• If interest rates have dropped since you took out the loan, you may qualify for a better APR, immediate interest savings, and lower monthly payments.
• If you need to free up cash for higher monthly bills or an emergency expense, refinancing can help relieve your financial pressures.
• If you have improved your credit score since you initiated your loan, you’ll now have more flexibility — to lower your rate, extend your loan, or even pay it down faster.
So far, so good. But it’s also essential to consider other factors before refinancing, some not quite as obvious. Refinancing can potentially lower your credit score as calculated by the FICO or VantageScore scoring models. Most risk-sensitive lenders require a hard pull of your credit report, and those pings to your credit can often linger for up to one year. Also, since refinancing replaces an existing loan, you are still classified as taking on a new debt. That typically causes your credit score to drop. The resale value of your car, SUV, or light truck is also a factor.
Before you decide to refinance, check valuations from Kelly Blue Book or Edmunds to determine your vehicle's worth. If it is worth less than what you owe due to age, condition, accident damage or more, your position is considered underwater or upside down—and refinancing may prove difficult. It’s also a bad idea to refinance if you are planning to seek a mortgage or college loan in the year ahead. Avoiding any new credit applications can help you present your best possible score when applying for that loan. Finally, if you are just-this-close to paying off your current loan, the benefits of taking a new loan and pinging your credit, however temporary, may not be worth it.
Certainly, refinancing your vehicle at historically low interest rates is a great opportunity if your credit is strong. But even if it’s not, that’s where RateWorks really shines. RateWorks helps drivers across the credit spectrum.
There is only a soft pull on credit when we help you to determine the best available rate and terms, and a hard pull only when you are approved, agree to the new loan terms and ready for funding. That means — even for individuals with bad or challenged credit — refinancing with RateWorks enables you to get back on track and actually strengthen your credit history. Is refinancing a no-brainer? In most cases, yes.
We help make that decision easy because no personal information is required for RateWorks to create a quote, there’s no penalty for repaying your existing loan and we’ll help you understand exactly how your credit will be impacted.
And if you like what you see and hear, you’ll have the opportunity to complete an application on the spot. If you're still unsure whether refinancing your car with RateWorks is for you check out our other article on why refinance your auto loan? or lets' help debunk the many myths about refinancing and set you on a path to financial success.