Shopping for the best deal on a vehicle loan is smart, right? After all, for many of us, a loan to buy a car or truck will be one of our largest loans. Most of us (84%) rely on financing when purchasing a vehicle, according to data from Experian Automotive (fourth quarter, 2014) and the average loan amount for a new vehicle is $28,381; the highest on record and an increase of almost $1,000 from a year ago. In fact, the average monthly payment is now up to $482. Shaving even a percentage point off the interest rate on a car loan can mean decent savings.
But there is a hidden danger lurking in those applications for auto loans, as a number of our readers have discovered:
I purchased a new car the dealer ran me through 7 different banks to get me the best rate all inquiries are listed separately on my Trans Union report and I lost almost 60 points on my credit score. Is it possible to contact them and fix the inquiries to be only 1 inquiry? – "VStrigle"
I had my own financing lined up with lender I have done business with for over 7 years and I thought I was getting a good rate. Well the salesman at the dealer said he was 95% confident that he could get a much lower rate that what I was getting, so with hesitation, I decided to let him run my credit. I decided at the last minute not to purchase the car mainly because the salespeople were very pushy and they were not going to give me good offer on my car. Well 57 inquires later…(my credit scores dropped 40 – 60 points).- "ricky"
I went to one dealership who ran me against 19 lenders(seriously!). My score dropped 50 points by the next score reporting cycle. – "CE- Mpls"
A single credit inquiry generally has little impact on your credit scores. One inquiry might drop your score 2 to 7 points or so. And multiple inquiries created as a result of shopping for an auto loan are not supposed to hurt your credit scores significantly if you limit your shopping to a short window of time. VantageScore counts all inquiries within a 14-day rolling window as one. FICO scores contain a similar buffer except the window varies — sometimes it is 14 days and sometimes it is 45 days — depending on the FICO score model that is used. (In addition, with these FICO scores all auto-related inquiries in the past 30 days are ignored.)
So how is it that these consumers have seen their credit scores drop dramatically due to auto loan applications? One possible explanation is that the scores they are monitoring are not FICO or VantageScore credit scores, but instead are custom bureau scores or educational scores that do not include a buffer for inquiries. In those cases, if the consumer later applies for credit with a lender that uses FICO or VantageScore scores (most do), those inquiries will be "de-duped" so they are treated as a single inquiry.