When you refinance a car you are essentially taking out a new loan to pay off your old loan. This new loan will have its own terms and conditions which may be different from your old loan. For example the new loan may have a higher interest rate or a longer repayment period.
While refinancing can save you money in the long run it can also hurt your credit score in the short term. This is because taking out a new loan results in a hard inquiry on your credit report which can temporarily lower your score. Additionally if you extend the repayment period on your loan you may end up paying more interest over the life of the loan.
If you’re considering refinancing your car loan be sure to compare rates and terms from multiple lenders to ensure you’re getting the best deal possible. Additionally be sure to consider the impact on your credit score before making a decision.
Can refinancing a car hurt your credit?
Yes it can.
When you refinance a car the lender will run a hard inquiry on your credit report which can temporarily lower your score by a few points.
How much can refinancing a car hurt your credit?
The impact of a single hard inquiry is typically minimal – usually less than five points – and it disappears from your credit report after two years.
Will multiple hard inquiries from car refinancing hurt my credit score more?
Yes multiple hard inquiries will have a greater impact on your score and each inquiry will remain on your report for two years.
How can I avoid hurting my credit score when I refinance my car?
You can avoid hurting your credit score by shopping for car loans within a 14-day period which will count as a single hard inquiry on your report.
How does credit scoring work?
Credit scoring is a process whereby a numerical score is assigned to an individual’s credit history information which is then used to predict the likelihood of the individual defaulting on future loan payments.
Who uses credit scores?
Lenders use credit scores to determine whether to approve a loan and what interest rate to offer.
Insurance companies also use credit scores to set premiums.
What factors are used in calculating a credit score?
The most important factors in calculating a credit score are payment history credit utilization credit history length and mix of credit types.
What is a “good” credit score?
A good credit score is typically considered to be a score of 700 or above.
What is a “bad” credit score?
A bad credit score is typically considered to be a score below 650.
How can I improve my credit score?
You can improve your credit score by paying your bills on time keeping your credit utilization low maintaining a good mix of credit types and having a long credit history.
Can I get a car loan with bad credit?
Yes you can get a car loan with bad credit but you will likely have a higher interest rate and may be required to make a larger down payment.
How can I get a car loan with bad credit and no money down?
There are a few options available to people with bad credit who need a car loan but have no money for a down payment.
You can get a cosigner trade in a car or get a loan from a credit union or subprime lender.
What is a cosigner?
A cosigner is someone who agrees to sign a loan with you and is legally responsible for repaying the debt if you default.
What is a trade-in?
A trade-in is when you use your old car as partial payment for your new car.
What is a subprime lender?
A subprime lender is a lender that specializes in lending to people with bad credit.