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How applying for multiple car loans affects your credit

Find out whether shopping around for the best deal will cause your score to drop.

Shopping around before committing to a car loan is always a good idea. But this doesn’t mean you should apply for every loan offer you see.

Every time you apply for a car loan, the lender does a hard credit pull. Though how this affects your credit varies depending on the different credit scoring models.

When will shopping around for a car loan affect my credit score?

In general, submitting your personal and financial details as part of a loan application will result in a hard inquiry and a mark on your credit report. A car loan provider uses that personal information, including your name and driver’s license number, to look at your credit report and list the inquiry. Preapprovals and car loan quotes usually only require a soft credit pull — which doesn’t affect your credit — though you should check with the lender to make sure.

Multiple hard inquiries listed on your credit report in a short span of time could negatively affect your credit score. However, some credit scoring models will allow for some level of shopping around when it comes to car loans. This means that instead of listing each car loan application as a separate inquiry on your credit report, it will group all of the applications into one hard inquiry.

How long you have to rate shop depends on the credit scoring model and can vary between 14 and 45 days.

What’s the difference between a soft and hard credit inquiry?

A soft credit inquiry is typically used for preapprovals and doesn’t affect your credit score. It gives creditors a surface-level look at your credit, without digging in to your payment history or credit use.

On the other hand, a hard credit inquiry is usually used with most loan and credit card applications. Each hard credit pull typically drops your score five or so points, though it can vary.

How many inquiries is too many?

There’s no one number that is “too many,” but generally, one credit inquiry every three to six months is not considered to be risky behavior by lenders and shouldn’t affect your credit score too much. Multiple factors determine how many inquiries will affect your score, such as the length of your credit history and how many accounts you have. Keep in mind, hard credit inquiries remain on your credit report for two years.

What happens if I don’t get approved when I apply for a car loan?

You might want to consider waiting a few months to apply with another lender. This will give you time to strengthen your application, whether that means improving your credit score, coming up with a larger down payment or paying off some of your current debts.

If you’re in a position where you need to make a car purchase quickly, consider calling the lender to explain your situation and finding out whether or not your recent rejections will be an issue. Also, consider using an online car loan broker, which can help you find lenders you might qualify with by filling out one online form.

How do I check my credit report and credit score?

There are multiple providers that you can obtain your credit score from. Every year, you’re entitled to get free credit reports from the three major credit bureaus: Equifax, Experian and TransUnion. And some credit card providers, including Chase and Discover, provide a free credit score on your monthly billing statement.

Compare car loans before applying

1 - 4 of 4
Name Product Filter Values Minimum credit score APR Loan term Requirements
PenFed Auto Loans
Starting at 5.19%
3 to 7 years
Active membership with PenFed
One of the largest national credit unions in the U.S., it offers new and used auto financing with transparent low rates.
Varies depending on the lender
3 to 6 years
Varies depending on the lender
5.69% (as low as)
1 to 6 years
18+ years old, US citizen or permanent resident
A car loan connection service for borrowers looking to refinance.
No minimum credit score
3.9% to 27.9%
1 to 6 years
18+ years old, annual income of $4,000+, no active bankruptcies
Get pre-qualified for used car financing and receive competitive, personalized rates.

How do I apply for a car loan if I have a bad credit history?

There are some car loan providers that work specifically with poor-credit applicants. Before you begin your search, you should build up a small deposit and examine your budget to figure out how much you can reasonably afford to pay each month. Then begin to research and compare the different lenders who specialize in high-risk car loans.

Depending on how bad your credit history is, it may also be worth getting in touch with your current bank to see if it would be willing to consider your application. Make sure to contact your bank before submitting an application.

Bottom line

It’s possible to shop around for a car loan without it having a huge affect on your credit score. But it all depends on the credit scoring model and whether it groups your multiple credit inquiries into one. Learn more about how credit scores work in our guide, or visit our guide to car loans to compare options.

Frequently asked questions

If I get preapproved for a car loan, how long does the offer last?

It varies by lender, though it’s typically good for around 30 days.

How can I get away with having multiple car loans at once?

It’s possible to receive a second car loan on top of your first one. The effect of having multiple car loans on your credit report will depend on how consistently you make repayments each month.

If you pay on time, your credit could improve. However, missing payments will likely hurt your credit score.

How will paying off my car loan early affect my credit score?

It depends — in fact, it might hurt it. This is because lenders like to see that you have a mix of different types of credit accounts.

Car loans count as installment accounts, while credit cards are known as revolving accounts. So if you don’t have other installment accounts and pay off your car loan early, your credit score could take a hit.

Picture: Shutterstock

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