Regardless of your reasons for considering auto refinance, it is important to understand the procedures that accompany it. The purpose of refinancing your vehicle is to land you better terms compared to your existing loan. Since it’s only natural to question what happens when you refinance a car loan, we have broken it down for you.
A Huge Chunk of Responsibility Will Be Off Your Shoulders
When you find a new lender who’s willing to offer you a better deal, they will pay your old loan off. This way, you will only need to focus on your new loan. However, make sure to ask for proof such as documentation proving a transaction was made.
The Lender Will Inspect Your Credit Report
Car refinancing does not have a negative impact on your score unless you're applying for additional accounts in a short period of time. However, there are several things related to auto refinance that may affect your score, such as:
- When you get a new loan, all the credit bureaus will note it as a new account.
- Having too many new accounts in a short time period can negatively impact your score.
There Is a Minimal Fee Requirement
Even though the costs associated with auto refinancing are not huge, an application fee is charged for different reasons. For instance, your lender may charge a small fee for pulling data on your vehicle or your credit. There may also be a fee for shifting the title to your new lender from the current one.
All in all, getting a new loan means updated terms and a new interest rate. While it does give you the liberty to be in a better place than your current loan, you should still shop carefully.
When you explore the market, you'll find several lenders who can offer you something better than what you have, but it doesn't mean you should settle for the first offer you get. Carefully consider your circumstances and take all important factors into account, such as the model of your car, its mileage, your credit score history, your interest rate preferences, and of course, an ideal duration to pay off your new loan.
In the end, an auto refinance is solely your decision, and if you're not getting a favorable deal, it's better to stick to your existing loan.