How Does Car Loan Refinancing Affect Your Credit

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, - May 27, 2016

When you look into car loan refinancing, you may be concerned with how it will impact your credit score. Most people refinance auto loan costs to lower their payments or overall debt with a company, because they foresee problems making payments in the future. If you’re worried about what a refinance will do to your credit, consider the information below.

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Changes In Your Trade Line

When you start the refinancing, it adds and subtracts what is called a trade line from your credit. Whenever a loan is refinanced, there is one lender that is being paid off in full and then another one comes into the picture with a new hold on the car. This change is noted on your credit, but it has no negative impact. All credit lines on your credit report will be updated on a monthly basis. This gives the rating agencies an idea on how you might be taking care of your debt load.

Possible Problems with Refinancing

One way that you may not realize that could adversely affect your credit is if the new company fails to pay off the entire amount of the old loan. If you are not aware of this and the old loan is neglected, it will go into default and your credit will suffer accordingly. The chances of this are rare, though.

The biggest thing that will affect your credit is if you fail to pay the new loan and default on it. This will always have an adverse affect on your credit and immediately lower your credit score with rating agencies.

Benefits of Refinancing

Generally, refinancing your car should not have an adverse affect on your credit. As long as you pay off the loan as you did previously, you will get the positive credit of the monthly payments and the peace of mind knowing that you don’t have as much to pay every month.

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