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What happens if you make multiple car loan applications?

Vidhu Bajaj avatar
Vidhu Bajaj
- 5 min read
What happens if you make multiple car loan applications?

When you apply for multiple car loans at once, each application gets listed on your credit file. These marks on your credit file can negatively impact your credit score, hurting your chances of approval.

How do multiple car loan applications affect your credit score?

If you're shopping for a car loan, you'll likely want to look at different car loans to find the one that's right for you. However, simultaneously applying with multiple lenders can be risky as it may affect your ability to borrow.

Each time you apply for a loan, the lender sends an inquiry to a credit bureau to check your credit score. Such inquiries are also called hard pulls or hard inquiries, and they can bring down your credit score slightly.

One may argue that a single credit inquiry isn't going to make much of a difference to their credit score, which is correct. But, if you're not careful and apply to multiple lenders in the hope of getting approved by at least one, you can expect several credit inquiries to be recorded on your credit file.

Multiple credit inquiries on your credit report hurt your chances of getting approved for a loan in two ways.

  • Several credit inquiries recorded close to each other can pull down your credit score. According to ClearScore, multiple hard checks in a short period of time can affect your credit score by over 5-10 points. So making five car loan applications simultaneously could lower your credit score significantly.
  • Multiple credit inquiries could make you look like a risky borrower. When a lender sees multiple open credit applications on your file, it may indicate poor financial behaviour to them. They may assume you’re finding it hard to manage your finances or you're credit hungry, reducing your creditworthiness in their eyes and possibly leading to rejection.

Additionally, if you make several car loan applications and some of them get rejected, these rejections will also appear on your credit file. While such rejections may not hurt your credit score directly, they can make you appear as a risky borrower. This could prevent you from getting approved for a car loan and limit your ability to borrow money in future.

It's advisable not to apply for multiple car loans at once but to focus on one application at a time to improve your chances of approval. RateCity's car loan comparison search wizard could help you compare car loans by suggesting loans that apply to your specific situation, making it easier to find the best deal for your requirements.

How to improve your chances of getting approved for a car loan?

You may be considering making multiple car loan applications to even out the odds of getting rejected. However, applying to more than one lender at a time could backfire. Instead, it might be worth focussing on one application to boost your chances of approval. Here are a few things you can do to make your application stronger:

  • Check your credit score. While you may qualify for a car loan with an average or poor credit score, it's likely to be more challenging and expensive than someone applying with a good score.
  • If your score is low, you may want to review your credit report and check for any incorrect information. If you find discrepancies, you can take some steps to fix errors on your credit report.
  • Reduce your existing liabilities by repaying some of your outstanding debts to make sure you have enough cash flow to service a car loan.
  • Save some money regularly in your bank account for a few months before applying for a loan. A regular savings habit makes you look financially responsible, and you could use your savings to reduce your loan size.

How to choose the right car loan?

A car typically depreciates in value as soon as you drive it out of the dealership, which means you'll want to ensure you have the right car with the right loan before driving home. So it's also important to compare various lenders and offers before applying for a loan. You can compare car loans online, where you'll look at the different interest rates, charges, loan terms, and other features offered by various lenders. Once you've looked at all these factors, you can make an informed decision to find a lender and proceed with the application process.

It's helpful to learn about different types of car loans to pick one that best suits your goals for the vehicle and financial situation. For instance, lenders offer different loans for buying used and new cars. You'll also find green loans provided by some lenders to borrowers who want to buy an electric vehicle. Green loans could help you save money for making an environmentally-friendly choice. Like everything else, it’s all about comparing your options to find a deal that works for you.

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Product database updated 17 Jul, 2024

This article was reviewed by Personal Finance Editor Mark Bristow before it was published as part of RateCity's Fact Check process.