Do they run your credit when you refinance?
Whenever you refinance a loan, your credit score will decline temporarily, not only because of the hard inquiry on your credit report, but also because you are taking on a new loan and haven't yet proven your ability to repay it.
When you refinance, you'll generally want to shop around with different lenders to find the best loan terms possible. However, remember that when you apply for a loan and the potential lender reviews your credit history, it results in a “hard inquiry” on your credit reports.
Although the hard credit checks associated with your auto refinance application will remain on your credit report for two years, most credit scoring models only consider inquiries made within the past 12 months. Generally, the impact of credit checks on your credit score is minimal — around 5 points.
Refinancing a car can temporarily lower your credit score, but the benefits could outweigh a slight dip in your score. Shannon Bradley is a NerdWallet authority on auto loans.
Usually, lenders will check your credit twice when refinancing: once when you formally apply for the new mortgage — to determine what APR to give you, based on your borrower profile — and again right before the closing, to make sure nothing has changed in the interim.
You don't need a down payment to refinance, but you'll likely have to come up with cash for closing costs. Some lenders let you roll closing costs into the mortgage to avoid upfront expenses. You can also try negotiating with the lender to waive them.
The downsides to auto loan refinancing can include paying lender fees and additional interest if you extend the loan term or cash out auto equity. You could also end up owing more than your car is worth.
Refinancing and extending your loan term can lower your payments and keep more money in your pocket each month — but you may pay more in interest in the long run. On the other hand, refinancing to a lower interest rate at the same or shorter term as you have now will help you pay less overall.
Why do I owe more on my car after refinancing? Refinancing may result in owing more over the course of your auto loan if a change in the loan term length, removing a co-borrower, credit score, payment amount, or interest rate contributes to a higher overall cost.
This may be a good move if you secure higher returns than the interest rate on your refinanced mortgage. But keep in mind that there is a risk of loss with every investment. If you refinance, then lose money, you will end up in a worse financial position than if you had not refinanced.
What do you lose when you refinance?
For example, when refinancing your mortgage, there will be closing costs to be paid as part of the process. If you opt to have the closing costs rolled into the new mortgage, you're augmenting the mortgage balance — the amount you owe — and thus diluting your equity — the amount you own.
The main benefits of refinancing your home are saving money on interest and having the opportunity to change loan terms. Drawbacks include the closing costs you'll pay and the potential for limited savings if you take out a larger loan or choose a longer term.
FHA lenders offer refinance loans with scores as low as 500, but they charge higher interest rates to offset the risk that you might not be able to make the payment. However, even if you have a high score, your credit might be considered “bad” because of a recent foreclosure or bankruptcy.
Cash-out refinance
On a cash-out conventional refinance, you'll need a 640 credit score at minimum. To qualify with a 640, you will need a loan-to-value ratio of 75% or less, at least six months in cash reserves, and a debt-to-income ratio of 36% or lower.
In many cases, lenders will set a minimum 620 credit score to qualify you for a home equity loan — though the limit can be as high as 660 or 680 in some cases.
If you are buying a home with a mortgage, you do not have a right to cancel the loan once the closing documents are signed. If you are refinancing a mortgage, you have until midnight of the third business day after the transaction to rescind (cancel) the mortgage contract.
Clear-to-close buyers aren't usually denied after their loan is approved and they've signed the Closing Disclosure. But there are circ*mstances when a lender may decline an applicant at this stage. These rejections are usually caused by drastic changes to your financial situation.
Moving debt around is not the same as paying it off. It can also backfire if you are unable to pay the larger loan balance and risk losing your home. If you're having trouble paying consumer debts, think twice before putting your home on the line.
The bottom line. You don't have to lose any equity when you refinance, but there's a chance that it could happen. For example, if you take cash out of your home when you refinance your mortgage or use your equity to pay closing costs, your total home equity will decline by the amount of money you borrow.
Conventional refinance: For conventional refinances (including cash-out refinances), you'll usually need at least 20 percent equity in your home (or an LTV ratio of no more than 80 percent).
Are there closing costs on a refinance?
When you refinance, you are required to pay closing costs like those you paid when you initially purchased your home. The average closing costs on a refinance are approximately $5,000, but the size of your loan and the state and county where you live will play big roles in how much you pay.
In most instances, yes, you can trade in a car with a loan, and some dealers might roll your remaining balance into a new loan. But trading in your car doesn't make your loan disappear. You will still have to pay off the remaining loan balance that your trade-in amount doesn't cover.
A good interest rate for a car loan is typically below 5.18% for new cars and 6.79% for used vehicles.
Lenders have specific requirements regarding the age and mileage of cars they're willing to refinance, and some lenders won't refinance a loan that's too close to the end of its term. Generally, if your car is older or has high mileage, lenders may offer you a higher interest rate, if they offer refinancing at all.
What is a good interest rate for a 72-month car loan? An interest rate under 5% is a great rate for a 72-month auto loan.
