It's tough to outrun your credit score. Any time you attempt to finance a home, rent an apartment, purchase a car, apply for a student loan or fill out an application for auto insurance, someone is likely to run a credit check. A number of variables impact your credit, which may cause you to wonder if attempting to refinance an auto loan is a good idea.
Reasons You Might Refinance
You might want to refinance your automobile for a number of reasons. It's possible that your original interest rate was high due to your debt ratio or credit score. If your credit score has improved since that time, you may consider refinancing at the lower rate. It may be that interest rates have simply dropped since the time you purchased your car or that your bank is running a special rate for its customers that you'd like to take advantage of.
What Happens
As the refinancing process gets underway, your original lender is being paid off as your new lender takes possession of your auto lien. As far as your credit is concerned, there is an addition and subtraction going on at the same time. This is referred to as a "trade line."
Impact on Your Credit Score
Any time anyone other than you checks your credit, your score take a little ding, generally less than five points. You can cause that slightly lower score to rebound quickly by making your new loan payments on time each month.
Overall Outcome
The slight dip in credit score you experience will be offset by the fact that, as you make payments, your credit report will show that you are efficiently handling another account. If refinancing your automobile lowers your interest rate, helping you pay the loan off earlier, or provides you with a more manageable payment, it is likely worth going through the process.
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