A SHORT GUIDE TO THE SOFT CREDIT CHECK AUTO LOAN
We may feel apprehensive going through the cycle of showroom visit, price quote and auto loan application. Then it is very stressful waiting for the bank’s approval. Whether you get the loan or not the result is an inquiry on your credit report. A soft credit check beforehand can be crucial to maximising your chances of securing an auto loan.
What is a soft credit check?
A soft credit check refers to the credit inquiry that is generated as a background check that determines the eligibility of a consumer looking to get their loans approved but does not register as a full credit inquiry. The purposes for such checks are mostly confined to –
- Informational soft credit checks – Includes pulling your own report to review the information on file for you. Employers can use it to do a background check on you while banks do it to make an estimate of the level of risk.
- Promotional purposes – These are conducted by creditors to make an assessment of the kind of products they can offer based on your credit profile. For instance, if you receive a marketing material that announces that you have been pre-qualified for a credit card, chances are that the company has probably done a soft check.
What is a hard credit check?
The hard credit check is what a lender initiates when determining if they want to lend money to you. This determines your qualification for financing.
Some examples may include –
- Applying for a mortgage, car or personal loan.
- Applying for a credit card
- Requesting credit line increases
The process of pre-qualification or pre-approval usually starts with a soft credit check. Once you officially apply for credit, you will have to undergo a hard credit check.
This is done to have the latest data on where you stand as a borrower and the risks that may or may not lie with lending money to you.
An inquiry conducted as part of a soft credit check auto loan has no effect on the credit score of an individual.
Will my Credit Score be hurt by a Hard Pull?
A hard-pull query will appear on your official credit report. Multiple hard-pull queries very often have a negative impact on your credit score. Keep in mind that the lower your credit score the higher your interest rates might be as lenders believe there is more risk in loaning money to you.
Other variables, such as missed/late payments or charge-offs, collections and bankruptcies, lower credit scores.
A Quick Overview of the Process of Buying Cars
Make a note of your purpose of buying a car –
- Purpose of use
- Will you be taking it out for long drives or just for use in the city?
- The mileage
- Engine power
- Security system
What’s Your Budget
This is one of the tougher phases, especially given the number of available brands and models on the market. There are some deals from different manufacturers floating around. But keep these three things in mind before considering all that:
Showroom Price
This is the manufacturer’s suggested retail price (MSRP) plus whatever customization the dealer has added to the vehicle (window tint, pinstriping, custom wheels, etc.)
Purchase Price
Final price of the vehicle which is inclusive of taxes, DMV fees, insurance etc.
Maintenance Cost
Plan for costs such as vehicle insurance, fuel, scheduled service etc.