Auto Loans

Refinancing your auto loan can help you lower your monthly payment and/or lower your interest rate. If you are struggling to make your monthly payments, have several years left on a high-interest loan, or are just shopping around to see if you would qualify for a lower rate, you may benefit from an auto loan refinance.

Keep in mind that while a lower monthly payment would make it easier to manage your finances, you may end up paying more in interest over the life of the loan. It is important to crunch the numbers and consider your 0verall financial situation before making a refinance decision.

Lenders will typically run a soft inquiry on your credit before presenting offers and current rates; this will not affect your credit score. However, if you move forward and submit an auto loan refinance application, your credit score will take a hit (up to 20 points). Other factors like the number of credit inquiries, overall debt balances, and other items reported in your credit profile may impact it further. It is important to note that this inquiry will most certainly fall off after 2 years and on-time payments will actually help you build credit and strengthen your credit profile.

In addition, inquiry clustering typically allows multiple inquiries to be counted as one inquiry for a given period of time. This period may vary depending on the credit scoring methodology used but can last anywhere from 14 to 45 days. It is always a good idea to confirm this with your lender before submitting subsequent auto loan applications.

Lenders will typically ask for the applicant's driver's license, social security number, vehicle registration, vehicle identification number (VIN), auto insurance, proof of income, proof of residence, and loan payoff letter. The exact list of documents will vary by lender and can change if underwriters request additional information. It is always a good idea to review your lender's application requirements prior to submitting your auto loan refinance application.

This really depends on your cash availability and your willingness to take on new credit.

If you have a lot of cash on hand and do not want to pay interest to a potential lender, you may be better off buying your car with cash. Also, if you plan on taking on a mortgage in the next few months and are hesitant to add another inquiry to your credit profile, cash might be a good option as well.

If you do not have a lot of cash on hand or prefer to finance your car purchase so you can have more cash available for other uses, financing is a great option. Auto loans tend to offer low-interest rates, flexible payment terms, and affordable monthly payments. Most individuals end up financing their car purchases and are usually happy that they did.

Yes. Financing will lower your credit score in the short term, as you observe a new hard inquiry and new loan balances on your credit profile. However, as you make regular, on-time monthly payments to pay down your balances, your credit score recovers, and your credit profile becomes stronger. 

Credit bureaus like to see a variety of credit products in a borrower's credit mix. Having an auto loan offers a different type of credit (installment loan) when set next to all of the typical credit products that most individuals have (i.e. credit cards).