While you set out to apply for an auto loan, the rules that determine the effectiveness of your credit score can seem like a hindrance. Many people are of the opinion that shopping around for good rates, a habit that is pivotal in obtaining a good loan deal, will adversely affect their credit scores. However, we build good credit so that it will pay off in the long term. But, if you have to think twice before shopping around for the best rates, you need to reassess your direction and understand the whole picture.
Rate Shopping: More Boon than Bane
Rate shopping has more than one benefit. Exploring a wide range of options helps you to get better clarity about your future monthly payments. Here is how rate shopping is actually going to be a boon for you in the long run.
1) Obtain Lower Rates than before
When you are applying for an auto loan, multiple lenders will reach out to you and seek your credit report. Once you have a clear idea about your budget, you can shop around for the available rates. The inclusion of rate shopping will help you obtain the lowest interest rates as you have a wide range of lenders to choose from. Make sure you make the most of rate shopping and chose a better auto loan deal that offers the lowest interest rates.
2) Riddance of Prepayment Penalty
Many a times, your car loan will have a prepayment penalty attached to the terms and conditions. The lender charges a prepayment penalty if you pay the loan amount in full before the end of the term period. The biggest advantage of rate shopping is that you can eliminate prepayment penalties and seek the best low interest auto loan program. Thus, it is important that you keep your pricing in check and avoid overspending on prepayment penalties.
3) Enjoy Comfortable Terms
Prior to settling down for a loan offer, rate shopping will assist you in providing the most valuable deal that has comfortable terms. Usually, a lender will offer you a 60-month or 84-month term period while you are shopping for an auto loan. But, do not just focus on the loan term, focus on the terms and conditions mentioned in the contract. By saying yes to rate shopping, you will be able to select comfortable loan terms and conditions that do not pinch your wallet. So, never forget to apply with more than one lender/bank to ensure that you get best deal.
Rate Shopping: The Way Forward
Often, rate shopping is perceived as a negative tool that damages your credit score. However, rate shopping inquiries do not hinder your credit scores if you obtain the loan within 30 days. According to Fair Isaac Corporation, the credit scoring company, your FICO scores are viewed for inquiries of rate shopping for a span of 30 days. So, if you find an auto loan within a month, all the inquiries on your credit score will be considered as a single inquiry. Additionally, the calculation of the FICO score can range from 14 days to 45 days, depending on the scoring formula your lender has chosen.
Just as you look for the perfect car to buy, it is also your responsibility to hunt for the best auto loan deal in the market. Rate shopping will present a holistic view of your auto loan deal while putting a perspective on your financial strength in the coming future.
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