When looking for loan opportunities, sometimes interesting questions might come up like, “Can an auto refinance loan help my credit score?” The truth is, there are many ways that an car refinance loan can both help and hurt your score. Scratching your head as to why this might be the case? Let’s take a closer look at this dynamic.
What is an Auto Refinance Loan?
Before we get into why an auto refinance loan is helpful or hurtful, we need to take a look at just what it is. An auto refinance loan is one that allows you to buy out your current auto loan and begin making payments on a new one. Why would you want to take out an auto refinance loan? You may want to secure a lower interest rate, however, and are unable to with the current loan you have. By refinancing your loan, you have the opportunity to secure that lower rate, and essentially begin paying lower monthly payments.
Why Refinancing Is Helpful to Your Credit Score
Like with any other loan opportunity, when you refinance you are establishing credit. This means you are attempting to show your level of responsibility in managing it. If you manage it well, making your payments on time, you can improve your credit score. However, if you don’t, this could spell trouble for you.
Why Refinancing Is Hurtful to Your Credit Score
On the other hand, as mentioned previously, if you don’t make your payments on time, or somehow default completely then you will hurt your credit more quickly then you could ever help it by paying on time. If you never make your payments, the financial institution will come for their vehicle. Then you will have a repossession on your credit report – you definitely do not want that!
As you can see, while it’s easy to help your credit with an auto refinance loan, it’s even easier to hurt it. So know that you can actually manage your loan before you take it out or your could begin traveling down a fast path to credit destruction.