The decision to refinance your car loan is one that should be carefully considered before you go ahead with the move. After all, your financial circumstances may have changed, or you may be switching to another lender who sets out different provisions and terms from your existing financier. Not to mention, there are usually costs involved with refinancing a car loan as well.
But what about your credit history? This should always be at the front of your mind any time you take on a new financing commitment, as it will stay with you for years thereafter. Does refinancing a car loan impact your credit?
In the short term
Refinancing your car loan is more likely to have an impact in the short term than in the long run. Even then, it should not have a significant bearing on your credit history, since this is more likely to be shaped by the circumstances leading up to that point. That is, whether you have been making repayments in full and on time, among your other financial commitments as well.
When you apply to refinance your car loan, you will want to ensure that your credit score is as high as possible. The financier processing the new application will ultimately look at your employment history and the duration you have been at your current residence, so make sure that your history reflects a stable lifestyle. At the same time, be wary of applying for multiple lines of credit around the time you seek to refinance your car loan, otherwise it is likely to raise red flags with the lender.
In the long run
The long-term implications of refinancing your car loan will ultimately be dictated by your ability to service the new loan. If you are switching to a loan that offers lower interest rates, then your repayments should be less and in theory it should be easier for you to meet your obligations – notwithstanding any unforeseen circumstances.
Now that credit reporting takes into account ‘positive’ data, a consistent history of making repayments could actually help you improve your credit score in the long run. On the flip side of that however, you need to be vigilant and keep this up, because even a small slip up has the potential to overshadow months if not years of great progress.
If you decide to go ahead with refinancing your car loan, be aware of these considerations. Each person is likely to have different aspects to consider, so make sure that you seek out individual advice to understand how your credit history might be affected.
The Fincar team is here to help you with all your financing needs. Contact us today to help arrange your next car or equipment loan.