Rate Shopping

Full definition

Rate shopping is the process of obtaining loan quotes from multiple lenders to compare APRs, terms, fees, and total costs before selecting the best offer. It is one of the most effective ways to save money on a personal loan. The credit score impact: A common myth is that checking your rate with multiple lenders destroys your credit score. In reality, the impact is managed in two ways. First, most lenders offer soft-pull pre-qualification that has zero impact on your score. Second, for formal applications (which do trigger hard inquiries), FICO and VantageScore treat multiple inquiries for the same loan type within a 14-45 day window as a single inquiry, minimizing the score impact. How to rate shop effectively: (1) Start with soft-pull pre-qualification at 3-5 lenders (use each lender's 'check your rate' feature). (2) Note the full APR including origination fee, not just the interest rate. (3) Compare monthly payments and total repayment amounts at the same term. (4) Once you have identified your top 1-2 options, submit formal applications within the same 14-day window to keep the hard-inquiry impact to a single event. What to compare: APR (most important), origination fee (some lenders charge 1%-10% of the loan amount), prepayment penalty (check if it exists), funding speed (same day vs 3-5 business days), and minimum/maximum loan amounts. Where to rate shop: Online lenders (SoFi, LightStream, Upgrade, Best Egg), your existing bank or credit union, and marketplace lenders. The best offer may not be from your primary bank.

• APR (Annual Percentage Rate)
• Hard credit inquiry
• Origination fee