Does refinancing a car hurt your credit? (2024)

Does refinancing a car hurt your credit?

The short answer is yes—refinancing can negatively affect your credit score. When you refinance an auto loan, you must submit a new loan application, which results in a hard credit check. The good news is that a single inquiry doesn't stay on your credit report for very long.

How much does refinancing a car affect credit score?

Refinancing may lower your credit score a few points, but the impact to your credit score will only be temporary. Applying for a loan generates a hard inquiry. Refinancing may be worth it if rates have dropped since you took out your loan.

Is it a good idea to refinance your car?

Refinancing and extending your loan term can lower your payments and keep more money in your pocket each month — but you may pay more in interest in the long run. On the other hand, refinancing to a lower interest rate at the same or shorter term as you have now will help you pay less overall.

How long should you wait to refinance a car?

While you might find more favorable rates advertised soon after you buy your new or used car, the downswing in your credit score means you probably won't get as favorable a rate as you would if you waited for your score to recover. The general advice is to wait at least six months before refinancing your auto loan.

Does refinancing a car start your loan over?

What happens when you refinance a car? When your new, refinanced loan is approved, your new lender will pay off your old loan, and you'll start making loan payments to your new lender. If the lender is the same, they'll retire your old loan and issue a new loan that you'll start making payments on instead.

What are the disadvantages of refinancing a car?

Depending on the reason you are refinancing in the first place, you could actually pay higher interest costs than what you have on your current loan. For example, if you need more time to pay back the loan and refinance for a longer term, you'll end up paying more in interest – even if the rate is lower.

What disqualifies you from refinancing a car?

A lender may not approve you for a refinance unless you meet a certain loan-to-value ratio (LTV). The LTV is the loan amount divided by the appraised value of your car. Check if you'll meet this requirement by finding the value of your car using online resources.

What is a good interest rate for a car for 72 months?

What is a good interest rate for a 72-month car loan? An interest rate under 5% is a great rate for a 72-month auto loan.

What is a good interest rate for a car?

Average car loan interest rates by credit score
Credit scoreAverage APR, new carAverage APR, used car
Superprime: 781-850.5.64%.7.66%.
Prime: 661-780.7.01%.9.73%.
Nonprime: 601-660.9.60%.14.12%.
Subprime: 501-600.12.28%.18.89%.
2 more rows
Mar 20, 2024

Can you pay off a 72 month car loan early?

Can you pay off a 72-month car loan early? Yes, you can pay off a 72- or 84-month auto loan early. Since these are long repayment terms, you could save considerable money by covering the interest related to a shorter period of time.

How many payments should you make before refinancing your car?

Lenders often require at least six on-time payments before they consider you eligible for refinancing. This is to lower the risk of default. If you can keep up with your current payments, you prove that you can handle your debt.

Can I refinance my car with the same lender?

Refinancing your car with the same lender will likely speed up the application process, since they'll already have your information on file. However, some lenders don't refinance their own loans, and those that do might not offer the best deals.

Why do I owe more on my car after refinancing?

If you refinance to a longer loan term to reduce your payment, you may actually pay more overall because of the additional months of interest you pay. Even a reduced rate may not offset the cost of continuing to pay interest for an extra year or two.

Should I refinance my car or just pay it off?

If you got your loan when average rates were high and they've since come down, it's wise to look into refinancing. Unfortunately, auto loan rates steadily increased throughout 2023. Our experts forecast rates will cool off slightly for good-credit borrowers but generally remain elevated through 2024.

What happens after you refinance your car?

When you refinance a loan, the original lender is paid off by the new lender. You'll have to keep making repayments on the new loan, but your terms might be much better than before, which can save you money in long-term interest or lower your monthly payment amount, or both.

What are the negative effects of refinancing?

The pitfalls of refinancing your mortgage
  • Closing costs. To begin with, refinancing loans have closing costs just like a regular mortgage. ...
  • You may end up in more debt. You also need to have a clear idea of how you'll use the money you free up when you refinance. ...
  • A slight dip in your credit score.

What is the risk of refinancing?

Refinancing risk, also known as rollover risk, is the risk of being unable to refinance existing debt with new debt, which can result in higher interest rates or the need to repay the debt in full, putting financial strain on individuals, organizations, banks, and financial institutions.

What bank is best to refinance a car with?

Top 5 Companies With the Best Auto Refinance Rates
LenderStarting Auto Refinance APRIndustry Standing Rating
1. Auto Approve5.24%8.9
2. myAutoloan5.49%9.4
3. PenFed Credit Union5.94%9.7
4. Consumers Credit Union6.54%10
1 more row
Mar 12, 2024

What credit score will get you denied for a car?

Many lenders want to see fair credit — a score of 620 or higher. If your credit score is lower than the lender's requirement, you will immediately be denied.

How do I pay off a 6 year car loan in 3 years?

Once you've decided you are going to pay down or pay off your loan early, there are five ways to reach your goal:
  1. Make a full lump sum payment. ...
  2. Make a partial lump sum payment. ...
  3. Make extra payments each month. ...
  4. Make larger payments each month. ...
  5. Request extra or larger payments to go toward your principal.

Who has the lowest auto loan rates right now?

Compare Car Loan Rates
Top Auto Loan LenderLowest APRTerm Length
PenFed Credit Union5.24%36 to 84 months
Auto Approve5.24%**12 to 84 months
Consumers Credit Union6.54%Up to 84 months
Auto Credit ExpressVariesVaries
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Is 7% interest on a car bad?

Typically, interest rates for car loans range from around 7% to 13% for those with good credit, and can be higher for those with poor credit. A 17% interest rate would result in a significant increase in the overall cost of the car, as well as higher monthly payments.

What interest rate can I get with a 750 credit score for a car?

Average Auto Loan Rates in March 2024
Credit ScoreNew Car LoanRefinance Car Loan
750 or higher12.77%7.89%
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What is a bad car interest rate?

Several factors could cause you to get a higher interest rate on your car loan. Generally, what's considered a bad interest rate is anything higher than 10%. Ideally, you want to get an interest rate that's below 5% — but with little or bad credit, that can be harder to achieve.

What is the average car payment?

Visit your My NerdWallet Settings page to see all the writers you're following. The average monthly car loan payment in the U.S. is $738 for new vehicles and $532 for used ones originated in the fourth quarter of 2023, according to credit reporting agency Experian.

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