How Does Refinancing a Car Loan Affect Your Credit?
When taking out a new car loan, it is important to be mindful of your interest rate and how your payments will be split between interest and principle.
Your credit plays an incredibly important role in determining the interest rate you qualify for, ultimately deciding how you will pay to finance a vehicle over the life of the loan.
It’s understandable that while purchasing a new car you should be mindful of your interest rate, it’s not usually a deal breaker.
You’ve committed to purchasing a car for one of two reasons – you either want a new car or you need a new car.
If you need a new car, you’re more likely going to go along with the terms you were offered.
Auto Loan terms are somewhat negotiable, but the thoughts of a new shiny car in the driveway often outweigh the desire to get the best possible deal on financing.
At the end of the day, you needed a car and got a car.
After a few weeks or months of driving your car, you take a hard look at your credit and wonder, “Did I really get a great deal?”
If this sounds like you, then refinancing your car may be a great option. As someone mindful of their credit and fully aware of their score, whether it be from TransUnion or Equifax, you’ve been wondering “how does refinancing a car affect your credit?”
Fortunately, refinancing doesn’t have a huge impact on your credit, and can actually help improve it over time.
The Effects of Refinancing a Car Loan on Your Credit
Several variables impact your credit, including open lines of credit, payment history and inquiries on your credit.
When you refinance an auto loan, your existing loan is replaced by a new one, meaning you have the same total number of lines of open credit than you had prior to refinancing.
When applying for a refinanced auto loan, a hard inquiry will be made on your credit. Typically, this action will lower your score by a few points. It is important to note that if you apply for auto loan refinancing, but choose not to refinance, the hard inquiry will remain on your credit report for up to two years.
Your Credit & Refinancing – The Bottom Line
A hard inquiry represents a short-term, insignificant hit on your credit.
By refinancing your car, you will likely be able to pay off your loan much quicker, resulting in a lower debt to income ratio and a healthier credit score down the road.
In short, “how does refinancing a car affect your credit?”
Up front, the effects of refinancing a car have minimal negative effect on your credit, but over time, refinancing has the potential to significantly improve your credit score and worthiness.
Refinance Your Vehicle with CARS Today
Get your vehicle payments on the fast track, pay off your car sooner and improve your credit score. Those are some of the benefits to refinancing a car through Consumer Auto Refinance Services, Inc.
We work with national lenders, providing auto refinancing solutions and low rates starting at 2.49% APR.
Find out if refinancing is right for you and apply online today.