In NL, what should I know about soft vs hard inquiries for car loans?

In Newfoundland and Labrador, just like across Canada, understanding the distinction between soft and hard inquiries is crucial when seeking car loans. A soft inquiry, often initiated for pre-approvals, eligibility checks, or when you check your own credit score, does not impact your credit score. Lenders may use these for an initial assessment without affecting your credit standing.

Conversely, a hard inquiry occurs when you formally apply for credit, such as a car loan, and the lender pulls your full credit report to make a definitive lending decision. Each hard inquiry can cause a slight, temporary dip in your credit score, as it signals a new credit application.

However, a critical nuance for car loans in Canada, fully applicable in NL, is the "rate shopping window." Credit scoring models used by Equifax and TransUnion are designed to recognize that consumers shop for the best rates. Therefore, multiple hard inquiries for the same type of loan (e.g., an auto loan) within a specific timeframe-typically 14 to 45 days, depending on the scoring model-are often grouped and treated as a single inquiry for scoring purposes. This allows you to confidently shop around for the most competitive car loan rates within this window without incurring multiple credit score penalties.

Why this matters, especially looking towards 2025, is that maintaining a strong credit score is paramount for securing favourable interest rates in a potentially fluctuating market. By understanding this mechanism, you can strategically shop for the best financing terms in NL, protecting your credit score while maximizing your chances of obtaining the most advantageous loan for your vehicle.