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Some people are born shoppers who enjoy the thrill of the hunt. Others loathe shopping, so searching for a deal feels like a colossal waste of time. Regardless of which camp you fall into, rate shopping is an essential part of taking out a loan -- it can ultimately save you tens of thousands of dollars.
Rate shopping is the practice of checking several lenders when you need to borrow money. Whether you're planning to take out a loan or apply for a mortgage, rate shopping helps you work out which lender best meets your needs.
Let's say you're buying a home. Your real estate agent recommends you call their recommended lender. You do, but you're curious about whether there are better deals and terms available, and set out to compare the rates and terms of several lenders. That's rate shopping, and it applies to all types of loans.
Concerned that rate shopping will hurt your credit score? That is a valid concern, because your score will take a small hit if a lender carries out a hard credit check. But there are two things to bear in mind. The first is that some lenders only need a soft credit check to give you a ballpark rate. You'll see this, for example, with some personal loans. They'll do a hard pull later, before actually approving your loan.
The second is that FICO and VantageScore -- the two most common credit-scoring systems -- realize that shoppers look for the best rate before taking out a loan. That's why both give you a window of time, from 14 to 45 days, to rate shop for a mortgage or auto loan. During this window, all hard credit checks for the same type of loan in any one of those categories count as just one inquiry.
Different scoring models allow for different time limits. Since you don't know which model your potential lender will use, aim to get your shopping done within 14 days to be on the safe side.
The degree to which a hard check dings your credit score depends on your credit history. According to FICO, a hard inquiry reduces the average consumer's credit score by less than five points.
Make sure you're getting the best account for you by comparing savings rates and promotions. Here are some of our favorite high-yield savings accounts to consider.
Account | APY | Promotion | Next Steps |
---|---|---|---|
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Open Account for SoFi Checking and Savings
On SoFi's Secure Website.
Rating image, 4.50 out of 5 stars.
4.50/5
Our ratings are based on a 5 star scale.
5 stars equals Best.
4 stars equals Excellent.
3 stars equals Good.
2 stars equals Fair.
1 star equals Poor.
We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
|
up to 4.60%²
Rate info
You can earn the maximum APY by having Direct Deposit (no minimum amount required) or by making $5,000 or more in Qualifying Deposits every 30 days. See SoFi Checking and Savings rate sheet at: https://www.sofi.com/legal/banking-rate-sheet.
Min. to earn: $0
|
New customers can earn up to a $300 bonus with qualifying direct deposits!¹
|
Open Account for SoFi Checking and Savings
On SoFi's Secure Website. |
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Open Account for Capital One 360 Performance Savings
On Capital One's Secure Website.
Rating image, 4.00 out of 5 stars.
4.00/5
Our ratings are based on a 5 star scale.
5 stars equals Best.
4 stars equals Excellent.
3 stars equals Good.
2 stars equals Fair.
1 star equals Poor.
We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
|
4.25%
Rate info
See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of April 11, 2024. Rates are subject to change at any time before or after account opening.
Min. to earn: $0
|
N/A
|
Open Account for Capital One 360 Performance Savings
On Capital One's Secure Website. |
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Open Account for UFB Portfolio Savings Account
On UFB's Secure Website.
Rating image, 4.00 out of 5 stars.
4.00/5
Our ratings are based on a 5 star scale.
5 stars equals Best.
4 stars equals Excellent.
3 stars equals Good.
2 stars equals Fair.
1 star equals Poor.
We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
|
5.15%
Rate info
To ensure you keep getting the highest rate at UFB, you'll need to keep an eye on their rates. Occasionally, the bank launches new accounts with higher rates. Existing accounts need to contact the bank to request being moved to one of these new accounts.
Min. to earn: $0
|
N/A
|
Open Account for UFB Portfolio Savings Account
On UFB's Secure Website. |
Whatever type of loan you apply for, it makes sense to lay the groundwork first.
Order a copy of your credit report and check it for accuracy. If you see any mistakes, such as an account that does not belong to you, you can file a dispute. The condition of your credit report is essential, because the higher your credit score, the lower the interest rate you are offered. If your credit is low, there may be steps you can take to increase your score.
Gather your documents. Lenders ask to see proof of income and assets. They also want to know who you owe money to and how much you owe. Have recent pay stubs, bank statements, and tax returns for the past three years available.
If you find the assortment of percentage rates, fees, and numbers dizzying, you're not alone. From the outside, rate shopping can seem confusing. It's not really, though -- follow these three steps, and you will be on the road to the best loan possible.
Request quotes from at least five lenders, including your personal bank or credit union. You can always check more than five lenders, as long as you do it within the recommended 14-day window.
Once you've decided on the best loan for you, do not make any significant life changes until you've finalized the deal. Don't change jobs, take out new debt, or go on a shopping spree. Lenders typically do one final check of your credit shortly before closing, and if your credit score or income level have fallen, they might withdraw the offer or require a higher APR.
Taking the time to find the best APR can save real money, funds that may allow you to build up an emergency fund, invest for retirement, or even start your own business.
Let's return to the home-buying example, and imagine the following:
Scenario A: You take your real estate agent's advice, and use the lender he or she suggested. You take out a $250,000 mortgage for 30 years. The lender offers an APR of 5.99%, including origination fees, broker fees, and other miscellaneous charges. Your monthly principal and interest payments are $1,497, and you will pay a total of $288,920 in interest over the life of the loan.
Scenario B: You rate shop and find a lender offering an APR of 5.25%. While the APR does not seem dramatically different, running the numbers tells you that your monthly payment will be $1,381, and you will pay $247,160 in interest over the life of the loan with the same 20% down payment and 30-year term. Rate shopping just saved you $116 per month, and a total of $41,760 in interest.
Rate shopping is the best way to separate legitimate interest rates from promotional garbage that isn't what it first appears. Whether you're looking for a mortgage, personal loan, auto loan, or new credit card, rate shopping ensures that you have done everything you can to get the best deal. Even if you genuinely dislike shopping, looking out for yourself is just smart.
RELATED: Need to start saving? Check out The Ascent's guide to the best savings accounts.
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent, a Motley Fool service, does not cover all offers on the market. The Ascent has a dedicated team of editors and analysts focused on personal finance, and they follow the same set of publishing standards and editorial integrity while maintaining professional separation from the analysts and editors on other Motley Fool brands.