Does a car loan preapproval cause a hard inquiry?

I was debating with a friend about car loan preapproval and he insisted that it doesn't cause a hard inquiry on your credit score. I think that it does. Which is it?

Answer
When you get a preapproval for a car loan, you will get a hard inquiry on your credit, but that doesn’t mean it’s necessarily a bad thing.
When you get a hard inquiry on your credit report, it typically will drop your score about five to 10 points. The reason that a hard inquiry drops your score is that it’s an assessment of uncertainty and risk in the future. However, it’s a necessary step to securing approval for a car loan, so don’t think too much about it.
Preapproval is also important so you know:
  • What your budget should be
  • Approximately how much your monthly payments might be
  • Your interest rate
You can also use your preapproval as a bargaining tool when you’re purchasing a car from a dealership. By knowing how much you can spend, you can get them to match the amount you’ve been authorized to spend.
Keep in mind that lenders require full coverage car insurance when you finance a vehicle, so you need to factor this into your budget. Use the number-one-rated car insurance app, Jerry, to help you find the lowest rates. Jerry compares personalized quotes from more than 50 top providers and delivers the best deals to your phone in minutes for free. The average Jerry driver saves $879 a year on car insurance!
Eric Schad
Answered on Nov 24, 2021
Eric Schad has been a freelance writer for nearly a decade, as well as an SEO specialist and editor for the past five years. Before getting behind the keyboard, he worked in the finance and music industries (the perfect combo). With a wide array of professional and personal experiences, he’s developed a knack for tone and branding across many different verticals. Away from the computer, Schad is a blues guitar shredder, crazed sports fan, and always down for a spontaneous trip anywhere around the globe.
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