Refinancing your auto loan can be a smart way to reduce your monthly payments or lock in a lower interest rate. But what many people don’t realize is that your credit score affects the kind of rate you can get, and that the process itself can slightly impact your credit. Here we’ll break down how your credit score influences your refinance options, what to expect during the process, and how to minimize any temporary credit effects when you want a low auto refinance rate.
How Your Credit Score Affects Auto Refinance Rates
Your credit score is one of the key factors lenders use to determine your refinance rate. Here’s a general idea of what to expect based on credit tiers:
- Excellent (750+): Typically qualifies for the lowest interest rates available.
- Good (700–749): Still competitive rates, though slightly higher than top-tier.
- Fair (640–699): Moderate interest rates; refinancing may still be beneficial.
- Poor (below 640): Higher interest rates; may not save much unless the original loan was worse.
That’s why it’s important to know your credit score before you begin shopping for refinance options.
Why Refinancing Can Impact Your Credit (Slightly)
Although the potential benefits are real, refinancing a car loan can affect your credit score in a few ways:
Hard Credit Inquiry
Lenders typically perform a hard inquiry when you formally apply for refinancing. According to FICO, each inquiry can lower your credit score by up to 5 points. While this drop is small, it’s worth being aware of — especially if you’re planning to take out other loans soon.
New Credit Account
If approved, the new refinance loan will appear on your credit report. Even though it replaces an old one, it still looks like new debt to the credit bureaus initially, which could slightly reduce your score.
Shortened Average Account Age
Refinancing closes your original loan, which could lower the average age of your credit accounts. This is a minor factor in most scoring models but can still influence your score a bit.
Minimizing the Impact on Your Credit Score
You can take a few proactive steps to reduce the effect refinancing has on your credit:
Use Pre-Qualification Tools
Before submitting full loan applications, look for lenders that offer pre-qualification using a soft credit check. These don’t impact your score and can give you an estimate of the rates you may qualify for.
Apply Within a Focused Time Window
If you’re shopping around, apply to all potential lenders within a short period — 14 days for VantageScore and up to 45 days for FICO. Credit scoring models typically treat multiple auto loan inquiries made during these periods as a single inquiry.
Make On-Time Payments
After refinancing, focus on making all your loan payments on time. This will help your credit score rebound and even improve over time.
Contact a Credit Union for Low Rate Auto Refinance
Your credit story matters—and at a credit union, they get it. You will find low auto refinance rates that match your credit journey. Whether your score is strong or still recovering, they can help you pre-qualify without impacting it. Lower your rate and boost your savings!
