There are many similarities between applying for a car loan and a mortgage—both processes require credit checks, lenders in both situations will weigh how much of a borrowing risk you are, both require to paperwork, and you’ll have to wait for approval for a car loan or a mortgage.
If you’re on the hunt for a car loan, you’re most likely going to be on the lookout for car insurance
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Credit checks
Whether you’re applying for a car loan or a mortgage, potential lenders will check your credit rating to get an idea of whether you’ll be a trustworthy borrower or not.
Mortgage credit check
When applying for a mortgage
, potential lenders will give your credit a thorough once-over before approving your application. After all, when you’re applying for a mortgage, you’re typically asking for a lot of money. Lenders are going to make sure their borrowers will be able to repay them.
Be prepared for credit checks from all three major reporting bureaus—Transunion, Experian, and Equifax.
Your reports will be examined closely for any potential red flags (missed payments, past bankruptcies, etc.) before a lender will seriously consider you for a mortgage.
Car loan credit check
When you’re applying for a car loan, potential lenders will also look at your credit
, but they will look less closely than for a mortgage. Most lenders will examine your credit report from just one reporting bureau, not all three. In general, auto loan lenders are usually more willing to take risks on borrowers. Getting a loan for a car requires significantly less money than does a mortgage, so car loan approvals are usually easier to secure.
Credit hits and their consequences
Financial missteps can make it difficult to secure either type of loan, but hits to your credit are far more consequential for a mortgage application than for a car loan.
Mortgages and past credit issues
The more dings on your credit report, the harder it will be to secure a mortgage—in fact, it may be impossible. If you’ve filed for bankruptcy in the past, it may limit your ability to secure a mortgage.
When applying for a mortgage, keep in mind that:
Chapter 13 bankruptcy stays on your record for 7 years
Chapter 7 bankruptcy stays on your record for 10 years
A foreclosure stays on your record for 7 years
Any of these past issues may seriously complicate your effort to get a mortgage. If you have one of these credit dings, you may need to wait several years for your credit to improve before applying again for a mortgage.
Auto loans and past credit issues
While credit issues can be red flags, auto loan lenders tend to be more forgiving of past credit issues—as long as they aren’t egregious.
The car industry wants to sell as many cars as possible, so lenders (and dealers) try to make it easier for prospective car owners to get approved for loans.
Even if your credit rating isn’t great, you still may get approved for a car loan. However, if you are approved for a car loan even with suspect credit, you’re likely to face higher interest rates and less favorable loan terms.
MORE: How to get a co-signer for a bad credit car loan
Tolerating risk
In general, auto loan lenders—unlike banks or mortgage lenders—are less averse to risk and will hand out money (in the form of a loan, don’t get too excited) to people with poorer credit or less-than-sterling payment histories.
If you’ve got poor credit, lenders will protect themselves from the risk that you can’t pay back your loan, so you’ll likely have to pay higher interest rates and deal with worse overall loan terms as a result. That said, it is likely that you’ll be able to find some lender willing to work with you.
As for mortgage lenders, they are much more risk-averse than auto loan lenders—a checkered credit history will seriously hamper your mortgage application, and you may be out of luck.
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The waiting game
If you’re applying for either a car loan or a mortgage, you’ll have to wait before getting approved. Those waiting times vary significantly depending on the type of loan you’re seeking.
Car loan approval waiting times
Usually, you’ll need to wait a bit before being approved for a car loan, but sometimes you can walk away with a car loan the same day you apply for one!
It often makes more financial sense to get pre-approval for an auto loan. Because you’ve shown you already qualify, it is a great way to drive out of the dealership in a new car—potentially with a better deal than your pre-approved loan (this isn’t guaranteed, though).
With a pre-approved loan, a car dealer will see you’re serious and may even match the lower loan rate (from the pre-approved loan) or potentially offer you a loan with better terms.
If you have good (or excellent) credit, you should be confident about walking into a dealership and getting approved for a loan with favorable interest rates and loan terms.
Mortgage loan approval waiting times
Unlike car loans, mortgages take longer to approve—sometimes 30 to 45 days, or even longer.
Mortgage loans deal with very large amounts of money (much more than a typical car loan), so lenders are extremely thorough and particular in examining mortgage applications.
In this case, lenders want to know that a borrower is a very good bet to make their monthly mortgage payments on time and that they won’t default on their loan.
Insuring your car with Jerry
If you’re looking for a car loan, odds are you’ll be looking for car insurance
. If you’re looking for a mortgage? Odds are you’ll need a car to get to and from your house—unless you’re one of those people who...you know...walks everywhere. Let Jerry
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