Refinancing a loan can help you lower your monthly payments, pay off your debt faster, or even get cash back. But will it affect your credit score if you want to refinance your car loan or home mortgage? The short answer is yes — but the impact will depend on several factors. If you’re considering refinancing and wondering whether it’ll hurt your credit, read on for details about how refinancing affects your score and when it’s a smart move. Also, considering auto refinance rates would be a good idea if going for a car refinancing.
Does Refinancing a Loan Impact Your Credit Score?
Refinancing a loan can help you save money, get a lower interest rate and consolidate debt. You can also refinance to get a better loan product or reduce your monthly payment.
When you refinance:
- The new lender will request your credit report from the three major credit bureaus
- The new lender will report the new loan status on your credit report
This means that if you have excellent credit before refinancing, then it should stay that way afterward!
Lantern by SoFi experts states, “Applicants can qualify for a lower interest rate through opting for refinancing.”
How to Decide if Refinancing Is Worth It
If you’re considering refinancing, ask yourself these questions:
- How much could you save? The goal of any loan refinance is to lower your monthly payment and interest rate. You will need to check with a lender to see how much they can save you each month by refinancing. This will determine if it’s worth it or not.
- Can you afford the new monthly payments? You will likely have higher monthly payments by lowering your interest rate and increasing your term. Make sure that these payments are affordable based on what else is happening in your financial life (new home purchase, job loss/increased expenses).
Does Refinancing a Car Loan Affect Your Credit Score?
If you have a car loan and you want to refinance it, you should check with your credit union or bank. They can help you refinance in a way that won’t affect your credit score. If they can’t, then the impact on your credit score is likely to depend on how much money you’re borrowing and what kind of interest rate they give you (the lower, the less impact).
When to Consider Refinancing
When you’re ready to refinance, consider these factors:
- The interest rate on your loan is lower than the current interest rate.
- You can get a lower monthly payment with refinancing.
- You want to consolidate debt or take out a car loan and have enough money left in savings to pay off any new loans.
As you can see, refinancing is a complicated decision only for some. But if you decide that now is the time to refinance your loan, then it’s essential to research and get informed about what refinancing means for your credit score. If it turns out that refinancing doesn’t make sense for you, don’t worry—there are plenty of other ways to improve your finances without affecting your credit score!