When you are looking for finance on your next new or used car, it helps to know whether there is such a thing as applying for finance from too many places.
In a nutshell, yes, having many finance applications out there is an almost sure-fire way to damage the current status of your credit rating. However, when you check your chances of being accepted through a soft search, you can protect your rating.
Why too many finance applications is bad for your credit rating
Rightly or wrongly, lenders reason that if you are making loads of credit applications (even for the same purchase) then you are potentially desperate for credit. If the credit searches were conducted using a hard search method then lenders will be able to see this and are likely to mark you down which means that they are more likely to refuse finance or load the finance with a higher APR (Annual Percentage Rate) than they would have done to allow for more potential risk.
The rule of thumb is not to have more than three hard credit searches in a quarter which means that if you applied for a mortgage or even for a mobile phone, the mortgage search will certainly come up as a hard search and the mobile phone is also likely to register as a hard search. Throw in a new credit card and it’s easy to see how people can inadvertently damage their credit rating by applying for car finance from numerous sources.
A number of years ago, this posed a serious issue when looking to source finance. Most dealers only offered their own ‘captive’ finance option, especially at franchise dealerships which meant that you had less choice and as a result probably paid over the odds when it came to finance.
Comparison sites and brokers with large lending panels seemed to be the solution – certainly for more choice but with the hard search reality making a footprint on your credit file was still a problem.
Why don’t all brokers do a soft search?
Here’s the truth about hard searches and soft searches. Credit bureaus charge lenders every time they do a search regardless whether its a soft search (which other lenders cannot see) or a hard search (which can be seen by all lenders). It’s unfortunate, but they charge lenders more for a soft search facility than for an old school hard search facility which means that some lenders still opt for the cheaper search facility or simply have not got round to implementing soft search as it can take some time to set this up with the credit bureaus.
The solution? Try to use brokers or lenders that afford you the ability to use soft search, such as Hippo Motor Finance.
Another little known fact is that most prime lenders still don’t have soft search in place. There’s lots of speculation as to why, ranging from they have not got round to it yet, to that they like the ability to see each other’s searches and want to maintain the status quo. A good broker will offer you soft search in the first place and IF you are approved by a sub-prime or near-prime lender on soft search they will then access the prime lenders who are more likely to give you a better APR should they approve you.
At Hippo Motor Finance, we have a panel of 14 lenders but we also use soft search in the first place (regardless of the cost to us and our lenders) in order to help protect your credit rating.
Check if you’ll be accepted for car finance today. To find out more about applying for car finance through Hippo Motor Finance, speak to our dedicated account managers on 01254 956 777.