Many people could benefit from better auto loan terms, but is refinancing the best route to take?
There is a great deal of confusion surrounding a car refinance. There are situations where refinancing offers numerous benefits, primarily when it reduces the overall cost of purchasing a vehicle.
Anyone with an auto loan should consider the advantages of refinancing. However, before you invest in the process, take a closer look at a few key points, including whether a car refinance will hurt credit.
What is a Car Refinance?
A car refinance is the process of paying off an existing auto loan with a new loan.
The new loan has new terms including a different interest rate, monthly payment, and repayment term. This can make big changes to your loan and the length of time it takes you to pay off your debt.
The terms you select for the new loan will ultimately determine whether the process is worthwhile and how much, if any, money the car refinance will save you.
Refinancing an auto loan may offer several advantages, but it does not always provide the best outcome. You may not benefit if the value of your car is less than what you currently owe. You also need to meet the same, if not more, credit qualifications, on the new loan.
If you have a good credit score and can show employment history, refinancing can be a good decision.
Car Refinance Benefits
There are several reasons to refinance an auto loan. You should decide what your goal is for refinancing. It may be to decrease your monthly payment. Or perhaps you want to to reduce the overall cost of the loan. Here’s what to consider.
Lower Interest Rate
One of the best ways to save money on a current car loan is to secure a new loan with a lower interest rate. If your credit score has improved since you obtained the loan, you may qualify for a lower rate. A lower rate can:
- Lower your monthly payment
- Reduce the total cost of buying your car
Sometimes, a lower interest rate is not available. A car refinance can still offer other benefits because it gives you new terms. Consider the following advantages:
- Lengthen the repayment time, reducing your monthly payments
- Change the amount of your payment
- Lock in a steady payment schedule
Does a Car Refinance Hurt Credit?
A car refinance does not necessarily hurt your credit. Since each time your credit is pulled by a lender it counts as a hard inquiry on your credit, you should avoid applying to numerous companies at one time to refinance. This can definitely hurt credit.
Here are a few other things to keep in mind:
- Don’t try to refinance your loan too many times.
- If you obtain a new loan, making payments on time can rebuild hurt credit.
- If you do not qualify to refinance right now, be sure to work to pay off your debt on time.
You can always ask a lender for a rate quote on a car refinance without checking your credit score. This gives you all of the information you need to compare offers without a hard inquiry.
What to Know Before Deciding to Refinance Your Car Loan
Before you decide on a car refinance, carefully review the terms of the new offer. Ask yourself the following questions…
Does it provide you with a lower interest rate?
Is it going to save you enough money to make the process worthwhile?
What are the out of pocket closing costs?
Car Refinance in Baltimore, MD
Once you have obtained all of the necessary information, you can make a sound decision about whether a car refinance is the right step for you. You’ll be armed with the knowledge of what to look for in a lender, as well as what is desirable in an offer. This helps you avoid applying for loans that could hurt credit.
At Atlantic Financial FCU in Baltimore, MD, our lenders are ready to assist in your car refinance with terms and conditions that won’t hurt credit.