What is Refinancing?
Refinancing is a process of replacing an existing loan with a new one. The idea is to take the new loan and use it to pay off your current debt. However, it is important to understand that even if you refinance, your loan balance will not change. Meaning, you will need to continue to make payments. Also, if any collateral was used for the loan, it will likely still be required for the new one. Should you choose to refinance, you will want to make sure that the new loan has better terms that will benefit your situation.
There are disadvantages that you should be aware of before choosing to refinance. At times, there are costs to refinance. These costs can come in the form of transaction fees and increased interest rates. Make sure that you review all the fine print before you sign anything!
How will refinancing affect your credit score?
Refinancing will result in a hard inquiry being added to your credit report. But, credit inquiries only stay on your credit score for one year. In fact, the impact an inquiry has on your credit score diminishes after just a few months. So, if you do not add many inquiries to your credit report at once, your score will only drop a few points. The credit-scoring bureaus count all inquiries by mortgage companies and car lenders as just one inquiry, so long as they occur within 45 days, so you may want to shop around and find the best loan possible.
Concerned About Your Credit or Debt?
You may not need to refinance. In fact, you have more options for managing your debt and credit than you might think. If you are looking at options to manage your debt, reach out to our office for a free consultation.