Will Refinancing Your Auto Loan Hurt Your Credit Score?
The short answer is Yes & No. When you refinance your vehicle, the dealer will pull your credit score and this is considered a “hard inquiry” or “hard pull.” A hard inquiry could lower your credit score by a few points or have an insignificant effect. Any damage that was done to your credit score as a result of a hard inquiry usually decreases or disappears entirely before the inquiry drops off your credit report for good.
The good news is that the damage won’t last for very long and it typically won’t make or break your credit score. On the other hand, if you’re already trying to correct a low credit score, it could be more beneficial to limit your hard pulls.
Keep in mind that multiple hard inquiries in a short period of time could make lenders believe that you are a high-risk borrower who is ready to take on a significant amount of debt. Thus, it may be best to spread out your credit applications.
Why Would You Want To Refinance Your Car Loan?
The top reason most people decide to refinance a car loan is to save money, but there are also many other benefits! Due to fluctuating interest rates, it might be possible to qualify for a lower rate! Also, if your credit score has improved since you were approved for financing, you could qualify for a lower loan rate. If you would like more information regarding why you should refinance your car loan, you can read our in-depth article on the topic.
What If I Have Bad Credit?
If you are struggling with bad credit, it might be best to try and repair your credit before you apply to refine your car loan. To get you started, we have a great article on how you can repair your credit score from scratch. Ideally, it’s best to refinance when your credit is in good standing.
Is Refinancing Worth It?
In most cases, you can benefit by refinancing your auto loan. If this is something you are considering, you can look into refinancing with us! If you’re afraid of damaging your credit, rest assured that you have nothing to worry about. Your credit score might drop a few points, but as long as you remain in good standing and you make your payments on time, you should recover quickly. If you’re struggling with a low credit score, it would be in your best interest to focus on increasing your score and then refinance. The wait will be worth it!