Refinancing a car loan can help you lower your interest rate, reduce your monthly payment or adjust the length of your loan. But before applying, you may have one important question:
Does refinancing a car hurt your credit score?
The short answer is that refinancing can cause a temporary change to your credit score, but the impact is usually limited. The potential short-term effect comes primarily from the credit inquiry and the way the new loan is reported. Making your new payments on time can help protect your credit over the long term.
If your financial situation or credit score has improved since you originally financed your vehicle, refinancing may be worth exploring. The key is to compare the new loan carefully and make sure the potential savings justify the costs and any changes to your loan term.
Key Takeaways
- Refinancing a car loan usually involves a credit check, which can result in a hard inquiry.
- Hard inquiries can temporarily affect your credit score, but they are only one part of your credit profile.
- Refinancing replaces your existing auto loan with a new loan rather than simply adding another car loan to your debts.
- Making every payment on time after refinancing is important for protecting your credit.
- Shopping for refinancing options within a short period can help limit the effect of multiple credit inquiries.
- A lower interest rate or more manageable payment may make refinancing worthwhile even if there is a temporary credit score change.
How Does Refinancing a Car Affect Your Credit Score?
When you refinance your car, your existing loan is generally paid off and replaced with a new loan. Because you are applying for new financing, the lender will typically review your credit.
You can learn more about the process in our guide to auto loan refinancing.
There are a few different ways refinancing can affect your credit report.
1. A hard credit inquiry may be added to your report
When you formally apply for refinancing, the lender may perform a hard credit check. A hard inquiry can have a small, temporary effect on your credit score.
However, one inquiry is generally not something you should be overly concerned about. TransUnion notes that inquiries tend to have less influence on credit scores than factors such as payment history, balances owed and length of credit history.
Canada.ca also recommends keeping applications for auto loans within a two-week period when shopping for financing, as credit bureaus treat these inquiries as one inquiry for scoring purposes.
That means you do not necessarily have to accept the first refinancing offer you receive. Comparing your options can be important when you're trying to determine whether refinancing will actually save you money.
2. Your existing loan may be reported as paid off
When the refinancing is completed, your original car loan is typically paid off and the new lender reports the new loan to the credit bureau.
This can result in your credit report showing a closed account and a new account.
The change does not automatically mean your credit score will drop significantly. Credit scoring models consider many pieces of information, and the effect of opening a new account can vary depending on your overall credit history.
If you're considering refinancing because your credit has improved since you bought your vehicle, you may want to review the key factors that influence your credit score before applying.
3. Your payment history continues to matter
The most important thing you can do after refinancing is continue making your payments on time.
Payment history is one of the most important factors in your credit score. Canada.ca recommends making payments on time and at least the minimum payment when you cannot pay the full amount.
A refinancing application might cause a small short-term change, but consistently missing payments on the new loan could have a much more serious effect on your credit.
If refinancing gives you a payment that is easier to manage, that may help you stay on track financially.
How Long Does Refinancing Affect Your Credit Score?
There is no exact number of points that everyone's credit score will drop after refinancing, and there is no guaranteed timeline for recovery.
The impact depends on your individual credit profile, the information reported by the lenders and the credit scoring model being used.
TransUnion says credit scores generally consider inquiries from the previous 12 months, while inquiries can remain visible on a credit report for longer.
The important thing is not to focus only on the temporary impact of the inquiry. Your overall payment history and debt management continue to matter after the refinancing is complete.
If your goal is to improve your credit over time, making consistent payments is far more important than avoiding one necessary credit application.
You can also learn more about how a car loan can improve your credit.
Does Refinancing a Car Hurt Your Credit More Than Getting a Car Loan?
Refinancing and getting a new car loan both involve applying for credit, so both can result in a hard inquiry.
The difference is what happens to the existing debt.
When you buy a vehicle with financing, you're generally taking on a new auto loan. When you refinance, the new loan is used to pay off your existing car loan.
That means refinancing does not necessarily mean you're suddenly carrying two car loans. The old loan is generally replaced by the new one.
If you're considering refinancing because your credit has improved since your original financing, your improved credit profile may also help you qualify for different loan terms.
There is no single minimum credit score that guarantees approval for a car loan or refinance. Lenders can consider your credit history, income, existing debt, payment history and other information when reviewing an application. You can read more about the minimum credit score to get a car loan to understand how credit can factor into vehicle financing.
When Does Refinancing Make Sense?
The credit impact is only one part of the refinancing decision.
Before applying, look at your current loan and compare it with the new loan you're considering.
Refinancing may be worth exploring if:
- Your credit score has improved since you originally financed the vehicle.
- Your income has increased.
- You can qualify for a lower interest rate.
- Your current monthly payment is difficult to manage.
- You want to change the length of your loan.
- You want to reduce the total interest you pay.
- Your financial situation has changed since you first took out the loan.
Our guide to the requirements needed to refinance a car loan goes into more detail about what lenders may consider.
