Auto Loans With No Credit

Refinancing Your Car After a No Credit Car Loan – Good Idea?

Refinancing your car makes a great deal of sense if you are able to get a lower interest rate. Just one percent can save you hundreds of dollars over the life of a loan while improving your debt to income ratio for possible additional loans in the future.  For many people who start out with a no credit car loan (learn more here), refinancing becomes an option after a couple of years of establishing a favorable credit history through timely repayment.

Refinancing Can Impact Your Credit

Many people look at that as the only consequence of refinancing, but your credit score can be affected as well. Here’s how.  Auto loan refinancing requires a hard check of your credit score. Each hard check lowers your credit score a few points for up to three months, but the check remains part of your credit report for two years. This is a minor hit as long as you only apply for one loan. Applying around town to get the best rate can be quite harmful and drop you from prime to subprime credit for a short time. If you are approved, the lender will close one loan before opening the second, so it will only look as if you have one line, making things equal in the end, so that is good.

Refinancing will help you in the end, but you have to take care. Pull your credit score, shop for loan rates before applying, and be prepared to wait a few months if there is something on your credit report that needs fixed. If you are careful, auto loan refinancing will improve your credit score, if not it can tear down years of hard work.