When you have excellent credit, it’s easy to take your high credit score for granted. If you ever need to take out a car loan or refinance your auto loan, however, you may start to worry about the impact on your credit score. Fortunately, many ways refinancing your auto loan can improve your credit score and benefit you in the long run. Keep reading to learn how.
How Long Do Credit Inquiries Last?
In general, a credit inquiry remains on your report for two years. However, in some instances, an inquiry may last up to six months. It all depends on whether it is a soft or hard inquiry and which agency pulled your credit.
How Does Having a New Loan Affect Your Monthly Payments?
In most cases, you can expect your monthly payments to increase. However, since most auto loan refinancing programs will offer a longer term at a lower interest rate, your monthly payment may be lower than it would have been with your previous lender.
What is the Difference Between New and Used Debt?
New debt is when you take out a loan or open up a credit card and make payments on that debt. Used debt is already outstanding on your credit report. So if you’re looking to buy a car with financing, it’s essential to know how refinancing can impact both new and used debt.
While it’s common knowledge that used car loans are less expensive than those for new vehicles, you might be surprised to learn that refinancing your existing auto loan can negatively impact your credit score. According to Lantern by SoFi, the average auto loan rate in Q1 of 2018 for new cars was 5.07%. Used cars averaged 3.74%.
Are All Loans Reported On My Credit Report?
Generally, yes. When you apply for a loan or open a new credit card, information about your application is reported to at least one of the three major credit bureaus: Experian, Equifax, and TransUnion. If you don’t pay back what you borrow on time, that’s also reported to those agencies.
Is It Worth Refinancing Just to Save On Interest?
When looking to refinance your auto loan, you want to ensure that it will be worth it. In some cases, refinancing can save you money, and in others, it could hurt your credit score. Therefore, it’s essential to consider all of these factors before deciding.
When Should I Start Building My Credit Score?
Building your credit score takes time, so working on it early is wise. If you have no credit history, start by applying for a secured credit card and paying off your balance every month.
- What Should I Do if My Auto Loan Lender Won’t Accept Less Than the Full Balance Payoff After Refinancing?
In many cases, your auto lender will not accept less than the full payoff amount after refinancing. However, there are a few cases where some lenders will accept as little as $500 as a down payment if you have excellent credit. These include:
- If you’re moving from an installment loan to a lease
- If you’re moving from an installment loan to a cash purchase
- If you’re moving from one car dealer to another
- If you’re switching from financing through a bank to financing through a credit union
- If you’re switching from financing through your employer’s fleet department to financing through a private lender.
While it can be a nuisance and inconvenient, you can take steps to ensure your lender accepts less than the total balance payoff after refinancing. The best approach is to ask for a lower payoff amount in writing.
To refinance or not to refinance is a question you should ask yourself before applying for a new loan. If you are thinking about refinancing your auto loan, make sure you weigh all of your options and consider what it will mean for your credit score in both the short-term and long-term.