Addressing Your Credit
Your credit score can be a significant stressor in your life. If you’re considering refinancing your auto loan, then you may be concerned about the process affecting your credit score. We’ll cover some of the most critical factors impacting your credit score when you apply for auto refinancing and give a few tips on navigating the process safely and effectively.
Does Car Refinancing Affect Your Credit?
The first thing we need to cover is the additional inquiry. When you apply for auto refinancing, a company will often perform a hard inquiry into your credit, which can cause a temporary drop in your score. This inquiry-related drop makes it difficult to compare the services of multiple companies.
The good news is that not every company needs to perform a hard inquiry into your credit. Some companies, like Gravity Lending, can conduct a soft inquiry instead. This soft inquiry won’t affect your credit, allowing you to compare rates from other companies. When refinancing your car, prioritize services that won’t affect your credit for exploring your options.
When Your Credit Will Dip
If you choose to apply with a company that makes a hard inquiry of your credit, then you can expect a slight drop in your score soon after. After this initial drop, you’ll see another after going through with refinancing.
Auto refinancing comes with a temporary credit drop. This drop is expected any time you refinance a loan. The decrease occurs because the first few months after refinancing are the most likely time for borrowers to miss payments. But the good news is that you can right this temporary drop by paying your bills on time. After a few months of regular payments, you’ll see your score return to normal.
Is Refinancing Worth It?
So, does refinancing a car hurt your credit? Yes, but only temporarily. Refinancing can be a blessing for many families who struggle with monthly payments. Even if your credit takes a slight, temporary drop, you need to ask yourself if the benefits outweigh the drawbacks.
Refinancing is an excellent tool if you pay your bills on time and simply want to take advantage of a better payment period or interest rate. Any temporary negatives will quickly subside with regular payments, and you can enjoy lower monthly payments or a lower interest rate long after your score returns to normal.