Buying a car is a big decision, and financing is a crucial part of the process. Many drivers opt for dealer-arranged financing for its convenience, but it’s important to understand the implications of allowing a dealership to run your credit.
The Convenience of Dealer-Arranged Financing
Dealer-arranged financing offers a one-stop-shop experience, eliminating the need to shop around for loans from different lenders. The dealership handles the paperwork and negotiates with lenders on your behalf potentially saving you time and hassle.
The Trade-Off: Loss of Control
However, convenience comes at a cost. By letting the dealership handle your financing, you relinquish control over several aspects of the process:
- Lender Selection: The dealership may have preferred lenders, limiting your options and potentially missing out on better rates elsewhere.
- Credit Inquiries: Multiple credit inquiries can negatively impact your credit score, especially if you’re applying for other loans around the same time.
- Privacy Concerns: Sharing your financial information with the dealership raises privacy concerns, as they may store and access your data for an extended period.
Should You Let the Dealership Run Your Credit?
Whether or not to allow the dealership to run your credit depends on your personal situation and priorities.
Consider these factors:
- Your Credit Score: If you have a good credit score, you’re likely to qualify for competitive rates from multiple lenders. Shopping around can potentially save you money.
- Time Constraints: If you’re short on time and want a quick and easy car-buying experience, dealer-arranged financing might be the best option.
- Privacy Concerns: If you’re concerned about your privacy, you might prefer to secure financing from your own lender beforehand.
Tips for Protecting Your Credit
If you decide to let the dealership run your credit, follow these tips:
- Ask about their process: Inquire about the number of lenders they will contact and their credit inquiry policy.
- Limit the number of inquiries: If possible, negotiate with the dealership to limit the number of lenders they contact.
- Monitor your credit report: Keep an eye on your credit report for any unauthorized inquiries and dispute any errors.
Convenient dealer-arranged financing is possible, but before letting the dealership check your credit, consider the trade-offs. Understanding the procedure and taking into account your unique situation will help you make an informed choice that satisfies both your privacy concerns and your financial objectives.
Remember, you have the right to choose how your credit information is used. Don’t hesitate to ask questions and negotiate with the dealership to ensure you’re comfortable with the process.
What Happens When a Car Dealership Runs Your Credit?
You are giving the car dealership permission to perform a hard credit check, which they will then forward to the lender or lenders of their choosing, if you choose to let them handle your financing. Although it might be convenient to let dealerships handle the financing for your purchase, doing so gives you no control over which lenders you can work with or who can access your financial data.
A dealership is likely to transfer your financing contract to the bank, credit union, or other third-party lender of their choosing if they don’t offer their own in-house financing. Dealerships may have a preferred lender, but sometimes they will “shotgun” your credit information to several lenders in an attempt to force them to compete for your best rate.
Many dealers contact around five lenders and then choose a single loan offer to present to you. Before submitting an application, make sure to understand your dealership’s procedure if privacy is an issue for you.
Opting into dealer-arranged financing means potentially relinquishing control over who views your financial information.
Adobe Stock
QuickTakes:
For a simplified car-buying experience, many drivers turn to dealer-arranged financing. Instead of applying for loans from banks on your own, you can let your dealership check your credit and make you an offer. However, this process may come with its own set of trade-offs.
If you want to minimize additional financing steps, dealer-arranged financing can be convenient. However, consumers who are concerned about their privacy and the possibility of unsolicited “hard” inquiries might find it less suitable.
What To Say When Dealers Say They Need To Run Your Credit For a Quote
FAQ
Does it hurt your credit when a car dealership runs your credit?
Can I tell a dealership not to run my credit?
How many times should a dealership run your credit?
Can a car dealership run your credit without your permission?
Can a car dealer run my credit?
Only give the car salesperson permission to run your credit if you decide to finance at that dealership. At the car dealership, tell the salesperson you are a “cash buyer” (because you have preapproved financing). But in the finance and insurance office, consider letting the dealer try to beat the interest rate on the loan you already have.
Can a car dealership run your credit multiple times?
“ It’s highly unlikely that a car dealership would run your credit multiple times. However, if they work with other lenders, these lenders may all pull your credit report. The good news is that if you have multiple hard inquiries within a 14-day period, it should count as just one hard inquiry.
Do car dealerships do credit checks?
Many car buyers rely on loans to afford their dream vehicles, and car dealerships play a crucial role in facilitating this process. As part of the financing process, car dealerships often run credit checks on potential buyers to assess their financial situation and determine their eligibility for a loan.
Is it illegal for a car dealership to pull your credit?
IT IS ILLEGAL FOR A CAR DEALERSHIP TO MAKE A HARD INQUIRY ON YOUR CREDIT WITHOUT PERMISSION: A hard inquiry typically only occurs when a consumer applies for credit or a loan, and the associated inquiry requires the consumer’s knowledge and consent. Why do car dealerships pull your credit so many times?