However, a lower monthly payment does not automatically mean you're saving money.
For example, extending your loan term could reduce your monthly payment while increasing the amount of interest you pay over the life of the loan. Always compare the total cost of both options.
Use a Car Loan Calculator Before Refinancing
Before deciding whether refinancing makes sense, calculate what your current loan is costing you and compare it with the potential new payment.
You can use our car loan calculator to estimate payments based on different loan amounts, interest rates and terms.
It's also worth reviewing how loan terms affect your car payments and understanding the factors that determine your monthly car payment.
Looking at the total cost of the loan is especially important if you're considering extending the repayment period.
How to Refinance a Car Loan Without Unnecessary Damage to Your Credit
You cannot completely eliminate the possibility of a hard inquiry when applying for refinancing, but there are steps you can take to keep the process organized.
1. Check your credit before applying
Start by reviewing your credit report and checking for errors.
Canada.ca recommends checking your credit reports with both Equifax and TransUnion so you can identify inaccurate information before applying for new credit.
If you find an error, consider addressing it before submitting a refinancing application.
2. Compare your current loan with the new offer
Write down your current:
- Interest rate
- Remaining balance
- Monthly payment
- Remaining loan term
- Total amount of payments remaining
Then compare those numbers with the proposed refinancing offer.
A lower monthly payment may look attractive, but make sure you understand whether the new loan term is longer.
3. Shop around within a short period
If you want to compare multiple refinancing options, try to keep your applications within a short period.
Canada.ca says that when shopping for a car loan or mortgage, inquiries made within a two-week period are treated as one inquiry by credit bureaus.
TransUnion also states that most scoring models take steps to prevent multiple inquiries from shopping for an auto loan from unnecessarily lowering your score.
4. Avoid unnecessary new credit applications
If you're already applying for refinancing, consider whether you need to open additional credit accounts at the same time.
Multiple new applications can create additional inquiries and new accounts, which can make your credit profile look different in the short term.
5. Keep making your current payments
Do not stop making payments on your existing car loan simply because you're applying to refinance.
Continue following your existing loan agreement until the refinancing has been completed and the old loan has been paid off.
Once the new loan is active, continue making every payment on time.
What If You Have Bad Credit?
You may still be able to refinance a car loan with less-than-perfect credit, although your options and potential interest rate will depend on your individual circumstances.
If your credit score has improved since you originally financed your vehicle, refinancing may be worth investigating.
If your credit has declined, refinancing could be more difficult or may not provide the savings you're looking for.
If you're currently dealing with bad credit, read our guide on how to get a car loan with bad credit in 2026 for more information about how lenders may evaluate your application.
For borrowers who are actively working to improve their credit, our guide on how to rebuild your credit with a car loan in Canada covers strategies for building a stronger payment history.
Is Refinancing Worth a Temporary Credit Score Drop?
A temporary credit score change should be considered as part of the overall refinancing decision, rather than the only factor.
Suppose refinancing allows you to reduce your interest rate and save money while maintaining an affordable payment. In that case, the potential financial benefit may be worth considering even if your credit score changes temporarily.
On the other hand, if refinancing only lowers your monthly payment because you're extending the loan significantly, you could end up paying more interest overall.
The goal should be to compare the complete cost of the new loan, not simply look at the monthly payment.
You can also review current car loan rates before deciding whether refinancing is worth exploring.
Frequently Asked Questions
Does refinancing a car hurt your credit score?
Refinancing can cause a temporary change to your credit score because applying for a new loan can result in a hard credit inquiry and a new account being reported. The effect varies by individual and credit scoring model.
How many points does refinancing a car take off your credit score?
There is no fixed number of points that refinancing will lower your score. The impact depends on your credit history, the information reported and the scoring model being used.
How long does a hard inquiry affect your credit score?
TransUnion says credit scores generally consider inquiries from the previous 12 months, although inquiries can remain visible on a credit report for longer.
Can refinancing improve my credit score?
Refinancing itself is not a guaranteed way to increase your credit score. However, making consistent, on-time payments on the new loan can contribute to a positive payment history.
Can I refinance my car if I have bad credit?
Possibly. Approval depends on the lender and your overall financial situation. Your credit score is one factor lenders may consider alongside income, debt, payment history and other information.
Should I refinance if my credit score has improved?
It may be worth exploring if your improved credit could help you qualify for better financing terms. Compare your current loan with the proposed refinancing offer to determine whether the potential savings justify making the switch.
Final Thoughts
So, does refinancing a car hurt your credit score?
It can cause a temporary change, particularly if the refinancing application results in a hard credit inquiry and your existing loan is replaced with a new account.
However, the impact is only one part of the decision.
If refinancing gives you a lower interest rate, a more manageable payment or better loan terms, it may still make financial sense. Before applying, check your credit, compare lenders, calculate the total cost of the new loan and make sure the payment fits comfortably within your budget.
If you're considering refinancing your car loan, apply with Car Loans Canada to explore your financing options.
