Shopping multiple lenders can save real money, but the way you do it matters. These common mistakes can cost you a better deal or a few points on your score.
Quick summary
- Keep applications for the same type of loan within a 14 to 45 day window so multiple inquiries are generally counted as one.
- Compare APRs to APRs, not APRs to interest rates, because the two measure different costs.
- Check the Loan Estimate for fees, points and prepayment penalties before choosing a lender.
- Multiple mortgage lender checks made within 45 days count as one inquiry, so shopping around need not hurt your score.
- Checking your own credit has no effect on your scores, so review your reports for errors before you apply.
Comparing loan offers is one of the few parts of borrowing you fully control. Lenders set their own rates and fees, so the same borrower can receive noticeably different terms from different lenders. The catch is that rate shopping has its own pitfalls, from spreading applications across too many weeks to comparing numbers that are not actually comparable. Here are the mistakes that come up most often, and what to do instead.
Shopping Too Slowly: Why the Inquiry Window Matters
Credit scoring models expect people to shop around. They generally lump multiple checks for the same type of loan into one inquiry, as long as the applications land close together, usually within 14 to 45 days.
The mistake is stretching the process out. If your shopping stretches past 45 days, or you are applying for two loan types at once, such as a mortgage and a car loan, those checks usually count as separate inquiries, and each one can weigh slightly on your score.
What to do instead: set a window, gather your lender options before you apply, and submit your applications close together. If you need more time, restart the collection of offers deliberately rather than letting applications drift apart by accident.
Comparing Interest Rates Without the APR
The interest rate on a loan is what the lender charges you for the borrowed money, expressed as a percentage. The annual percentage rate, or APR, is a wider measure: it covers the interest rate plus fees charged with the loan, such as origination charges. Because fees get folded in, the APR on the same loan is usually higher than its interest rate.
Two loans can look identical at the rate level while carrying very different fee loads. Lenders must disclose the APR before you finalize a car loan under the federal Truth in Lending Act, so there is no reason to measure an APR from one lender against a bare rate from another.
What to do instead: compare APRs to APRs and rates to rates. If one loan has a lower rate but a higher APR, the difference is fees, and the APR comparison tells you which loan costs more overall.
Red flag: For adjustable-rate loans, the APR does not show the maximum rate the loan can reach. Take care comparing the APR of a fixed-rate loan with the APR of an adjustable-rate loan; look at both the APR and the rate terms before deciding.
Ignoring Fees, Points and Prepayment Penalties
For mortgages, the Loan Estimate is the document built for this comparison. The interest rate appears on page 1 under Loan Terms and the APR on page 3 under Comparisons, alongside the closing costs, or settlement charges, you will pay upfront to get the loan. Request Loan Estimates from several lenders so the full price of each offer sits side by side.
A prepayment penalty deserves special attention. It lets the lender charge a fee if you pay off the mortgage early, so the lowest monthly payment can become expensive if you sell or refinance sooner than planned.
What to do instead: review each Loan Estimate line by line, confirm the rate type matches what you discussed, and ask the lender directly whether the loan carries a prepayment penalty. If anything on the form looks different from what you expected, ask why.
Taking the First Offer Instead of the Full Picture
Dealers and lenders decide for themselves what rates to offer, and they can decline to give you their best one. The first offer you receive is simply one data point, and accepting it means never learning whether another lender would have charged less.
Loan structure matters too. Shorter terms generally cost less overall because you pay interest for less time, but they come with higher monthly payments. Mortgage loans also come in categories designed for different situations, and when more than one fits yours, you can request quotes under each option and compare which type costs less for your situation.
What to do instead: collect several complete offers and compare them as whole packages, including term, rate type and total cost, not just the headline number.
Letting Lenders Pull Your Credit Before You Are Ready
Every lender check becomes an inquiry on your credit report, and other lenders can see those inquiries when they check your credit. Applying for a credit card, car loan or other credit right before or during the mortgage process adds inquiries that can lower your scores.
What to do instead: check your own credit first. Pulling your own report or scores has no effect on your credit scores, and you can get free copies of your reports from each of the three major bureaus. Dispute any errors before a lender looks. For a mortgage, it also helps to plan the months ahead of your application; our timeline for preparing your credit for a mortgage lays out the steps in order.
Assuming Every Inquiry Hits Your Score the Same Way
Not all credit checks are treated alike. Hard inquiries from lenders typically have a small negative effect, while checking your own credit and prescreened offers in your mailbox do not hurt your score. Scoring models also build in room for comparison shopping: under the most common models, inquiries tied to a student loan, car loan or mortgage made within the 30 days before scoring have no effect at all.
The practical result is that shopping for a single loan type inside the window costs you very little. With auto financing, lining up financing with a few different lenders before you walk into a dealership gives you a benchmark to hold the dealer’s offer against, which is often where the cheaper terms turn up. If you are unsure which credit checks touch your score and which leave it alone, our guide to hard versus soft credit inquiries covers the distinction.
Related guides
- Hard vs. Soft Credit Inquiries: which credit checks count against your score and which leave it untouched.
- A Timeline for Preparing Your Credit for a Mortgage: how to get your credit in order before lender checks begin.
- Mistakes to Avoid When Applying for an Auto Loan: the specific errors to sidestep when financing a car.
Reader questions
Q: Does shopping around for a mortgage hurt my credit score?
A: No. Multiple checks from mortgage lenders made within a 45 day window show up on your credit report as a single inquiry. Beyond that window, or while also applying for a different type of loan, they generally count as separate inquiries.
Q: What is the difference between an interest rate and an APR?
A: The interest rate is what the lender charges annually for the borrowed money, expressed as a percentage. The APR adds fees such as points and lender charges on top of the rate, which is why it is usually higher.
Q: How long should I take to collect loan offers?
A: Aim to submit applications for the same loan type within 14 to 45 days of one another. Scoring models generally treat checks inside that stretch as a single inquiry.
Q: Can I check my own credit before applying for a loan?
A: Yes. Checking your own report or scores does not affect your scores, and reviewing your reports first gives you a chance to dispute errors before a lender sees them.
This article is general information, not financial or legal advice. Scoring models, lender policies and laws change, and state rules vary. Check official sources such as the Consumer Financial Protection Bureau and the Federal Trade Commission, and consider a nonprofit credit counselor for help with your own situation.