Live Life Team
Car loan refinance is something that many individuals are turning to these days. When you consider the benefits it offers, it is easy to see why they do so. Not only can it ease any financial pressures you may face by bringing down your monthly auto loan repayment, it can also mean you have some spare money to save. Of course, this way of refinancing your current auto loan can also help you pay less back overall by lowering the interest rate you pay on the new loan.
One thing that makes some people think twice about taking this route is worries over how it could affect their credit score. We all know how important that is for a variety of things including applying for a mortgage. But does car loan refinance actually impact your credit score?
No major adverse effects
The simple answer to this question is that car loan refinance will not harm your credit score in the long term – as long as you stay up to date with your payments on the new loan. However, it is also fair to point out that it may have a short-term effect in some cases.
That will usually be if you apply to refinance your auto loan and the new lender runs a background credit check on you. This is known as a ‘hard inquiry’ in the industry and can see your credit score dip a little for a month or two. However, it should not go down a lot and will recover in a relatively short period of time. The only thing to watch out for is making a lot of applications for refinancing to lots of different companies at once – the cumulative effect of this could be more serious for your credit score.
Could car loan refinancing actually help your credit score?
The great news is that, for most people, applying for refinancing will not affect their credit score unduly and could even help it improve. Most refinance deals will see you get a lower interest rate and maybe even shorten your loan term. That could mean you would pay off the loan more quickly which will help your credit score. Of course, lower interest rates mean lower monthly costs and no missed repayments as a result. This is also great for your credit score over time. As these examples show, auto loan refinancing could actually be good news for your credit rating rather than something to worry about.
Credit score is not an issue
While there may be some short-term impact on your credit score from a car loan refinance application, it will soon fade away. You will then be left with the many benefits it could bring as noted above. Rearranging your finances in this way is a great way to not only save money each month but also give your credit score a real shot in the arm. If you have thought about refinancing your car loan but have felt nervous about it before, hopefully, the above information will make things a little clearer.
