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Car Buying

Buying a Car: Does It Hurt Your Credit to Shop Around for Financing?

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author photo by Doug DeMuro June 2014

If you're interested in buying a car, you've probably considered taking out an auto loan, but conventional wisdom says that you should be careful about shopping for the best loan because too many credit checks can hurt your credit. Is there any truth to this? Here's our take.

Why Would Shopping for a Loan Hurt Your Credit Score?

If you've never financed a car, you're probably wondering why shopping for a loan would hurt your credit.

Too many banks or lending institutions checking your credit history can give the impression that you're trying to take out multiple loans, which can raise questions about your standing. Your misinterpreted attempt to find a good loan can lower your credit score, ultimately proving detrimental to your interest rate or preventing you from borrowing money altogether. Although this is true, it's important to consider how much of an impact loan shopping can actually have on your credit and the number of banks you'd have to visit before that impact became truly devastating. Is loan shopping ultimately worthwhile?

Worth Shopping

Unless you visit dozens of banks while searching for a loan, we firmly believe that a slight dip in your credit score is very much worth the potential benefit of shopping around for the best possible interest rate. Although your credit score may take a hit, you could save hundreds (or even thousands) of dollars long-term.

While many shoppers are afraid of the impact that shopping for a loan will have on their credit scores, the reality is that the effect is minimal. Several banks can run your credit with very little change to your score, and sometimes there won't be any change at all. In fact, we think that the average loan shopper might see a 2- to 5-point drop in his or her credit score when searching for a loan -- a small figure, especially if it means the difference between getting a high interest rate from one bank and a great low rate from another.

Our Take: Don't Worry

Because the impact on your credit score from loan shopping will likely be minimal, we don't think you should worry about this issue when buying a car. We suggest that you don't take the first financing offer you get, unless it's really excellent; there are likely other banks that will offer something better in order to compete for your business.

This image is a stock photo and is not an exact representation of any vehicle offered for sale. Advertised vehicles of this model may have styling, trim levels, colors and optional equipment that differ from the stock photo.
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Buying a Car: Does It Hurt Your Credit to Shop Around for Financing? - Autotrader