Did You Know: You can get zero percent interest rates on some loans

June 8, 2018

Zero
percent. That’s the amount of interest you could pay for an auto loan on
certain makes and models if you have good credit reports and credit
scores. Even if you can’t qualify for zero percent interest rates for
auto loans, mortgages and credit card interest rates are also at
historic lows. It’s a good time to be on the borrower’s side of the
credit equation.

Finding these highly competitive interest rates
on loans isn’t as simple as calling your neighborhood bank, though.
You’re going to have to search for the best deal available and that
means rate shopping. Thankfully the process isn’t as overwhelming as it
sounds.

Why Rate Shop?

No two lenders
assess applicant risk the exact same way. And, because there are three
major credit reporting companies, each with slightly different credit
report data, it’s unlikely that different lenders are going to get the
same numeric credit score for any given applicant. Furthermore, on the
off chance that lenders did get the same score, it’s unlikely that they
would interpret that credit score the same way.

For example,
Bank A might target borrowers with very high credit scores, and be
willing to accept smaller down payments. Bank B might set its sights on
consumers with somewhat lower (but still prime) credit scores, so it can
charge relatively higher interest rates. Finally, Bank C might be most
comfortable with subprime lending, and focus exclusively on consumers
with lower credit scores. As you might expect, Bank C might offer better
rates to subprime borrowers than lenders who specialize in lending to
consumers with higher credit scores.

The only way you’d know for
certain what kinds of “deals” you’ll get from each lender—particularly
if you have a lower credit score—is to prequalify for a loan with each
of them.

Your goal when rate shopping is to end up with the best
possible deal. That means low or no interest in this environment.
You’ll be making payments for years or even decades on your loans, so
being diligent about finding the best interest rate means real savings
in your pocket each and every month.

But What about Credit Inquiries?

A
credit inquiry, also referred to as a “hard inquiry,” is a notation on a
credit report indicating that it has been accessed by a lender for the
purpose of possibly extending credit. A credit inquiry is made up of
three components: the date of access, the name of the company requesting
the score and a code defining the kind of business that made the
inquiry.

Credit inquiries can have a negative impact on credit
scores, but that’s not an absolute. In fact, the VantageScore model
considers credit inquiries to be less influential than other credit
report factors like payment history and your amount of debt. And an
inquiry can reduce your credit score by between five and 10 points, but
that decrease can be made up in as little as three months. Still, it’s a
good idea to be cognizant about the impact multiple credit inquiries
can have on credit scores.

It’s a fact that interest rate shopping will result in multiple credit inquiries, but don’t let that stop you.

The
VantageScore credit scoring model includes logic that allows consumers
to shop around for the best deal they can find while not allowing all of
the credit inquiries to lower your score. The model incorporates a
14-day rolling window where it will treat multiple inquires from
mortgage or auto lenders as a single search for credit. It excludes
utility inquiries entirely.

For example, if you have three
mortgage-related inquiries within the same 14-day window, a VantageScore
credit score will treat them as a single inquiry rather than three
inquiries. The theory is that you’re not looking for three loans but are
instead looking for one loan but with the best terms. Treating the
multiple inquiries as a single inquiry better reflects how many loans
you’re actually going to take out.