto loan pre-approval can help you avoid needless hard pulls which might damage your credit score for years down the line. Once you find the loan you want (and you’re secure in the likelihood that the lender will approve your request), you can make your hard inquiry count!

Ready to start researching reliable lenders? SuperMoney can help!