This is particularly true if you're extending your repayment term, because you could end up paying more interest over the life of the new loan. That said, it's crucial that you take your time to research all your options and understand both the short-term benefits and long-term costs associated with refinancing. Even if the loan terms are similar, it could be worth it if you want to get some cash out of your vehicle's equity and use it to pay off high-interest debt. It can be worth it to refinance your car loan if you can get better terms than your current loan. In fact, it can help you build your credit score over time. As long as you make your payments on time, refinancing your auto loan won't have a significant negative impact. With all that said, the most important factor in your FICO score is your payment history. Getting a cash-out refinance would increase the amount you owe, which can also have a slight negative effect. If you're approved and you sign the loan agreement, you'll open a new credit account, which can have a temporary negative impact on your credit score because it’s new credit, and it reduces the average length of your credit history. For credit scoring purposes, multiple loan inquiries in a short period of time will only count as one inquiry, so you can shop around for a period of 14 or 45 days (depending on credit score model) without fear of damaging your credit. According to FICO, each additional inquiry typically takes only a few points off your credit score, and after a year, inquiries don't affect your score at all. When you apply to refinance an auto loan, the lender will typically run a hard credit inquiry. Then, set up automatic payments with the new lender to ensure on-time payment going forward. Set up payments: Keep making your current loan payments until you've confirmed that the old loan has been paid in full.Review the loan agreement, including the fine print, then sign the contract. Accept the loan: After the lender has reviewed your application, it'll give you a final offer, which may or may not be the same as the preapproval quote.You'll need to provide basic information about yourself and your vehicle, your desired loan amount, and various documentation to prove your identity, your loan's payoff amount, your vehicle ownership, and more. Submit an application: Depending on the lender, you may be able to apply online, over the phone, or at a local branch.Compare terms: Once you've settled on a lender, compare its loan terms with the terms of your current auto loan to determine how much money you can save.
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