You can save thousands of dollars during the life of your car loan by filling out a 10-minute application to refinance your car loan. Refinancing a car loan takes your old loan and gives you a new one with better rates and terms. This strategy could hurt you slightly in the short-term, but the long-term benefits of refinancing usually outweigh the negatives.
Identification
Because refinancing your car loan shows up on your credit report as a new loan and requires a credit check, it could "ding" your score a few points, according to BankRate. As long as you have a good credit score -- above 720 -- this has almost no effect on your ability to get credit or the best interest rates.
Considerations
A credit check for auto-loan refinancing could hurt your score a lot more if you apply for several other types of refinancing at the same time. The shorter your account history and the more accounts you have, the more credit checks will affect your score. Also, if your refinancing stretches out the life of the loan, this extends the life of your debt obligation, making you look riskier to lenders.
Time Frame
The FICO (Fair Issac Corporation) credit scoring methods takes into account the average length of the accounts on your credit report. Refinancing an auto loan pays off your old loan, opens a new account and shortens your credit history. On the other hand, reducing monthly payments lowers your debt-to-income ratio -- a preference of lenders.
Tip
If you plan to refinance your car, put in all applications at the same time. The FICO score counts all inquiries as a single inquiry if you "rate shop." If, for example, you apply for a car loan with five different lenders, your score would only reflect one inquiry instead of five. All applications must occur within 14 days of the first application. You can avoid refinancing in some situations by asking the lender to reduce the interest rate on your loan.
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